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Resources, Conservation and Recycling 83 (2014) 87– 95

Contents lists available at ScienceDirect

Resources, Conservation and Recycling

journa l h om epa ge: www.elsev ier .com/ locate / resconrec

xploring full cost accounting approach to evaluate cost of MSWervices in India

omnath Debnath ∗, S.K. Boseepartment of Management, Birla Institute of Technology, Mesra, India

r t i c l e i n f o

rticle history:eceived 9 July 2013eceived in revised form 8 December 2013ccepted 13 December 2013

eywords:unicipal solid waste management

a b s t r a c t

Municipal solid waste (MSW) services of developing countries often suffer due to the lack of finan-cial and operational autonomy, scientific approach, and adequate levels of resources. The solid wastemanagement (SWM) practices of developed countries are benefited in cost and efficiency due to the par-ticipation of private players and sound financial management. However, developing economies dependon local municipalities to own and operate SWM services amidst structural and financial inefficiency.With the demands of augmenting efficient and cost-effective SWM services to the expanding population

ull cost accountingxternalitiesunicipal corporationseveloping economies

of cities and towns of newly industrialized nations on the rise, the municipalities in these countries areunder pressure to adopt ways and means that can support efficient utilization of resources and improveddecision-making capabilities. This research article reflects the current state of the MSW services in Indiaand explores full cost accounting (FCA) framework in its ability to generate information on cost-relatedaspects and sustainable deployment of resources. Lastly, the extensibility of FCA is tested by integratingexternalities of MSW services.

. Introduction

Efficient and effective municipal solid waste managementMSWM) is a contentious and political issue of newly industrial-zed economies. In India, the solid waste management (SWM) of aown or city is the sole responsibility of the concerned local munic-pal body, which is a complex set-up of multiple stakeholders withimited financial and administrative autonomy. These stakeholdersan be grouped into public sector (national, state, and local author-ties to fund the SWM activities), private sector (large and smallnterprises which carry out different municipal activities), informalector entities (rag-pickers, itinerant buyers, traders, and small-cale recyclers), and local communities and its agencies (includingGOs and voluntary bodies). With the 74th constitutional amend-ent, the purview of local municipalities in India is extended to

nclude urban local bodies (ULBs). The expanded responsibilities ofhe ULBs include formulation and implementation of urban admin-stration policies to cover the areas of social development, publicealth and sanitation, slum development, etc. However, the gover-

ance of ULBs is not uniform and depends on the current status ofdoption of the said amendment by the municipalities of a regionMahadevia and Wolfe, 2008).

∗ Corresponding author at: Department of Management, Birla Institute of Tech-ology, Mesra, 835215 Ranchi, India. Tel.: +91 9833043243.

E-mail address: sndebnath@yahoo.co.in (S. Debnath).

921-3449/$ – see front matter © 2013 Elsevier B.V. All rights reserved.ttp://dx.doi.org/10.1016/j.resconrec.2013.12.007

© 2013 Elsevier B.V. All rights reserved.

In addition to the aforesaid complexities, the municipalities inIndia depend on state and central agencies for financing its SWMand other activities. Until recently, municipal bodies have been fol-lowing cash basis of accounting to record financial transactionswithout even differentiating capital from revenue expenditures(ICAI, 2009; NIUA, 2010). The lack of transparency in accountingfunctions of the municipalities and unavailability of performancereports in the public domain lead to the difficulty of estimating costof MSW services. Also, there is little evidence of research aroundfinancial efficiency and performance of SWM services within Indiancontext. The ones that chose to explore this and other allied areascould offer limited generalization in SWM costs, mainly due to theuneven behavior of costs that change with demographics and can-not be sourced from verifiable data sources (Parthan et al., 2012b).

