Synthesis Report on Feasibility Assessment for the Implementation of RRR business models proposed for Bangalore July, 2015 Resource Recovery and Reuse (RRR) Project 1 Contributing Authors (in alphabetical order): Compiled by: Patil Balachandra1 M.H. Bala Subrahmanya1 Guéladio Cissé2, 3 George Danso4 Luca Di Mario5 Alexandra Evans6 Samuel Fuhrimann2, 3 Bobby Joseph7 Avinash Krishnamurthy8 Ganesha Madurangi4 Miriam Otoo4 Parthasarathy Ramachandran1 B. Ramakrishna Goud7 Krishna Rao4 Anselm Rosario9 Sandipan Sarangi9 Lars Schoebitz5 M. Shashi Kumar7 H. S. Sudhira1 Avinandan Taron4 Samyuktha Varma8 S. Vishwanath8 Martin Wafler10 Mirko Winkler2, 3 Miriam Otoo4 Krishna Rao4 Avinandan Taron4 Affiliations: 1Indian Institute of Science, Bangalore, India 2Swiss Tropical and Public Health Institute, Dept. of Epidemiology and Public Health, Switzerland 3University of Basel, Switzerland 4International Water Management Institute (IWMI), Sri Lanka 5Swiss Federal Institute of Aquatic Science and Technology (Eawag) - Department of Water and Sanitation in Developing Countries (Sandec), Switzerland 6Loughborough University, Water Engineering and Development Centre (WEDC), U.K. 7CBCI Society for Medical Education, and St. John's Research Institute, a Unit of CBCI Society for Medical Education Bangalore, India 8Biome Environmental Trust, India 9International Centre for Water Management Services (CEWAS), Switzerland 10WasteWise Trust, India Correspondence to Dr. Miriam Otoo: E-mail: m.otoo@cgiar.org This report is an output as part of the research project on Resource Recovery and Reuse: From Research to Implementation funded by the Swiss Agency for Development and Cooperation. mailto:m.otoo@cgiar.org 2 Table of Contents Table of Contents .................................................................................................................................... 2 List of Tables ........................................................................................................................................... 4 List of Figures .......................................................................................................................................... 5 Abbreviations .......................................................................................................................................... 6 Executive Summary ................................................................................................................................. 8 1 Introduction .................................................................................................................................. 14 1.1 Overview of Research Project ............................................................................................... 14 1.2 Methodology for Feasibility Studies ..................................................................................... 15 2 Key findings of Waste and Availability Analysis ............................................................................ 19 3 Key findings of Market Assessment .............................................................................................. 22 3.1 Introduction .......................................................................................................................... 22 3.2 Methodology ......................................................................................................................... 23 3.2.1 Overview of Methodology ............................................................................................ 23 3.2.2 Study Area and Data ..................................................................................................... 25 3.3 Results of the Market Assessment ........................................................................................ 25  Model 1: Dry fuel manufacturing: Agro-waste to briquette ................................................. 25  Model 4: Onsite energy generation by sanitation service providers and Model 6: Power capture model - Livestock waste to energy .......................................................................... 26  Model 8: Wastewater-fed Aquaculture (phyto-remediative wastewater treatment and fish production) ........................................................................................................................... 26  Model 9: Cost recovery - Treated wastewater for irrigation, fertilizer and energy and Model 10: Informal to formal trajectory in wastewater irrigation....................................... 27  Model 15: Large-scale composting for revenue generation (MSW-based compost), Model 16: Decentralized MSW composting and Model 17: High value fertilizer production for profit (faecal sludge-based fertilizer) ................................................................................... 28 4 Key findings of the Institutional and Legal Analysis ...................................................................... 31 4.1 Institutional Arrangements for Waste Management ........................................................... 32 4.2 Institutional Support for RRR ................................................................................................ 33 4.3 Business Models .................................................................................................................... 34 4.4 Conclusion ............................................................................................................................. 37 5 Key findings of Technology Assessment ....................................................................................... 39 6 Key findings of the Financial Analysis ........................................................................................... 42 6.1 Introduction .......................................................................................................................... 42 6.2 Methodology ......................................................................................................................... 42 3 6.3 Financial Synopsis of the RRR Business Models .................................................................... 43 6.3.1 Energy Business Models ................................................................................................ 44 6.3.2 Wastewater Reuse Business Models ............................................................................ 44 6.3.3 Nutrient Business Models ............................................................................................. 45 6.4 Summary assessment of financial feasibility of RRR Business Models ................................. 46 7 Key findings of the Health Risk and Impact Assessment .............................................................. 50 7.1 Introduction and methodology ............................................................................................. 50 7.2 Evidence-base of the HRIA .................................................................................................... 50 7.3 Summary of findings of the literature review and in-depth studies..................................... 51 7.4 Key findings of the HRA ......................................................................................................... 53 7.5 Key findings of the HIA .......................................................................................................... 54 8 Key findings of the Environmental Assessment ............................................................................ 57 9 Key findings of the Socio-Economic Assessment .......................................................................... 60 9.1 Introduction .......................................................................................................................... 60 9.2 Methodology ......................................................................................................................... 60 9.3 Overall approach of the socioeconomic assessment: Defining the system boundary of the models .................................................................................................................................. 62 9.4 Synopsis of the socioeconomic assessment of the RRR business models ............................ 64 9.4.1 Energy Business Models ................................................................................................ 64 9.4.2 Wastewater Reuse Business Models ............................................................................ 65 9.4.3 Nutrient Business Models ............................................................................................. 66 9.5 Summary assessment of financial feasibility of RRR Business Models ................................. 67 10 Synthesis of Feasibility Studies ................................................................................................. 71 10.1 Methodology for the Ranking of the Business Models ......................................................... 71 10.2 Synthesis of feasibility ranking of business models .............................................................. 74 11 Annex 1: Linking Research and Business Development ............................................................ 83 12 Annex 2: MCA Framework ........................................................................................................ 84 13 References ................................................................................................................................ 86 4 List of Tables Table 1: Overall feasibility ranking of the business models .................................................................. 12 Table 2: Selected RRR Business Models for Feasibility Testing in Bangalore ....................................... 17 Table 3: Rating of feasibility of business models from a ‘Waste Supply and Availability’ perspective and recommendations for Bangalore .................................................................................... 20 Table 4: List of RRR business models and related products ................................................................. 23 Table 5: Overall feasibility of the selected RRR business models from a market perspective ............. 30 Table 6: Feasibility Assessment of Business Model from an Institutional Perspective ........................ 35 Table 7: Summary of business models under consideration for Bangalore ......................................... 40 Table 8: Energy Business Models .......................................................................................................... 44 Table 9: Wastewater Reuse Business Models ...................................................................................... 44 Table 10: Nutrient Business Models ..................................................................................................... 45 Table 11: Feasibility ranking methodology ........................................................................................... 46 Table 12: RRR Business Models Feasibility ........................................................................................... 47 Table 13: Summary table of anticipated health impacts and their respective magnitude .................. 54 Table 14: Summary of business models under consideration for Bangalore ....................................... 58 Table 15: Baseline and Alternative Scenarios used for the Socioeconomic Assessment for the different Business Models .................................................................................................... 62 Table 16: Energy Business Models ........................................................................................................ 65 Table 17: Wastewater Reuse Business Models .................................................................................... 65 Table 18: Nutrient Business Models ..................................................................................................... 