However, in the era of rapid industrialization need for efficiencyin public services, rapid rate of subcontracting, and effectiveness ofprivate sector would make it imperative for the policy makers andlocal administrators to understand the cost related implications ofchosen strategies. Full cost accounting (FCA) is one of the decision-making frameworks recommended for SWM services in literature(EPA, 1997). Although the inclusion of external costs within FCAhas been experimented in corporate organization to some extent(Antheaume, 2004), it has rarely been explored for integrating

externalities within the context of MSWM, especially that of newlyindustrialized nations. With the help of financial data from theannual accounts of Municipal Corporation of Greater Mumbai(MCGM), this research article experiments with the applicability of

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CA framework to evaluate cost of the MSW services and expands ity integrating externalities, so as to explore the capabilities in sup-orting improved decision-making. To achieve this objective, theest of the paper is organized as follows: Section 2 covers literatureeview followed by the development of cost objects and cover SWMctivities in Section 3. Section 4 retro-fits FCA framework with dataollected from secondary sources and subsequently improvises itith the cost of externalities. Section 5 discusses the results of FCA

ramework to tests its applicability in improved decision-making.ection 6 summarizes the findings from this exploratory study andffers suggestions for future research.

. Literature review

Review of literature on the SWM practices can cover multipleisciplines of research and scholarship. The focus of the literatureeview in this article is to explore contemporary economic outlooknd notable accounting practices of the municipalities in differentountries.

.1. Comparative analysis of SWM between developed and newlyndustrialized nations

This sub-section covers the literature on the SWM practices ofeveloped nations and different set of tools that are in use to mea-ure and reflect upon the collective efficiency of MSW services.

ell-aligned SWM policies of municipal services in developedountries are generally tied to the objectives of generating adequatenance for its activities, which is achieved through the service

ees levied on the consumers (Tojo, 2008). The role of privatearties has been found to be of significant importance for priva-ization and successful transformation of the SWM services into

cost-effective and efficient one (Davies, 2007). Literature alsondicates the advancements in different SWM functions like meth-ds to improve waste-to-energy (WTE) and other disposal optionsf MSW (Cuadros et al., 2011), application of contingent valua-ion models to handle greenhouse gases (GHG) (Parra et al., 2008),se of different economic valuation methods to review and ana-

yze the valuation of externalities of SWM strategies (Eshet et al.,006), economic impact of closed landfills on property values (Hamt al., 2013), and environmental awareness of the municipalities byxperimenting with the adoption of environmental accounting andeveloping suitable environmental index (Qian and Burritt, 2007).

These and other articles indicate that the success of MSW poli-ies depends on the established legal framework, careful economiconsiderations to finance SWM activities, adoption of scientificaste disposal practices, and partnership with the private sec-

or. These measures are critical to lower the cost of MSW services,mprove resource utilization, and develop efficient recycle chainsDavies, 2007; Tojo, 2008). In comparison, the MSW services ineveloping countries are owned and operated by the town or cityunicipalities, but dependent on the central or state agencies for

nancing its activities (Gechlik, 2009). Although the SWM prac-ices are not uniform and often incomparable across developingountries (Uiterkampa et al., 2011), literature from developingountries like Bangladesh (Sembiring and Nitivattananon, 2010),reece (Karagiannidis et al., 2008), India (covered in Section 2.3),alaysia (Afroz and Masud, 2011), South Africa (Friedrich and Trios,

013), and Taiwan (Chen, 2010) evidence the commonality of con-entional approach in handling MSW, limited private partnership,nd growing (dis)economies of social externalities. Social external-

ties of backyard recycling, e.g., waste of electrical and electronicstems (WEE) (Manomaivibool, 2009; Sepúlveda et al., 2010), andolicy indifference toward informal sector, are supported in litera-ure (Agarwal et al., 2005; Sembiring and Nitivattananon, 2010).

ation and Recycling 83 (2014) 87– 95

2.2. Full cost accounting (FCA)

The prevailing accounting practices limit the transactional pro-cesses within the boundary of economic operations and followthe generally accepted accounting policies (GAAP) to record thesetransactions. This leaves difficult-to-measure costs, including socialand environmental contingencies of economic activities, outsidethe accounting frameworks (Gray and Babbington, 2001). Whilemonetization of these external costs is one end of the problem,building objective interpretations for supporting decision-making,is another. FCA is proposed in literature as an accounting tech-nique that is capable of incorporating complete range of costs,beyond what is recognized in books by following GAAP (IFAC, 2005).However, the external costs are not always easily determinable,may vary according to the scope of investigation, and open to theinterpretive bias of economic agents (Herbohn, 2005). In spite ofsome successful attempts by companies like Ontario Power Genera-tion, BSO/Origin, PowerGen, etc., setting the frameworks to captureexternal costs have proved to be time-consuming, tedious, incon-sistent, and fraught with methodological challenges (Antheaume,2004). Even though FCA can be considered as an ideological shifttoward “inclusive accounting”, it is yet to develop into a practicalaccounting tool for industries (Bebbington et al., 2001).

On the other hand, adoption of FCA as a part of municipalaccounting process and its ability to cover costs that could be associ-ated to the complexities of multi-entity engagements – a commonfeature of MSWM – is well supported in literature (Antheaume,2004; Lim, 2011). Traditional FCA restricts it to economic costsalone (EPA, 1997) but it could be expanded to include environ-mental and social costs (externalities) and bring these within thecorporate decision-making arena, as experimented in case of cor-porate firms (Cuadros et al., 2011). Theoretically, decision makingin MSWM would be benefited from the expanded coverage of coststhat include the ones being incurred (at present) and/or wouldbe incurred (in future) by society to counter the negative aspectsof the discards generated by industrial products and processes(Bebbington et al., 2007; Dascalu et al., 2008). The use of tradi-tional FCA to handle MSW activities in developed countries like USand Canada is available in literature, but the newly industrializednations are yet to work toward adopting or implementing it (Lim,2011), and this is an effort to support this direction.

2.3. Review of the economics of Indian MSW services

MSWM in India is covered under the legal provisions of theMunicipal Solid Wastes (Management and Handling) Rules, 2000,which bestows the administrative responsibility of managing SWMof a region to the concerned municipalities. Also, MSW in Indiadoes not cover hazardous, bio-medical, and nuclear wastes, asthese categories of waste are covered under separate legal statutes(Mahadevia and Wolfe, 2008) and are outside the focus of thisarticle. To understand the state of MSW practices in India, theauthors have reviewed 29 peer-reviewed context-specific articles(Appendix I). These articles cover bulk of contemporary work thathelped us to profile Indian MSW services. This includes region spe-cific studies covering towns and cities like Aligarh (Khan and Ansari,2010), Delhi (Chakrabortya et al., 2011; Uiterkampa et al., 2011),Kanpur (Zia and Devadas, 2008), Kolkata (Hazra and Goel, 2009),and southern states (Narayana, 2009; Pattnaik and Reddy, 2010).

These articles characterize MSW services in India as fragmentedand labor intensive with poorly prioritized goals, operating withlimited participation of private sector, and delivering (mostly)

free-of-cost services to the citizens (Kumar et al., 2009; Nunan,2000; Sharholy et al., 2008). In addition, lack of scientific approachin waste handling, recycling, and treatment facilities is evident(Agarwal et al., 2005; Saini et al., 2012). However MSW services

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re benefitted by the contributions of the informal sector, e.g.,aste recycling and rag-picking, which reduce overall cost of

ervices, but without acknowledging the efforts as part of main-tream SWM activities (Chaturvedi, 2003; Manomaivibool, 2009;epúlveda et al., 2010). Some of the studies shared findings onfficient close-looped industrial symbiosis of SWM recycling (Baint al., 2010; Rathi, 2003) and methods to improve waste gener-tion practices in industries (Agrawal et al., 2004; Pappu et al.,007), while others remained critical of the immediate attentiono mitigate rising levels of toxic waste from industrial parks andhe practice of dumping garbage in open grounds (Mondal et al.,010; Rawat et al., 2009). The broken chain of garbage sorting andecycling along with the lack of scientific arrangements of wastereatments are not only forcing the economy to lose out on the ben-fits of optimized recycling practices but also contributing towardncertainties in the cost of services, not to mention the harmfulffects of prevailing SWM practices.