66 Table 19: Feasibility Ranking Methodology .......................................................................................... 67 Table 20: Synopsis of Socioeconomic Feasibility RRR Business Models ............................................... 68 Table 21: Methodology for the Ranking of the Feasibility of the Business Models ............................. 73 Table 22: Level of feasibility of the business models ............................................................................ 81 5 List of Figures Figure 1: Research Framework for the Project ..................................................................................... 14 Figure 2: Framework for Feasibility Studies .......................................................................................... 16 6 Abbreviations AIW Agro-Industrial Waste AM Animal Manure BBMP Bruhat Bengaluru Mahanagara Palike BCR Benefit to Cost Ratio BMDT Business Model Development Training BMs Business Models BWSSB Bangalore Water Supply and Sewerage Board CCPs Critical Control Points CDD Society Consortium for DEWATS Dissemination Society CSR Corporate Social Responsibility CTW Constructed Treatment Wetland DALYs Disability Adjusted Life Years DOE Department of Energy DWCC Dry Waste Collection Centres DWCC Decentralised Waste and Composting Center ECOSAN Ecological sanitation eERG Energy and Environment Resource Group Inc. EIA Environmental Impact Assessment ESCO Model Energy Services Company Model FGDs Focus group discussions FS Faecal Sludge HIA Health Impact Assessment HRA Health Risk Assessment HRIA Health Risk and Impact Assessment iDeCK Infrastructure Development Corporation (Karnataka) Ltd. INR Indian Rupees IRR Internal Rate of Return KCDC Karnataka Compost Development Corporation KREDL Karnataka Renewable Energy Development Limited KSBDB Karnataka State Bio-fuel Development Board KSDA Karnataka State Department of Agriculture KSPCB Karnataka State Pollution Control Board KUIDFCL Karnataka Urban Infrastructure Development and Finance Corporation Limited LPG Liquid Petroleum Gas MC Market Concentration MCA Multi-criteria Assessment MID Minor Irrigation Department MLD Million Litres per Day MNRE Ministry of New & Renewable Energy MSW Municipal Solid Waste MW Market Waste NFHS National Family Health Survey 7 NGOs Non-governmental Organizations NMP National Master Plan NPV Net Present Value OFMSW Organic Fraction Municipal Solid Waste P&L Profit and Loss PIL Public Interest Litigation PM Particulate Matter PPE Personal Protective Equipment R&D Research and Development RoI Return on Investments RRR Resource Recovery and Reuse SCP structure–conduct–performance SS Sewage Sludge SSP Sanitation Safety Plan STEP Specific Topic Entry Page STH Soil-transmitted Helminthic STPs Sewage Treatment Plants SW Solid Waste SWM Solid Waste Management ULBs Urban Local Bodies WHO World Health Organization WTE waste-to-energy WTP Willingness To Pay WW Wastewater WWTPs Wastewater Treatment Plants 8 Executive Summary This report presents the results from the feasibility studies for the implementation of RRR business models interlinked with an assessment of health and environmental risks and mitigation measures for proposed waste reuse (resource recovery and reuse - RRR) business models in Bangalore, India. The feasibility studies conducted in Bangalore are a core of the research project and sought to explore across different settings the applicability, adaptability and comprehensiveness of the proposed business models in real-life settings; resulting in the strengthening of the methods and procedures, but also in view of scalability and viability. A key output of the feasibility studies are city-strategies for resource recovery and reuse and aim to provide recommendations for investment options and related health risk monitoring and mitigation measures. A 7-component multi-criteria assessment (MCA) framework was adopted to ensure that the assessment of the viability, applicability, scaling-up potential of implementing different RRR business models at scale was conducted from a holistic view, taking into consideration both micro- and macro- environment factors. The constituent criteria were: a) Waste supply and availability, b) Market assessment (demand quantification and product market assessment), c) Technological aspects, d) Institutional and legal settings and public support assessment, e) Financial viability assessment, f) Health and environmental risk assessment, g) Socio-economic impact assessment (valuation of economic benefits and assessment of additional externalities). Twelve (12) business models were selected for feasibility testing in Bangalore, covering several waste streams (faecal sludge, municipal solid waste (MSW), wastewater, agro-industrial waste) and resulting end-products categorized into energy and nutrient recovery and wastewater use. The business models were selected based on information from: a) a pre-feasibility study, b) feedback from stakeholder workshops and c) a no-go analysis based on information from baseline surveys. The selected business models had to have at least triple bottom line targets: high impact from a scalability and replicability perspective and catalyze innovation adoption. The feasibility of each model was then analyzed based on the MCA framework and for its overall potential feasibility based on a 4-level ranking system, i.e. whether it has: No feasibility Low feasibility Medium feasibility High feasibility The notion behind the ranking of the RRR business models is to provide different stakeholders, in particular, investors with an overview of the potential feasibility for implementation of the business models. Particularly, it provide insights on constraints, if any, possibly related to key resource factors, and the level of risk associated with their potential investments.The overall feasibility of the selected RRR business models is presented in Table 1 below. It is noted that the dry fuel manufacturing (agro- waste to briquettes), wastewater use for irrigation, energy and nutrient recovery, and MSW-based compost (models 15 and 16) have the highest feasibility potential for implementation in Bangalore. It is important to note however that some of the feasibility of some of the business models can be improved with some adaptation (e.g. use of strategic partnerships, consideration of alternative waste streams and institution of supportive policies). Only one of the energy business models was noted to be feasible for implementation in Bangalore - dry fuel manufacturing (agro-waste to briquettes). Its feasibility is attributable to several factors including: a) availability of waste input; b) growing market demand among households and industries; c) supportive institutional environment; and d) high financial viability. The results indicate that there is a fair market demand for agro-waste briquettes in Bangalore, although not substantial. Among the surveyed households (both urban and rural), none were currently noted to be using briquettes. Appropriate planning and marketing strategy will be required for new briquette businesses to gain a 9 share of the market, especially given that there is no significant demand supply gap for briquettes, although the estimated demand exceeds estimated supply. New briquette businesses also will need to accommodate customer expectations in terms of credit, delivery, and near nil expenditure for marketing by the current market players. Differential pricing can be instrumental in gaining market share, although its implementation needs to be studied in greater detail. There are also both policy induced factors and environmental factors that are representative of entry barriers for briquettes to penetrate the household sector. Government subsidies for existing competing products in the energy market (LPG and Kerosene) may pose a challenge to new briquette businesses, and thus appropriate product positioning and customer targeting would be essential to overcome the challenges posed by the subsidy. From an institutional perspective, there are supportive legislations and incentives for private sector engagement in the sector. The briquette business has been operational in India for some time now and these businesses have performed consistently well over a number of years resulting in a relatively stable market environment for the business model. The biggest challenge faced by these business has been the price of raw material (agro-waste) and a key necessity will be for future briquette businesses to build strong partnerships with farmers to supply agro-waste at a set price to reduce high input supply volatility. The low feasibility of the Onsite Energy Generation by Sanitation Service Providers (faecal sludge to electricity) model is mainly driven by a constraining market and institutional environment. Whilst the legislation permits the reuse of faecal sludge and also provides financial incentives for biogas plants from human waste, a key challenge primarily lies in the capacity of BBMP to actually manage the public toilets. Additionally, the electricity market is heavily regulated and monopolized by state agencies. Private participation although present is very limited and permitted only for certain aspects of power generation. Pricing of electricity is negotiated between the private entrepreneurs and the respective electricity reforms commission. As private electricity suppliers do not supply directly supply to households but rather to the national grid, the only direct market/ consumer is with the latter. Thus, any potential for sale of excess electricity to the national grid will be limited by a price setting environment. The low feasibility potential of Model 6 - Power Capture Model (livestock to energy) is mainly driven by the distortions in the electricity market. As with model 4, any new waste-to-energy business will face an electricity market that is heavily regulated and monopolized by state agencies. Private participation although present is very limited and permitted only for certain aspects of power generation. Additionally, as private electricity suppliers do not directly supply to households but rather to the national grid, the only direct market/ consumer is with the latter. Thus, any potential for sale of excess electricity to the national grid will be limited by a price setting environment. From an institutional perspective, there are existing supportive policies for waste-to-energy initiatives although mainly for MSW-based initiatives and does not specify the scale of operation or offer detailed guidance for on-site technologies. There is a general positive consensus for this business model across the board from communities to NGOs and government officials but it is noted that there needs to be more support, particularly provision of financial incentives to potential businesses. Thus an improved enabling environment from an institutional perspective will generally improve the feasibility of this model. The high feasibility for implementation of Models 9 & 12 - On Cost Savings and Recovery (wastewater use for irrigation, energy and nutrient recovery) is driven by key factors related to: a) high financial viability, b) supportive institutional environment and c) wastewater availability and access. There is significant wastewater generated and treated in Bangalore (at approx. 