The review of literature shows the estimation and analysis ofhe economics of Indian MSW services (articles marked with aster-sks in Appendix I) and use of different cost models to compareconomics of alternate arrangements of waste disposal, e.g., unitost appraoch (Yedla and Kansal, 2003), economic model to com-are SWM practices of Mumbai with that of community-basedaste management and public-private partnership (PPP) arrange-ents (Rathi, 2006), optimization model to compare alternate

arbage disposal arrangements (Rathi, 2007). Also, unit cost ofSW services of Indian cities from different sources show consid-

rable variations that cannot be easily generalized or benchmarkedParthan and Milke, 2009; Parthan et al., 2012a). The unavailabilityf authentic data source is also a cause for concern and highlightedn most of these studies. Institutional reports on MSW reflect thatill recently municipal accounting practiced cash-based accountingystem and its shift to the accrual system of accounting is recentICAI, 2009; NIUA, 2010). So, it can be safely assumed that the costccounting practice within Indian municipalities is simply non-xistent, or premature at best, and that the situation could be theame or worse in other newly industrialized nations (supported byhe findings of Lim, 2011). Instead of waiting for the institutional-zation of cost accounting as part of municipal accounting system,his article explores FCA by developing SWM cost functions and val-dating these by using data from published accounting statementsf MCGM. Accordingly, the objectives of this study are:

a) to develop cost functions of SWM operationsb) use data from public accounting records to examine its fitment,

and,c) extend the framework to incorporate externalities of Indian

SWM environment.

. FCA framework in Indian SWM environment

The first part of the study is to establish the cost elementsgrouped into variable and fixed costs), followed by the develop-

ent of cost objects and formulation of cost functions. To achieverugality, the cost elements are pruned to the few important ones.

.1. Cost elements

.1.1. Variable cost elements (variability with quantity of solidastes handled)

. Labor cost: wages and benefits of workforce.

. Running cost of vehicles: fuel expenses, vehicle contractingcharges, and annual depreciation.

c. Repair, maintenance, and servicing costs: maintenance and ser-vice expenses of vehicles and other equipments.

ation and Recycling 83 (2014) 87– 95 89

. Subcontracting: cost of outsourced SWM services to third-parties.

e. Other expenses and overheads: all other incidental and oper-ating expenditures that show variability with tonnage of wastehandled.

3.1.2. Fixed expenses of SWM operationsa. Administrative expenses: office expenses like communication,

conveyance, stationary, etc.b. Salaries and benefits: salaries and statutory benefits of office

staff.c. Depreciation: depreciation of all moveable and immoveable

assets associated with the SWM.d. Others: all other expenses not covered and remain fixed over a

year.

3.1.3. Revenue. Earnings from the sale of treated/untreated garbage, equipment

rentals, rental charges of landfill area (for sorting or recycling),and sale of recyclable items.

. License, fines, rates and taxes collected from households, shops,markets, commercial establishments, and other contractingagencies.

c. Proceeds from waste-to-energy (WTE), composting, and/orwaste recycling projects, net of operating costs.

3.2. Cost objects

Cost objects are the cost pools that link SWM functions withcost elements. The cost elements are grouped into three main MSWactivities, i.e. collection, transportation and disposal of solid waste(Mahadevia and Wolfe, 2008):

3.2.1. Cost of collectionThis includes labor, tools, vehicles, and cost of other direct and

indirect expenses to collect wastes from source (households, com-mercial establishments, markets, industries, etc.). In addition, thiswould also include cost of cleanliness/hygiene of roads and drainsin municipal wards.

3.2.2. Cost of transportationThis would include cost of running motorized equipments and

vehicles to transfer and transport wastes from community and col-lection bins to sorting stations and from sorting stations to theprocessing factories or landfill sites. Also, repairs and maintenanceof vehicles, depreciation of vehicles and other equipments beingused can be a part to it.