457 Million litres per Day (MLD) of treated wastewater from 14 WWTPs and 1000 m3 of wet sludge per day) that can be reused at some level. The results from the WTP assessment show that the majority of farming households are willing to use and pay for treated wastewater for irrigation purposes, especially during the drier seasons. A 10 lower percentage (63%) was however noted to be willing to pay for treated wastewater during the monsoon season. On average, 89% of these farmers were willing to pay for using treated wastewater for irrigation. The farmers were willing to pay Rs.482/- per 10,000 litres (10 m3) of treated/partially treated wastewater. For the surveyed businesses, the results showed that on average 84% of the surveyed enterprises were willing to pay for treated wastewater. The average WTP value was Rs.455/- per tanker of treated/partially treated wastewater. However, among the larger enterprise respondents, they were willing to pay an average of Rs.1, 160/- per 8,000 litre tanker. Demand for treated wastewater among businesses was found to be specific to the enterprise type and use. From an institutional perspective, there are supportive policies for the use of treated wastewater and there are quite a number of existing reuse cases. It is however noted that the initiatives occur as single- activity entities and not in combination yet (wastewater reuse, energy generation and sludge treatment and reuse). There are opportunities for these initiatives to be combined and explored together as whole as in this model, however considerable institutional changes would be required. Model 8 - Beyond cost recovery (wastewater-fed aquaculture) has a potential for implementation given: a) available wastewater treatment plants and city lakes for integrated aquaculture, and b) strong financial viability but the model is largely limited by the market demand. The results show that consumers derive a negative utility from wastewater-fed fish. The results show the WTP for wastewater-fed fish among consumers to be estimated at Rs.63.97/Kg which is lower than the current market price of non-certified fish with no information on the medium used to raise the fish. The market prospect for wastewater-fed fish has some promise but will face social barriers and consumer perceptions in the initial stages. Innovative marketing strategies including pricing and product promotion strategies will be required to facilitate the entry of new businesses into the market. It is suggested that food products made from fish harvested in treated wastewater must be priced differentially lower than that of food products of freshwater fish, in order to capture a share of the market. An aggressive marketing strategy for the promotion of treated wastewater fish is also recommended. From a financial perspective, the business of wastewater-fed fish is highly sensitive to the scale of operations. At lower fish production levels, the business model is not viable as the cost of labor to manage the production activities is high and drives the investment to be unviable. The implementation of this business model may also face some institutional hurdles as such initiatives are not fully supported by the law, institutional arrangements or public perceptions. Given the importance of the institutional and legal environment for the implementation of this model, there will be the need for a revision of the policies and regulations to incentive the implementation of such initiatives, especially given that this model has the greatest potential for having a positive health impact from a reduction in exposure to pathogens at the community level. The infeasibility of Model 10 - Informal to Formal Trajectory in Wastewater Irrigation - Incentivizing safe reuse of untreated wastewater is driven mainly by the institutional regulations which notes that the use of untreated wastewater for irrigation is not permissible under the city and national policies on wastewater and irrigation. The key challenge with this model is the lack of treatment - which is confirmed by the results from the health risk and impact assessment which notes that it is not recommended to promote the reuse of untreated wastewater for irrigation purposes in Bangalore. The feasibility assessment for Model 11 - Wastewater and drinking water exchange was difficult to undertake both from the market and financial perspective. This business model has potential to be feasible but would require significant negotiation and contractual arrangements to make it possible. BWSSB and MID will need a capacity strengthening of staff to undertake the operations as well as contracting and negotiation. Given the importance of the institutional and legal environment for the implementation of this model, there will be the need for some revision of the policies and regulations to incentive the implementation of such initiatives, especially to facilitate the negotiation of water rights. 11 The MSW-based compost nutrient business models (Model 15 - Large-Scale Composting for Revenue Generation (municipal solid waste to compost) and Model 16 - Subsidy-free Community Based Composting (municipal solid waste to compost)] were noted to be highly feasible in the context of Bangalore. The feasibility of the models are driven mainly by: a) high financial viability, b) supportive institutional and legislative environment, c) significant market demand and d) available technologies. The potential market for MSW-compost is noted to be substantial with the demand estimated at 578,400 tons/year, with an adoption rate of 20% and application rate of 12.5 tons/ha/year. The results indicate that farmers are willing to pay 1.458 INR/kg more to know the source of the waste input used to produce the compost; and an even higher premium of 5.359 INR/kg for pelletization and 14.397 INR/kg for certification. Given these marginal estimates, the full analysis shows the estimated WTP for compost to be 61.214 INR/kg, which is significantly higher than the current market of competitive products. The results suggest that the demand for compost could increase if the abovementioned attributes are factored into the final product for the market. In the instance where such product differentiation is not cost-effective, it is important to explore the opportunities that partnerships can offer and also those related to some form of government subsidization. From a financial perspective, the model is highly dependent on the scale of operations. It is noted that as the scale of the waste processed increases, the feasibility of the compost production plant improves. It is important to note that the decision of a business to operate at a certain scale will be determined by several factors: a) demand, b) price of the compost, c) economies of scale, among others. Whilst the current production level of compost is unknown, it is clear that the compost sector is a burgeoning industry with some entry barriers but supportive and existing policies encouraging business development. Model 17 - High value Fertilizer Production for Profit (combination of municipal solid waste and faecal sludge to organic fertilizer) is similar to model 15 in concept but in addition to MSW, the business entity uses faecal sludge as a waste input from onsite sanitation which is rich in nutrients. There are opportunities for pelletization and blending of faecal sludge-based compost with rock-phosphate, urea/struvite or NPK which is an additional value proposition that can be explored under this business model, allowing the product to have nutrient levels specific for target crops and soils, and a product structure improvement (pellets) to improve its competitive advantage, marketability and field use. Although there is a substantial market demand for Fortifer, supportive policies and availability of the waste input, this model has no feasibility for implementation and this is mainly driven by the limited financial viability. The business model shows a limited financial viability because of a low product price and limited expected quantity of sales. The business model will require a capital subsidy and it is unlikely to achieve capital cost recovery even with a higher compost price. Model 20 - Outsourcing Faecal Sludge Treatment to the Farm, although applicable to regions with high onsite sanitation system coverage has a low feasibility potential. The challenge with this model is related to the incomplete regulatory framework for truck operators, permits/licenses issuing processes for private businesses, amongst others. Currently most of the on-going operations are done on an informal basis and based on a market-driven response to the demand for emptying septic tanks. This type of business is completely viable from emptying fees but currently faces the challenge of accessing waste disposal sites. From an institutional perspective, this model has a low ranking given that it operates in a grey area although it is being very effectively practiced by the private sector and the number of people involved appears to be growing. Changes to the institutional arrangements in the system could possibly result in a workable, legal model, but caution needs to be taken to ensure that legitimizing the practice does not make it unviable in the process. This business model does pose some potential health risks but if appropriately regulated following WHO 2006 guidelines and sanitation safety practice, these risks can be mitigated. 12 It is important to note that the feasibility potential of some of the business models can be significantly improved with some adaptation (e.g. use of strategic partnerships, consideration of alternative waste streams and institution of supportive policies). Table 1: Overall feasibility ranking of the business models Level of feasibility of the business models Ranking criteria Outputs ENERGY WASTEWATER NUTRIENT BM1a BM4 BM6 BM8 BM9 and 12 BM10 BM11 BM15 BM16 BM17 BM20 1 Waste supply and availability N/C 2 Market assessment N/C 1 Institutional analysis 3 Technical assessment 4 Financial assessment N/C N/C 5 Health risk& impact assessment N/C Environmental risk and impact assessment 6 Socio-economic assessment Overall ranking of BM Legend:  BM 1a: Dry Fuel Manufacturing: Agro-Waste to Briquettes  BM 4: Onsite Energy Generation by Sanitation Service Providers (faecal sludge to electricity)  BM 6:Power Capture Model (livestock to energy)  BM 8: Beyond cost recovery: wastewater-fed aquaculture  BM 9: On Cost Savings and Recovery (wastewater use for irrigation, energy and nutrient recovery)  BM 10: Incentivizing safe reuse of untreated wastewater  BM 11: Wastewater and drinking water exchange  BM 12: Wastewater treatment for carbon emissions reduction  BM 15: Large-Scale Composting for Revenue Generation (municipal solid waste to compost)  BM 16: Subsidy-free Community Based Composting (municipal solid waste to compost)  BM17: High value Fertilizer Production for Profit (combination of municipal solid waste and faecal sludge to organic fertilizer)  BM 20: Outsourcing Faecal Sludge Treatment to the Farm Legend High feasibility Medium feasibility Low feasibility 13 No feasibility N/C - Assessment not conducted 14 1 Introduction 1.1 Overview of Research Project The overall goal of the project is to implement globally and at large scale recovery and safe reuse models of resources generated from liquid and solid waste streams in order to promote food security, cost recovery in the sanitation sector, and livelihood opportunities, while safeguarding public health and the environment in poor urban and peri-urban areas in developing countries. This translates into two key objectives: 1. To increase the scale and viability of productive reuse of water, nutrients, organic matter and energy from domestic and agro-industrial waste streams through the analysis, promotion and implementation of economically viable business models; 2. To safeguard public health in the context of rapidly expanding use of wastewater, excreta and greywater in agriculture and aquaculture and protect vulnerable groups from specific health risks associated with this pattern of agricultural development. This intervention thus had several increasingly interlinked components carried out over two phases: (1) a research dominated phase, and (2) an implementation dominated phase. While the research has an impact pathway based on two phases: (1) a research dominated phase and (2) an implementation dominated phase; the one described here centers on phase 1 and in particular on the 1st objective focusing on the analysis and feasibility testing of RRR business models. Figure 1: Research Framework for the Project The 1st objective focused on the identification of existing or emerging reuse cases in Asia, Africa and Latin America to learn about their performance and analyze in depth the most promising and/or scalable cases. The in-depth assessment of both formal and informal RRR business cases sought to understand the factors that drive their success and potential sustainability, replicability and scalability barriers, particularities and opportunities. This was based on a 7-component multi-criteria analysis covering among others the financial, institutional, policy, health and technical aspects of RR&R to understand the performance of each respective business case in their given context. Performance indicators for benchmarking of success were identified through a comparative analysis and business models emerging from the analysis was described for each waste resource. Subsequent to the development of the RRR business models, multiple feasibility studies which were a core of the intervention and involving all relevant local stakeholders were conducted to explore across different settings the applicability, adaptability and comprehensiveness of the proposed business models in real-life settings; resulting in the strengthening of the methods and procedures both are proposing, also in view of scalability and viability. A key output of the feasibility studies are city-strategies for 15 RR&R which include recommendations for investment options and related health risk monitoring and mitigation measures aligned to the Sanitation Safety Plan (SSP). 1.2 Methodology for Feasibility Studies Feasibility studies in the context of this project are defined as the assessment and analysis of the viability, applicability, scaling-up potential of implementing different RRR business models at scale. This requires the application of an approach that assesses the feasibility of RRR business models from a holistic view, taking into consideration both micro- and macro-environment factors. For this purpose, different qualitative and quantitative approaches and related methodologies were used. The adopted methodology here builds on a multi-criteria assessment (MCA) framework and identified performance indicators and applied an institutional, policy and market analyses, perception studies, and business scenario modeling. The list of criteria selected for the MCA framework is based on previous research and is as follows: 1. Waste supply and availability 2. Market assessment (demand quantification and product market assessment) 3. Technological aspects 4. Institutional and legal settings and public support 5. Financial assessment 6. Health and environmental risk assessment 7. Socio-economic impact assessment (valuation of economic benefits and assessment of additional externalities) The list of criteria presented here is based on previous research. While it is impossible to identify a complete list of factors that will determine the feasibility of implementing an RRR business without knowing the specific context, the goal here was to present an extensive range of different criteria that would be of importance in different contexts and that are helpful in accurately assessing the feasibility potential of the business models. This list may be reduced or expanded for each specific business model and context. The application of the MCA framework for the feasibility assessment of the business models is detailed out in the related document for Output 2 - Methodological Guidelines on multi-criteria indicators determining promising business models and their targeted application in low- income countries and emerging economies. The framework consists of a set of criteria, indicators, research questions, and detailed methodology under the overarching umbrella of a multi-criteria analysis (Figure 2). Each criterion has its own set of indicators, with these indicators having a set of research questions and to address these research questions, a specific approach/ methodology applied. The selected indicators for each criterion allows for comparisons between business model options to assess their viability, scalability and sustainability. The indicators are criterion-specific although a few were cross-cutting and applied to all criteria, addressing, e.g. opportunities and constraints for going at scale. The indicators shed light on the financial flows, production factors, resources or capacities requirements, associated health and environmental risks and economic benefits from the implementation of the specific RRR business models. It in essence allows one to address questions of financial sustainability, scalability, development impact, related health risks and environmental impact of the RRR business. The selected criteria essentially allows us to identify any limitations associated with both the input and output markets and related impacts. For example, the Waste Supply criterion assesses the quantity of waste input available and accessible to a business. This is an important criterion as resource limitation is a key factor for business sustainability. Each criterion is explained and described in Annex 2: MCA Framework. There are overarching research questions and sub-questions; of which the research questions were formulated to serve either: 16 i. The determination of the indicators ii. Provide background information on the business model iii. Assess the suitability of the indicator and functionality in and any given bio-physical or socio-economic setting (institutional capacity, infrastructure and technology) Figure 2: Framework for Feasibility Studies Prior to the feasibility studies, baseline surveys were conducted to guide the selection of appropriate cities for testing the business models. Based on a screening and previous research work, the following cities were preliminarily shortlisted: Kampala, Uganda, Bangalore, Mysore and Hubli-Dharwad in India, Kumasi, Accra and Tamale in Ghana, Cagayan de Oro in Philippines, Hanoi in Vietnam, Lima in Peru, and Ouagadougou in Burkina Faso. Baseline surveys were conducted to serve as a pre-feasibility study of cities, to preliminarily assess the extent of reuse and the types of RRR business models with the highest potential for sustainability and impact. The baseline surveys were buttressed with pre- stakeholder workshop visits, which permitted the following: - to consolidate the baseline survey reports provided by the consultants with complementary dimensions (if the former proved to have insufficient information) - to meet key authorities on one-to-one base to align the project with their needs; - to visit existing treatment or reuse cases in the city and discuss with the respective operators the options for RRR; - to pre-select the number and types of possible BMs that locally made sense; - to have first contacts with potential partners for the different dimensions of the feasibility phase. The final feasibility city selection criteria was based on: a) confirmed official interest, b) supporting policies, c) local partner capacity to carry out feasibility and health studies, d) urban and peri-urban farming sector in need of resources, and e) already ongoing reuse activities to test the SSP. The final selected cities were Kampala, Uganda; Lima, Peru; Bangalore, India; and Hanoi, Vietnam. This report Broader Research Questions tailored to each set of indicators Market aspects Financial aspects Waste supply and availability Institutional and legal aspects Socio- economic analysis Health and environmen tal aspects Technical aspects Specific Methodologies for research questions: 1. Data sources and collection (primary or secondary) 2. Data collection tools 3. Data analysis 4. Local partners 5. Allocated budget Set of Indicators tailored to each criterion CRITERION INDICATORS SPECIFIC METHODOLOGIES RESEARCH QUESTIONS 17 focuses on the results from the feasibility studies conducted in Bangalore, India. It is important to note that the feasibility studies considered an urban - peri-urban system boundary and defined based on the specific context and city under consideration. Twelve (12) business models selected for feasibility testing in Bangalore are presented in Table 2. The selection process of the business models was based on three components: a) a pre-feasibility study, b) feedback from stakeholder workshops and c) a no- go analysis based on information from the baseline survey. Table 2: Selected RRR Business Models for Feasibility Testing in Bangalore RRR Business Models Brief Description ENERGY Model 1a: Dry Fuel Manufacturing: Agro-Waste to Briquettes The business entity processes crop residues like wheat stalk, rice husk, maize stalk, groundnut shells, coffee husks, saw dust etc. (any agro-based waste) and converts them into briquettes as fuel to be used in households, large institutions and small and medium energy intensive industries. Model 4: Onsite Energy Generation by Sanitation Service Providers The business model is initiated by either enterprises providing a sanitation service such as public toilets or by residential institutions such as hostels, hospitals and prisons with a concentrated source of human waste (i.e. faecal sludge). The business concept is to process and treat human waste in a bio-digester to generate biogas to be used for lighting or cooking. Model 6: Power capture model - Livestock waste to energy The business process manure waste from agro-industries such as livestock, poultry, piggeries etc. to generate electricity which is internally used and excess energy is sold to households, business or local electricity authority. WASTEWATER REUSE Model 8: Beyond cost recovery: the aquaculture example The business concept is to treat wastewater to an advanced tertiary state and during that process produce fish for human consumption. The concept offers business opportunities at medium scale, where existing in-use treatment plants can be used to raise fish for sale into the market, providing avenues for cost recovery to municipal wastewater management entities. Model 9&12: On Cost Savings and Recovery - Wastewater treatment for irrigation/ fertilizer The business concept is to treat wastewater for safe reuse in agriculture, forestry, golf courses, plantations, energy crops, and industrial applications such as cooling plant. The sludge from the treatment plant can be used as compost and soil ameliorant and energy generated can be used for internal purpose resulting in energy savings. Model 10: Informal to Formal Trajectory in Wastewater Irrigation - Incentivizing safe reuse of untreated wastewater Informal reuse of wastewater is commonly practiced by farmers in developing countries but it also entails significant health costs, often borne by the public and are of social nature. This social nature of these costs justifies public investments in incentives to promote safe reuse of wastewater and minimize risk along the entire value chain as such incentives could potentially turn this unsafe informal activity into a safe and formal one with shared rewards for all the stakeholders. Model 11: Inter-sectoral Water Exchange In a water scarce situation, a sustainable approach to ensure safe and adequate water supplies for the society is through inter-sectoral water transfers (water swaps), which aims at the provision of treated water to farmers for irrigation, in exchange for freshwater for domestic purpose. The business model has high applicability to other water-intensive users such as industries, golf course etc. NUTRIENTS Model 15: Large-Scale Composting for Revenue Generation The business concept is to better manage Municipal Solid Waste (MSW) and recover valuable nutrients from the waste that would otherwise be unmanaged and disposed on streets and landfills without reuse. Compost from MSW is sold to farmers, landscaping, and plantations and other entities. Model 16: Subsidy-free community based composting The business concept is similar to model 15, except that the scale of operations is smaller at community level which includes door to door collection of MSW. 18 Model 17: High value Fertilizer Production for Profit Similar to Model 15 in concept but in addition to MSW, the business uses faecal sludge as an input from onsite sanitation systems which is rich in nutrients. There are opportunities for pelletization and blending of faecal sludge-based compost with rock- phosphate, urea/struvite or NPK which is an additional value proposition that can be explored under this business model, allowing the product to have nutrient levels specific for target crops and soils, and a product structure improvement (pellets) to improve its competitive advantage, marketability and field use. Model 20: Outsourcing fecal sludge treatment to the farm The business concept is around the partnership between vacuum truck operators that empty fecal sludge from onsite sanitation systems and farmers in peri-urban areas. The vacuum truck operator charges a fees for emptying of sludge from household and fees to the farmers to deliver the fecal sludge to the farm where the sludge is treated and converted into compost. Each business model was assessed based on the seven criteria listed in the MCA framework and subsequently evaluated for its overall potential feasibility based on a 4-level ranking system, i.e. whether it has: No feasibility Low feasibility Medium feasibility High feasibility The subsequent sections present the feasibility assessment results of the different models from the different criteria. Section 10 provides a synthesis of the overall feasibility assessment and ranking of all the selected business models. 