3.2.3. Cost of disposalThis would include the cost of landfilling, depreciation of sani-

tary landfills, waste handling and maintenance expenses of landfillsite. This would also include cost of sorting, segregation, and pro-cessing wastes under waste–to-energy (WTE), waste-to-compostand/or any other initiative to process wastes. Since, most of thelandfill sites in India are open dumping grounds, cost of disposal isassumed is believed to be negligible.

3.2.4. Aggregate cost functions

So, cost of SWM services (SWC) at specific efficiency level :

= [Cost of collection + Cost of transportation

+Cost of segregation + Cost of Disposal]

−Revenue generated by the municipalities (1)

90 S. Debnath, S.K. Bose / Resources, Conserv

Table 1SWM cost sheet of FCA framework.

Particulars Collection Transportation Disposal Total

Variable costsVC 1VC 2, etc.

(A) Total variable costsWaste Qty.Cost/unitEfficiency levelsCost at 100% efficiency

Add: fixed costsFC 1FC 2, etc.Total Costs

(B) Total fixed costs(C) Total cost (A) + (B)

Revenue generatedR1R2, etc.

(D) Total revenue

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(E) Net cost (D) − (C)Unit MSW Cost/TPD

nit cost of SWM services (in functional currency/

TPD or tons per day) = Cost of SWM disposal services

(in functional currency)/Total quantity of waste collected (TPD)

(2)

Table 1 details the SWM cost sheet by using the informationrom this exercise.

. Example – SWM costs of Municipal Corporation ofreater Mumbai (MCGM)

In the absence of cost accounting data of MSW activities, finan-ial data from the annual accounts of MCGM (for the year 2011–12)s used to develop the cost objects. MCGM shifted to accrualasis of accounting by following double entry book keeping sys-em in the financial year 2007–08 (ICAI, 2009) and its annualccounts provided authentic information on SWM expenditures.he data to build cost elements is sourced in this example fromhe income statements and include relevant account heads fromchedules of: (a) salaries, wages, and benefits (account codes:10000000 – 210501301), (b) administrative expenses (accountodes: 22000000000 – 220809999), (c) operation and maintenanceO&M) expenses (account codes: 230100101 – 230809907) withWM function codes (44100000000 – 44500000000). The SWMunction costs are obtained by apportioning the cost of individ-al cost heads in the ratio of its function break-up with that of theccount totals. Fee and user charges (from schedule I – 40) coverhe income side of the operations (MCGM, 2013).

In this exercise, the variable costs include power and fuelxpenses, stores consumption, vehicle hire charges, repairs andaintenance, etc., and are part of operation and maintenance

O&M) expenses. The variables costs are subsequently apportionedo the respective SWM functions of collection, transportation, andisposal, in the ratio of 7:2:1, based on past experience from similar

tudies (Hazra and Goel, 2009). Since ‘power and fuel’ and ‘repairnd maintenance’ expenses are part of transportation expenses,0% of these expenses are allocated to transportation cost objecthile 10% has been allocated to landfill. Similarly, fixed expenses

ation and Recycling 83 (2014) 87– 95

of salaries and benefits, communication expenses, traveling andconveyance, other admin expenses, etc., are sourced from establish-ment (schedule 1-10a) and administrative expenditures (schedule1-11a). Due to insufficient information, fixed charges have not beenapportioned amongst the cost objects.

To derive total solid waste generated by Mumbai during theyear, the current census of Mumbai (12.50 million in 2012) isextrapolated by assuming 5% increase in the annual SWM genera-tion rate over the selected baseline rate of 541 g/capita/day of 1999(NIUA, 2005). The calculated level of solid waste works out at 7100TPD (at 568 g/capita/day) and is slightly higher than that of 6500TPD – quoted in MCGM website. The variation in the estimates fromdifferent sources has been inherent part of these studies and reflectsthe downside of not having a central database. The operational effi-ciency of MCGM in this analysis is considered as 100% (Rathi, 2007),although nation-wide SWM collection efficiency averages at 72.5%and transportation at 70% (Pattnaik and Reddy, 2010). The totalannual SWM expenditure of MCGM translates to marginal cost ofINR 1724/TPD and net cost of INR 2880/TPD (Table 2).

4.1. Externalities within FCA framework

In line with the expectations that FCA framework should beable to handle externalities (IFAC, 2005), the framework is beingintroducing to the two externalities that are relevant to the IndianMSW practice. This will test the expandability of FCA to assimilateexternalities and contribute toward better decision-making.

4.1.1. Contributions from informal sectorThe collection and transfer of recyclables from the waste heaps

through scavenging by the rag-pickers, contributes to the informalrecycle chain. The contributions of the informal sector supplementthe demands of raw materials and support the reduction of eco-logical rucksack along the materials chain. However, the efforts ofrag-pickers are part of the informal waste chain and outside thefair trade (Agarwal et al., 2005; Rathi, 2007). Although the munici-palities lose out on the economic value of recyclables, the reducedquantities of waste save operating costs and extend the lives ofdumping grounds. The net economic benefit to the municipali-ties is a positive externality for the economy, achieved throughthe exploitation of rag-pickers and lower echelons of informalsector (bad working conditions, economic losses on scavenging,health costs, etc.), ultimately contributing to societal loss (loss ofresources, suboptimal resource utilization, social inequalities, etc.)(Petcharat and Mula, 2012).

So, net savings to the municipalities due to the involvement of

the informal sector = Saving in costs due to (reduced municipal

solid waste (MSW)) tonnage + saving due to extension of life

of landfill capacity − economic contributions of the

informal recycling (3)

Where, savings due to extended life of landfilling area

= Saving in landfill capacity converted into time period

of equivalent present value of rental earning of the land (4)

4.1.2. Economics of wasted energyThe unscientific landfilling of garbage with biodegradable mate-

rials leads to the generation of methane and carbon dioxide gases– classified as greenhouse gases (GHG) – from decaying waste. In

S. Debnath, S.K. Bose / Resources, Conservation and Recycling 83 (2014) 87– 95 91

Table 2Cost of solid waste management in Mumbai (in INR/day, unless specified).

Particulars Collection Transportation Disposal Total %Age

Variable costsPower and Fuel – 1,430,563 158,951 1,589,515 6.94Consumption of Stores 950,782 271,652 135,826 1,358,260 5.93Hire charges 613,271 175,220 87,610 876,101 3.83Rep and Maint. – vehicles – 175,842 19,538 195,380 0.85Wages 5,753,685 1,643,910 821,955 8,219,550 35.91

(A) Total variable costs 7,317,738 3,697,188 1,223,881 12,238,806 53.47Waste collected (TPD) 7100 7100 7100 7100Marginal cost (INR/TPS) 1031 521 183 1735Add: fixed costsRents, rates and taxes 13,206 0.06Office maintenance 15,490 0.07Salary – supervisors 7,001,839 30.59Repairs and Maint. – others 3,515,783 15.36Others 102,908 0.45

(B) Total fixed costs 10,649,226 46.53

(C) Total cost (A) + (B) 22,888,032 100Total costs (in INR/TPD) 3224Revenue generated:Fees and user charges 2,439,277Sale of compost –Earnings from recycling –

(D) Total revenue 2,439,277Total revenue (INR/TPD) 344

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including environmental cost of disposal at sanitary landfill. Incomparison, the unit cost of SWM activities in this study has workedout to be INR 2880 TPD for Mumbai (excluding externalities) atwaste generation level of 7100 TPD (Table 2). Although the absolute

Table 3Externalities of SWM operations of MCGM (in INR/day, unless specified).