19 2 Key findings of Waste and Availability Analysis This section presents the key findings of the “Waste Supply and Availability” analysis that was conducted in Bangalore, India. The business models under consideration required analyzing the following waste streams: 1. Municipal Solid Waste (MSW) 2. Market Waste (MW) 3. Wastewater (WW) 4. Faecal Sludge (FS) 5. Agro-Industrial Waste (AIW) 6. Animal Manure (AM) Table 3 provides a summary of the key findings for each business model under consideration. The waste streams and end-products are listed, including a ranking of feasibility for implementation (high/medium/low) and recommendations for adaptations to increase feasibility. Detailed analysis were conducted for each waste stream on:  Quantities and characteristics of defined waste streams.  Current and future solid waste and liquid waste management strategies of Bangalore, including management and disposal costs.  Accessibility of defined waste streams, and the implications on the potential for implementation of waste-based business models. The information was collected through review of secondary data, interviews, field observations and collection of primary data. Detailed information, data analyses and data sources are available in: “Resource, Recovery and Reuse Project. From Research to Implementation. Component 1 - Waste Supply and Availability: Bangalore, India. Internal report, available for download on www.sandec.ch/rrr 20 Table 3: Rating of feasibility of business models from a ‘Waste Supply and Availability’ perspective and recommendations for Bangalore Business Model Waste stream End-product Feasibility Comments 1 (a)  MSW  AIW  Briquettes Low (MSW): MSW is too wet to be processed(high confidence) Medium (AIW): although the presence of many agro-processing industries surrounding the city (Bangalore Urban District), there is lot of competition for agro-waste given that its reuse is already happening. Briquette from OFMSW is not recommended given the high moisture content of OFMSW, which would require extensive land use for drying. 4  Feces  Urine  FS  Biogas -> Cooking fuel High (FS): quantity of FS hauled in the city may be between 300-700 m3/d (low confidence). Only a small percentage of which is safely disposed/reused and may be potentially diverted towards RRR (low- medium confidence). Medium-High: There are very few experiences of ECOSAN toilets. However, access to toilets services may be required particularly in the city slums (low confidence). This model may focus on slums areas by providing integrated sanitation services (e.g. toilets/showers). 6  AM  Biogas -> Electricity Medium (AIW) – Although a substantial generation of manure (and agro-industrial waste, the majority of this is already reused in agriculture (medium confidence). 8  WW  Fish  Treated WW Medium-High (Treated WW): ~457 MLD of treated WW from 14 WWTPs, discharged into the city’s lakes (high confidence). Aquaculture may be carried out in city lakes and integrated or internalized into WWT businesses for cost recovery. This may require coordination with the authority responsible to issue fishing licenses. 9  WW  WW sludge  Electricity  Soil conditioner  Water (for reclamation) High (Treated WW): ~457 MLD of treated WW from 14 WWTPs (high confidence). High (WW sludge): the city may generate ~1000 m3 of wet sludge per day (low- medium confidence). Its disposal is a major challenge for the city. The location of WWTP and treated WW is available on a geo-referenced Google map file. 10  WW  Water (for reclamation)  Water for groundwater recharge High (WW): the city roughly generates ~1000 MLD between treated and untreated WW (medium-high confidence) High (Treated WW): ~457 MLD of treated WW, discharged into the city’s lakes (high confidence). Lakes and groundwater replenishment look very promising alternatives given the high amount of wastewater generated and treated in the city and the increasing groundwater use (water scarcity in general). However, the location and recharge options should be further analyzed given that in some areas of the city groundwater has already reached high nitrate concentration. 21 11  Treated WW  Water (for reclamation) Medium-High (Treated WW): ~457 MLD of treated WW, discharged into the city’s lakes (high confidence). The location of WWTP and treated WW is available on a geo-referenced Google map file. 15  MSW  Soil Conditioner High (mixed-MSW): total MSW amount to ~4500 t/d and roughly 70% of which is organic (medium-high confidence). 15-20% of which remains uncollected in the streets. 16  MSW  Soil Conditioner High (mixed-MSW): total MSW amount to ~4500 t/d and roughly 70% of which is organic (medium-high confidence). 15-20% of which remains uncollected in the streets. Medium (OFMSW-only): source segregated OFMSW is ~10% of total waste. However, there is a big potential for organic waste recovery, particularly at market level. ~600 t/d is generated by market (90% organic) (low confidence). Also, hotel/restaurants waste (food) is another good source for OFMSW. However, competition for it is growing. Source-segregated OFMSW may increase in the future due to several orders from courts and city council. However competition on OFMSW is growing. 17  MSW  FS  Fertilizer (NPK added) Medium (OFMSW-only): source segregated OFMSW is ~10% of total waste. However, there is a big potential for organic waste recovery, particularly at market level. ~600 t/d is generated by market (90% organic) (low confidence). Also, hotel/restaurants waste (food) is another good source for OFMSW. However, competition for it is growing. High (FS): quantity of FS hauled in the city may vary between 300-700 m3/d (low confidence). Only a small percentage of which is safely disposed/reused (low- medium confidence). P-enrichment may be considered given the P-deficient quality of soil in the surrounding area. 20 NA NA 22 3 Key findings of Market Assessment 3.1 Introduction A key component of the feasibility studies is the market assessment of the RRR business models as functioning markets, an enabling institutional environment and positive economic and financial conditions are essential for sustainable business activity in any sector including the waste reuse sector. The set-up of any RRR business and the commercialization of a new product in a new market requires an accurate or close to accurate estimation of the relative market size for the new product. The successful development of any subsector market depends among other factors particularly on market demand. Specifically, the question of whether a demand actually exists and the price end-users are willing to pay for this new product needs to be explored. For this reason, the market assessment set out to evaluate the current and potential market for the recovered resource and the effect of different factors (e.g. socio- cultural aspects and perceptions, price of substitute products, etc.) on market demand. Information on market segments, potential clients of the RRR product, their actual and potential number and resource absorption capacity and their willingness-to-pay (WTP) were assessed. Additionally, the adoption of effective marketing and pricing strategies to ensure business sustainability require entrepreneurs to comprehensively understand the dynamics inherent in the relevant sub-sectors. This translates into the need for evaluating the structure (i.e. competition, differentiation of substitute products, barriers to market entry, among others) of the product market they operate in, i.e. how the behavior and performance of other businesses influence their decision making. Another important facet to the market assessment is demand forecasting – i.e. market outlook. Market forecasting is a crucial element for business owners in assessing future capacity requirements, evaluating their decisions in the implementation of new business strategies and pricing decisions. Businesses need to adopt different strategies ranging from establishing key partnerships and price markups to maintain a competitive advantage and ensure sustainability. An assessment of the above listed aspects provides entrepreneurs with a solid market information base crucial for business start-up and sustainability. In that regard, the specific objectives of the market assessment were: 1. To assess the market value of the RRR products under consideration – a. To assess consumers’ willingness-to-pay (WTP) and differences in WTP estimates across different consumer segments and related factors influencing consumer demand; b. To estimate the potential market size for the RRR product; 2. To assess the extent and characteristics of the market structure; 3. To evaluate the market outlook of the RRR products and to what extent the RRR products would be viable over time in the market. A total of 12 RRR business models were selected for the feasibility studies in Bangalore. For the purposes of the market assessment, an end-use typology of the business models was employed as although the underlying concepts of the business models were different, a number of the end-products were the same across different business models. Thus for some business models, the related customer segments and relevant actors along the value chain considered would be the same. In that regard, for the selected business models, the following 6 value-added products were considered: 1) briquettes, 2) electricity, 3) wastewater-fed fish, 4) treated wastewater, 5) MSW-based compost and 6) faecal sludge-based compost. 23 Untreated wastewater is not considered a marketable commodity as it is considered to increase human health risk and environmental pollution and thus potential users' valuation was not assessed. Table 4: List of RRR business models and related products Business Model Value-added product Recovered resource Model 1a: Dry fuel manufacturing: agro-waste to briquettes Briquettes Energy Model 4: Onsite energy generation by sanitation service providers Electricity Model 6: Power capture model - Livestock waste to energy Model 8: Beyond cost recovery: the aquaculture example Wastewater-fed fish Fish Model 9 and 12: On cost savings and recovery (treated wastewater for irrigation, energy, fertilizer) Treated wastewater Wastewater Model 10: Informal to formal trajectory in wastewater irrigation Untreated to partially treated wastewater Model 11: Inter-sectoral Water Exchange Model 15: Large-scale composting for revenue generation (MSW to compost) MSW-based compost Nutrients Model 16: Subsidy-free community based composting Model 17: High value fertilizer production for profit (faecal sludge to compost) Faecal sludge-based compost Model 20: Outsourcing faecal sludge treatment to the farm Farm treated faecal sludge 3.2 Methodology 3.2.1 Overview of Methodology The successful development of any RRR business depends on the effective workings of different facets of the respective value chain including: (a) market linkages between related subsector markets; (b) business dynamics between relevant economic actors and (c) consumers’ responsiveness to newly developed and available products. When introducing a new product into the market, businesses are particularly interested in three factors: current and future consumer demand, competition and production costs. Though cost estimations are simple and straightforward, the assessment of consumer demand (as measured by willingness-to-pay (WTP)) and competition are comparatively more complicated and not a straight forward calculation as historical data of consumer purchase patterns are guidelines at best (Lusk and Hudson, 2004). Specific methods were developed and used for the evaluation of the consumers’ WTP, the assessment of market structure and outlook. The choice of methods for evaluating the different research questions were dependent on the context, the related RRR product, access to data and analytical tools to be employed. The WTP and market outlook analysis viewed the business models from an end- product perspective, whilst the market structure was conducted from a sector perspective; i.e. (a) alternative fuel market, b) electricity market, c) fish market, d) water market and e) fertilizer market. 3.2.1.1 Willingness-to-pay and Market size estimation Stated and revealed preference methodologies have gained immense popularity in eliciting consumers’ valuation of new products (Lusk and Hudson, 2004; Kimenju and Groote, 2008). The choice between the uses of stated or revealed preference methods is dependent on the RRR product under consideration. 24 Stated preference methods such as contingent valuation methods are typically used for assessing consumer WTP of products with an inexistent market price (Adamowicz and Deshazo, 2006; Freeman, 2004). An example would be that of faecal sludge-based organic fertilizer, new product in the fertilizer market. Alternatively, revealed preference methods such as hedonic pricing can be used to obtain the price of a good via real market purchasing mechanisms. These methods are grounded in economic theory of welfare analysis and can also be used for the valuation of goods and services without market prices or shadow prices. Contingent valuation approaches has been successfully applied in the estimation of the demand for compost in Ghana (Danso et al., 2006); Tanzania (Valerian et al., 2011), and Ethiopia (Hagos et al., 2012). For the purpose of this study, contingent valuation methods were applied for the WTP assessment of the energy business models (i.e. electricity) and nutrient and wastewater business models. Based on the WTP measures, the potential market size of the RRR products was estimated. 3.2.1.2 Market structure assessment This assessment was based on the notion that businesses require information on the extent and characteristics of the market structure for decision-making on strategies that ensure firm performance. To achieve this, a structure–conduct–performance (SCP) evaluation model was applied along the different stages of the product supply chain. The SCP approach provides insights into how markets function in the real world as opposed to in theory (Holtzman 2002; Wanzala et al. 2009). The SCP approach is based on the underlying rationale from economic theory of competitive markets, which suggests that competitive markets produce efficient prices and quantities. If a monopolist or oligopolist dominates a market, the lack of competition will yield higher prices and lower quantities traded. If the market structure is monopolistic or oligopolistic, then prevailing prices may be higher than what they would be in a competitive market. The SCP approach assesses the structure of the market (number of actors involved), their conduct (what products/services they perform), and how those two things lead to the performance of the market—in terms of prices, quantities traded, and costs of performing various functions. Based on this analysis, insights of market performance and possible strategies that businesses can adopt (measured in terms of price and accessibility) can be drawn. To set the stage for assessing the market structure, the supply chain for competitive products was evaluated. This served to identify the constraints and distortions affecting the functioning of the markets of competitive products been considered and propose suitable mitigation measures to address these distortions. The supply chain analysis utilized data from the market size, key players in the supply chain, regulatory framework and subsidy programs. The SCP framework was applied as follows: 1. The structure of the market was assessed from four aspects: market concentration (MC), product differentiation (as measured by businesses’ awareness of differentiated products), market integration (e.g. extension of credit between businesses) and conditions for entry in sector (threshold capital requirements, sources of funding). An MC ratio based on market share was calculated and monthly turnover data for relevant businesses was used to measure market share. 2. The market conduct was evaluated based on the behaviour (whether players are price-taking or price- making agents: pricing and promotion) and activities of existing competing businesses. If data was available, their performance was assessed as reflected in the variation of their cost elements. A structural pyramid of players, functions and the performance of the product markets, was developed to highlight the different dynamics. 3. An overview of factors affecting the functioning of different markets was evaluated to capture supply- side constraints (e.g. business environment, taxes, tariffs) and demand-side factors (access to financing, production risk, purchasing power). 25 3.2.1.3 Market outlook assessment The evaluation of the market outlook, i.e. market forecasting will aid new and existing RRR businesses in planning for the future. Because investment toward an uncertain future is very difficult and risky, market forecasting tools have been developed to alleviate the risk and to obtain more accurate or reliable information. This assessment is a projection of demand levels in the future, based on current or past evolutions. A Bass model is usually used to describe consumers’ behavior in relation to their loyalty towards a product. Most frequently, this model is used in marketing for dynamic forecasts of the market demand against the background of intense rivalry between products or brands. Since most of the RRR products are new in the market, it was difficult to obtain time series data to develop a standard demand equation for the market trend analysis. Thus, to forecast the revenue or profit of a new product, the initial income from existing businesses if available was used. For a given RRR product, a Bass model was applied to analyze the market demand over time. In addition, this approach was used to estimate the growth in demand of an RRR-business product with other competing products. Where data was available, econometric analyses was used to forecast the market of the related products for the business models. 3.2.2 Study Area and Data The primary survey covered several key districts in Bangalore (urban, peri-urban and rural). For the WTP and market size assessment, primary data on price offers from market experiments, information on demographics and socio-economic factors were collected from different groups of respondents depending on the RRR product. Data on price of substitute products, macro-economic factors, amongst others were collected from secondary sources. WTP measures were derived directly from the purchase price and additional econometric analysis. For the market structure, both primary and mostly secondary data were collected and used for the supply chain analysis, although this was dependent on the RRR product. Data on the number and size of key players, players' characteristics (e.g. economies of scale, access to financing, marketing and distribution costs, and level of integration and nature of contractual agreements) were collected from primary sources. For the market outlook assessment, data on market demand and market share were obtained from the WTP and market structure assessment components. Additional secondary data on alternative products, prices and quantity of sales of existing competing products in the market was collected from relevant institutions (e.g. marketing boards and departments). 3.3 Results of the Market Assessment  Model 1: Dry fuel manufacturing: Agro-waste to briquette The results indicate that there is a fair market demand for agro-waste briquettes in Bangalore, although not substantial. Among the surveyed households (both urban and rural), none were currently noted to be using briquettes. Furthermore, the estimated supply of agro-waste for the generation of briquettes and the estimated demand for briquettes from the identified segments of the economy broadly reveal that there is no significant demand supply gap for briquettes, although the estimated demand exceeds estimated supply. This suggests that an appropriate planning and marketing strategy will be required for new briquette businesses to gain a share of the market. New briquette businesses also will need to accommodate customer expectations in terms of credit, delivery, and near nil expenditure for marketing by the current market players. Differential pricing can help in gaining market share, although its implementation needs to be studied in greater detail. Across all the studied markets product promotion and marketing is close to nil. New briquette businesses would need to invest in R&D in order to mitigate 26 the effects of high social barriers. This would place them at a competitive disadvantage compared to their competitors. There are also both policy induced factors and environmental factors that are representative of entry barriers for briquettes to penetrate the household sector. Government subsidies for existing competing products in the energy market (LPG and Kerosene) can pose a challenge to new briquette businesses, and thus appropriate product positioning and customer targeting would be very essential to overcome the challenges posed by the subsidy. Additionally, the extensive established network of LPG has improved the product's accessibility not only in urban areas but also in rural areas - thus a significant competitor for briquettes. Similarly, the steady improvement of electrification has resulted in households relying on electricity at least for lighting. In addition, urban low income households have the access to kerosene both through public distribution system and open markets; and in the rural areas, households have the luxury of collecting firewood free of cost.  Model 4: Onsite energy generation by sanitation service providers and Model 6: Power capture model - Livestock waste to energy The electricity market is heavily regulated and monopolized by state agencies. Private participation although present is very limited and permitted only for certain aspects of power generation. Pricing of electricity is negotiated between the private entrepreneurs and the respective electricity reforms commission. As private electricity suppliers do not supply directly supply to households but rather to the national grid, the only direct market/ consumer is with the latter. In that regard, a willingness-to-pay assessment was not conducted for business models 4 and 6. An assessment of the market structure and outlook is provided in detail in the 'Institutional analysis' report.  Model 8: Wastewater-fed Aquaculture (phyto-remediative wastewater treatment and fish production) The results show that consumers derive a negative utility from wastewater-fed fish and wild fish. The primary survey shows that wastewater-fed fish is presently not consumed by the surveyed households. In absence of the revealed preference data an approximate price of wastewater-fed fish with information about the source and certification is Rs. 173.6/Kg (which considers only the information price and certification price). The actual payment for wastewater-fed fish among the consumers was estimated to be Rs. 63.97/Kg which is lower than the current market price of non-certified fish with no source information. The results show that consumers are willing to pay Rs.37.25/kg to know the source of the fish (i.e. which medium the fish was reared in) and Rs. 136.36/kg for certification. The market prospect for wastewater-fed fish has some promise but will face social barriers and consumer perceptions in the initial stages. Innovative marketing strategies including pricing and product promotion strategies will be required to facilitate the entry of new businesses into the market. It is suggested that food products made from fish harvested in treated wastewater must be priced differentially lower than that of food products of freshwater fish, in order to capture a share of the market. An aggressive marketing strategy for the promotion of treated wastewater fish is also recommended. Overall, wastewater-fed fish has a good market outlook but will have to compete aggressively with their alternative products to sustain in the market eventually. Freshwater fish is a very a close substitute for fish from treated wastewater. Therefore, this product will offer a high degree of competition to the RRR product. With an ever-expanding cultivation of freshwater fish and with an ever increasing level of income and population, the demand for freshwater fish will grow steadily. However, if proper labelling is done by appropriate regulatory authorities to educate the prospective consumers that the consumption of fish 27 reared from treated wastewater will not pose any health risks, and if it is sold at a competitive price, it will find its way into the market, though gradually and steadily.  Model 9: Cost recovery - Treated wastewater for irrigation, fertilizer and energy and Model 10: Informal to formal trajectory in wastewater irrigation The results from the WTP assessment show that the majority of farming households (93% of surveyed respondents) are willing to use and pay for treated wastewater for irrigation purposes, especially during the drier seasons (summer months). A lower percentage (63%) was however noted to be willing to pay for treated wastewater during the monsoon season. On average, 89% of these farmers were willing to pay for using treated wastewater for irrigation. The farmers were willing to pay Rs.482/- per 10000 litres (10 m3) of treated/partially treated wastewater. The results also showed that the farmers place a higher value on treated wastewater under a scenario of 'increased water scarcity' compared to any increment in cost of water supply. The bids offered by the farmers for an increase in cost of water at the initial levels (10% to 25%) are similar in terms of the average value (Rs.315.38). This increases marginally by Rs. 66 when an option of 100% cost increment is faced by the farmers. In comparison, the marginal change in the bid offered when scarcity of water increases from 25% to 50% is about Rs. 210 per 100m3 which is 3 times the increase in the bid offered for cost changes. The results also showed that farmers with more farming experience were willing to pay a relatively higher fee than the other groups. It is however important to note that the standard deviation for these farmers was also higher in comparison to the other groups. Additionally, farmers dependent on rainwater for irrigation were willing to pay a higher fee for wastewater for irrigation than farmers utilizing groundwater. This might be due to the fact that farmers practising rain-fed farming are willing to hedge the risk of vagaries of rainfall and hence have a higher willingness to pay. The farmers dependent on groundwater pay a relatively higher price for water compared to the other group of farmers and may not consider treated wastewater a substitute with the assured water supply they presently receive. Another reason for lower preference for payments is due to the fact that farmers who have already invested for groundwater are reluctant to phase it out completely since it entails a higher establishment cost. In regards to the businesses, the results showed that on average of 84% of the surveyed enterprises were willing to pay for treated wastewater. The average WTP value was Rs.455/- per tanker of treated/partially treated wastewater. However, among the larger enterprise respondents, they were willing to pay on an average of Rs.1160/- per 8,000 litre tanker. The results also indicated that the enterprises value treated wastewater relatively higher under the scenarios of 'increment in cost of water supply' than that of 'water. Under the water scarcity scenario, it was found that the payments offered by the enterprises were relatively lower. In fact even with a 10% scarcity of water, the enterprises were willing to pay about the same charges as when there was no water scarcity. Another important consideration is that while for the first 15% increase in scarcity of water the WTP for treated wastewater (a substitute) rises by Rs.50 (a rise of 10%) and for the next 75% increase in scarcity of water, the WTP rises by about Rs. 141 (about 28%). Thus the changes in the WTP move in an opposite direction (as availability decreases, WTP rises) although not proportional to the change in the scarcity of water (which would become dearer which scarcity of water). This implies that the enterprises do consider wastewater as a substitute to water although not a perfect substitute. The enterprises included in the survey comprised of institutional houses (Kalynmantapas), hotels, car services, washer-man and industries (like brick manufactures, chemicals and garments). Except for the industries, it was found that other businesses incur water costs less than Rs.5000 and hence have lower payments for wastewater. Similarly, the consumption of these businesses are lower than that of the industries and hence have a lower preference for WTP for treated wastewater. These smaller (and some medium) enterprises thus have a lower substitutability for treated wastewater rather than the larger industries and hence their demand curves are more inelastic to price changes of water. 28 It is clear that there is a fair demand for treated wastewater. In particular, the demand is higher among farmers but characterized by a WTP lower during the monsoon seasons that the summer season. Demand for treated wastewater among businesses was found to be specific to the enterprise type and use. Demand for water is expected to grow exponentially in the future particularly in the agricultural and industrial sectors. In terms of the structure of the water market, it is a well-regulated market and it is foreseen that the supply and distribution of wastewater and the related market structure will most likely follow a similar pattern.  Model 15: Large-scale composting for revenue generation (MSW-based compost), Model 16: Decentralized MSW composting and Model 17: High value fertilizer production for profit (faecal sludge-based fertilizer) The analysis shows that there is a significant demand for MSW compost and Fortifer. The potential market for MSW-compost is noted to be substantial with the demand estimated at 578,400 tons/year, with an adoption rate of 20% and application rate of 12.5 tons/ha/year. The total cultivated area is 231,377 ha1. The results indicate that farmers are willing to pay 1.458 INR/kg more to know the source of the waste input used to produce the compost; and an even higher premium of 5.359 INR/kg for pelletization and 14.397 INR/kg for certification. Nutrient content and quality which have direct positive effects on farm yields and profits are preferred attributes. Given these marginal estimates, the full analysis shows the estimated WTP for compost to be 61.214 INR/kg, which is significantly higher than the current market of competitive products. The results suggest that the demand for compost could increase if the abovementioned attributes are factored into the final product for the market. From a business perspective, it is pertinent to evaluate the costs of introducing any of these attributes as against the benefits, which are measured through the WTP estimates. In the instance where such product differentiation is not cost-effective, it is important to explore the opportunities that partnerships can offer and also those related to some form of government subsidization. The potential market for Fortifer is noted to be substantial with the demand estimated at 54,249 tons/year, assuming an adoption of 40% and application rate of 0.59 tons/ha/year. The total cultivated area considered is 231,377 ha2. Chemical fertilizer application rates were used as a basis for the calculation of the application rates of Fortifer (IFPRI, 2012). The average chemical fertilizer applications were estimated at 117 kg/ha and Fortifer at 5 times this estimate as Fortifer is considered a close competitive substitute product. The results indicate that farmers are willing to pay 10.63 INR/kg more for fortification and an even higher premium of 14.97/kg for pelletization. Interestingly, the farmers were however noted to have a lower valuation for the certification attribute and would need a compensation of 0.77 INR/kg for certification. Nutrient content and quality which have direct positive effects on farm yields and profits are preferred attributes. It is important to note that the premiums are slightly lower when socio-economic variables are factored into the choice set. Given these marginal estimates, the full analysis shows the estimated WTP for fortified and certified Fortifer to be 67.06 INR/kg, which is significantly higher than the current market of competitive products. The market structure assessment suggests an oligopolistic fertilizer market, plagued by market distortions attributable to limited infrastructure (installed capacity); high energy requirements for production and a growing organic agricultural sector which has created an opportunity for business development in the organic fertilizer sub-sector. The chemical fertilizer sector is also a capital-intensive industry. Thus, limited 1http://agcensus.dacnet.nic.in/districtT1table1.aspx 2http://agcensus.dacnet.nic.in/districtT1table1.aspx 29 access to financing at a large scale further exacerbates supply-related constraints (IFDC and CHEMONICS, 2007). There is however a large-scale government fertilizer program that provides subsidized fertilizer to farmers and a fairly active private fertilizer sector that supplies fertilizer at competitive prices; this represents a potential limitation for market entry of organic fertilizer businesses. It is important to note that there could be a potential revision to the current subsidy regime in the instance that the national budget deficit continues to grow. On the other hand, the growing organic foods market will increase the demand for organic fertilizers and the respective producers certainly have an opportunity to play a key role in filling this gap in the fertilizer market. The overall feasibility of the business models was then evaluated based on the different aspects (market demand, market structure and market outlook). It was noted that models 1a, 9, 15/16, 17, have a medium feasibility from a markets' perspective (Table 5). On the other hand, waste-to-energy models, in particular agro-waste and faecal sludge to electricity have a low feasibility potential as is the wastewater-fed fish business model from a market perspective. 30 Table 5: Overall feasibility of the selected RRR business models from a market perspective Business model WTP and Market Demand Market Structure Market Outlook Cumulative feasibility score Value-added product/recovered resource Model 1a – Dry fuel manufacturing: agro-waste to briquettes WTP > Current market price of substitute product 1. Fairly easy market entry 2. Low-to-medium level of concentration 3. Limited to no product differentiation 4. Price setter 5. Potential net profit margins 5 -6 years to reach growth stage in business life cycle Medium feasibility Briquettes Model 4 – Onsite energy by sanitation service providers Consumers are price- takers. As electricity is subsidized - we assume that WTP = current market price 1. Medium to difficult market entry - regulated market 2. Medium to high level of concentration (oligopolistic market) 3. No product differentiation 4. Price taker 5. Potential negative profit margins (without subsidies) Future demand scenario assessment indicates fair possibility for the government to fulfill supply gap Low feasibility Electricity Model 6 – Power capture model - Livestock waste to energy Model 8 – Beyond cost recovery: the aquaculture example WTP < Current market price of substitute product 1. Medium level of ease for market entry 2. Low to medium levels of market concentration 3. Limited to no product differentiation 4. Oligopolistic fertilizer market but potential price setter 5. Potential net profit margins –positive 10 -11 years to reach growth stage in business life cycle Low feasibility Wastewater-fed fish Model 9& 12 – On cost savings and recovery (wastewater reuse) WTP > Current market price (among farming households) 1. Medium level of ease for market entry 2. Low to medium levels of market concentration 3. Limited to no product differentiation 4. Oligopolistic fertilizer market but potential price setter 5. Potential net profit margins –positive Anticipated exponential growth in demand esp. in agricultural and industrial sectors Medium feasibility Wastewater Model 10 – Informal to formal trajectory in wastewater irrigation Not evaluated as policies, legislations and organizational structures are not supportive of this practice. No feasibility Model 15 – Large-scale composting for revenue generation (MSW to compost) WTP > Current market price of competitive/ substitute products 1. Medium level of difficulty for market entry 2. Fair level of concentration 3. Fair level of product differentiation 4. Oligopolistic fertilizer market but potential price setter 5. Potential net profit margins –positive 6 -7 years to reach growth stage in business life cycle Medium feasibility MSW-based Compost Model 16– Subsidy-free community based composting (decentralized composting) Model 17 – High value fertilizer production for profit WTP > Current market price of competitive/ substitute products 1. Easy entry 2. Fair level of concentration 3. Fair level of product differentiation 4. Oligopolistic fertilizer market but potential price setter 5. Potential net profit margins –positive 6 -7 years to reach growth stage in business life cycle Medium feasibility Faecal sludge-based organic fertilizer Model 20– Outsourcing faecal sludge treatment to the farm Although practiced in the private sector, disposal of raw faecal sludge on farmland is illegal. Low feasibility 31 4 Key findings of the Institutional and Legal Analysis This chapter presents the review of the institutional arrangements around resource recovery and reuse (RRR) in Bangalore and an assessment of the feasibility, in terms of institutional viability and acceptability, of introducing new RRR options or of expanding existing ones. Bangalore was selected because there are already a number of existing RRR practices observed in the city, both formal and informal, large and small. Furthermore Bangalore’s resource use is set in the context of increasing population pressure and growing demand on existing resources such as water supply, availability of nutrients for agriculture and energy for domestic and industrial use. The population growth is also straining waste management infrastructure and administration, resulting in inadequate collection, treatment and disposal of wastewater, faecal sludge (FS) and municipal solid waste (MSW). The analysis considers a suite of waste streams (wastewater, MSW, FS and sewage sludge) and end uses (irrigation, aquaculture, energy and compost). A variety of waste streams and end-use combinations are possible, for example MSW for compost production and energy generation; and wastewater for energy generation and irrigation. The institutional analysis of RRR options in Bangalore is based on a review of the stakeholders and the institutional arrangements that govern their actions. This includes government and non-government, formal and informal organizations and individuals that have a part to play in elements of RRR and the written laws and policies that govern them, as well as the informal arrangements that shape their modes of operation. The stakeholder list, derived from literature review, workshops and the knowledge of the project team, included: government organizations that affect policy and legislation (national, state and city); government organizations that implement or enforce these; non-governmental organizations (NGOs) that influence policy and practice; private sector players such as technology and service providers; and the wider public who benefit from services and RRR products or who suffer due to poor management and infrastructure. From this list, key informants were interviewed to understand their roles, relationships and opinions about RRR. The formal institutional arrangements were understood through an extensive review of national and local laws and policies, academic literature and media opinion, as well as interviews with key stakeholders. The analysis focused on providing a general description of government structure, laws, policies and stakeholders. This was followed by a detailed review of those laws, policies and practices in the context of waste streams and reuse products or practices. A triangular analysis was used, which considers the institutional arrangements in terms of content (e.g. of written laws and policies), structure (the set up for implementing laws and policies) and culture (the less tangible opinions, beliefs and practices of stakeholders).The final element of the analysis used the results from the triangular analysis to assess the feasibility of the selected business models. This was also conducted based on a content, structure and culture concept but used a matrix to arrive at a final ‘high’, ‘medium’, ‘low’ or ‘no’ feasibility, for each model. Several factors such as legality (something forbidden by law would be deemed unfeasible), available budget, private sector interest, ease of establishing the business, community acceptability and government structure were considered. 32 4.1 Institutional Arrangements for Waste Management The institutional environment in Bangalore is shaped by the interplay of the formal government structure, policy and legislation; private sector activity; civil society pressure; and the judiciary. In the government sector many of the powers have been decentralized to local levels, including the state and municipality. Policy and legislation still predominately emanate from the national level3 but generally require local level adaptation. The local level is also the point at which management actually takes place and practical decisions are taken about waste and resource management. In Bangalore, the main implementing government agencies with mandates relevant to RRR are: the Bangalore Water Supply and Sewerage Board (BWSSB); the Karnataka State Pollution Control Board (KSPCB); and the Bruhat Bengaluru Mahanagara Palike (BBMP), which is responsible for SWM. The BWSSB is required to supply water and provide sanitation facilities to the citizens of Bangalore. It is interested in water reuse from both a water supply and sanitation perspective and is actively pursuing a reuse agenda, albeit through a small department. The ‘New Initiative and Design Cell’ is implementing projects to treat wastewater in central sewage treatment plants (STPs) and sell it to industrial users. The cell is relatively new but similar projects have been undertaken in Bangalore for decades with mixed results. The new cell hopes to create greater awareness and public support. Reuse is beneficial because it is less costly for the BWSSB to treat and reuse wastewater than to pump it from the Cauvery River, Bangalore’s main water supply, and it could potentially generate a net income for the BWSSB. It may also provide a means by which BWSSB can reach the as yet unserved periphery of the city. The KSPCB is stimulating on-site treatment and reuse through its local adaptations of national environmental and pollution management rules. Under these, certain bulk wastewater generators, such as residential apartments and commercial establishments, must have on-site STPs and use the treated wastewater within the premises, for activities like watering gardens and toilet flushing. At present the approach is not working optimally as many STPs are not functioning for reasons that include lack of expertise, cost (or perceived cost), the absence of dual plumbing and inadequate enforcement. However, this is changing, not least because of the water shortages across the city and the cost of obtaining water from tankers. This is encouraging improved STP management, especially in areas where BWSSB has not been able to provide services. The demand for STPs and improved management is, in turn, driving expansion in the number of private companies offering STP services. The BBMP is responsible for SWM in Bangalore, as are urban local bodies (ULBs) in other towns and cities. They must implement the Municipal Solid Waste Management and Handling (MSW) Rules, 2000 and enforce the Manual Scavengers and Construction of Dry Toilets (Prohibition) Act, 1993. However, the system is not functioning well and there have been protests in the past two years. This has expedited a change in the system to introduce better separation of waste at source as a means to facilitate recycling and composting. There are still problems, for example the new dry waste collection centres (DWCC) mainly receive low grade or non-recyclable material, while informal scrap dealers and waste pickers benefit from the trade in higher value recyclables. Processes are evolving, for example the BBMP is engaging with the informal sector and NGOs, but more needs to be done. One suggestion by the BBMP Expert Committee is to create a cell within BBMP dedicated to SWM because at present the staff have 3Key national policies and legislation include: the National Water Policy, 2002 and 2012; the Municipal Solid Waste (Management and Handling Rules) (MSW Rules), 2000; the Environment (Protection) Act, 1986, and Rules, 1986; and the Water (Prevention and Control of Pollution) Act, 1974, and Rules, 1975. 33 multiple responsibilities. They also suggest encouraging private sector participation and a “vendor empanelment process” to provide a framework for this. The Karnataka Compost Development Corporation (KCDC) is another important link in the SWM chain. It is a government owned company producing organic manure and vermi-compost. Their plant has been beset by problems but now appears to be making a profit, and could offer a model for other companies. Part of their success is that they supply the Karnataka State Department of Agriculture (KSDA) which then sells the compost to farmers at a 50% subsidy. They have also entered the private market and are now competing with commercial fertilizer producers. The Department of Energy (DOE), the Karnataka Renewable Energy Development Limited (KREDL) and the Karnataka State Bio-fuel Development Board (KSBDB) are all important players in the energy sector in Bangalore. The sector is subject to the Karnataka Renewable Energy Policy 2009-14, which includes biomass, biogas and waste-to-energy (WTE). Their effectiveness in terms of WTE is difficult to assess because it is only a small part of their work and the WTE strategy for BBMP was only proposed by KSBDB