Particulars Total

(E) Net cost (from Table 2) 20,448,755Net Cost (INR/TPD) 2880Externalities(a) Loss to the economy due to unharnessed energy from

emission release680,847

(b) Financial gain contributed by the informal sector (netof earning from recyclables)

5,433,603

(E) Net cost (C) − (D)

Net cost (INR/TPD)

he absence of scientific waste-to-energy (WTE) or sanitary land-lling programs, these landfill gases (LFG) escape in the air (Sainit al., 2012). Using IPCC default methodology, it is possible to com-ute equivalent energy that is lost by allowing methane to escape,hich could have been used to augment the energy needs of the

conomy (Petcharat and Mula, 2012).

o, the cost of methane emissions from landfill

= Methane generation potential derived based on the

degradability of the solid waste × Gross Calorific Value (GCV)

of methane × Density of methane (5)

.2. Computations of externalities associated with SWM

Considering 80,000 rag-pickers on the streets of Mumbai (esti-ates vary anywhere 50–100k) and average earnings of INR 60 per

ay, the quantity of waste handled by the rag-pickers works outo be 1600 MT (18% of the total waste). Other studies have indi-ated the waste removed by rag-pickers is anywhere between 10nd 15% of the total waste (Agarwal et al., 2005). On an average,hifting 15–20% of waste could generate net savings in the MSWperating costs to the tune of INR 5.43 million/day (working aser Appendix II) and this has been captured as the social costs ofWM operations (Table 3). So far as LFG is concerned, the quan-ity of methane generated is converted into equivalent quantity oflternate fuel source, e.g., coal. Using IPCC default methodology,he methane generation capability of SWM works out as equiva-ent energy of 234,000 MJ/year (assuming biodegradability factorf 0.21 and 60% recovery potential) or 196,000 equiv. tons of coalat GCV of 5000 kcal/ton). With base price of coal at INR 1270/ton

ET bureau, 2013), this leads to annual loss of INR 250 million tohe economy (working as per Appendix III). Both these externalitiesncrease the cost of MSW services from INR 2880 TPD to INR 3741PD, while 529 tCO2e/day of GHG gets added to the GHG inventory.

20,448,7552880

It would be pertinent to note that the externalities covered inthis section are neither exhaustive nor covered the entire range ofMSW operations. Other externalities like GHG due to waste trans-portation, emissions from waste reprocessing, underground watercontaminations due to leachate, etc., and the relevant cost implica-tions would need further in-depth study and comprehensive datagathering, but can be incorporated as part of FCA framework byfollowing the approach discussed in this section.

5. Results and discussion

Earlier studies have used different methods to evaluate the costof the MSW services for different class of cities (based on demo-graphics) and pegged it anywhere between INR 500 and 1500 perTPD (Parthan and Milke, 2009). However, Yedla and Kansal (2003)estimated the MSW cost for MCGM at waste generation level of6000 TPD (in the year 2001–02) at INR 1668 TPD, whereas Rathi(2007) estimated ir to be INR 2117 TPD for the same period by

(F) Cost of externalities 6,114,450Total Cost of Externalities (E) + (F) 26,563,206

Overall cost of SWM (in INR/TPD) 3741GHG inventory addition due to LFG (in tCO2e per day) 529

9 nservation and Recycling 83 (2014) 87– 95

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Table 4Capital investment alternatives to internalize externalities.

Particulars Daily Annual

(1) Externalities (quantitative aspects)(i) Methane production at 60% capture

rate (in tons)435 158,775

(ii) Current level of SWM picked up bythe informal sector (in tons)

1600 584,000

(iii) LFG generated (in tCO2e) 529 193,085

(2) Corresponding opportunity gainsby internalization (financials)

INR (in millions/year)

(i) Wholesale price of rags (at twice therate received by rag-pickers)

3504

(ii) Equivalent value of energy supply 249(iii) Market value of carbon credit, if

LFG is contained (at INR220/tCO2e6)a

42

Total opportunity income (a) + (b) + (c) 3795

(3) Investments opportunities, e.g., 1050(i) Develop and operate 100 hectare

(10 meter deep) scientific SWMfacility to capture LFG

2880

(ii) Rehabilitate 50% of the rag-pickersat minimum wages of INR 6000

(iii) Investment with 10% plus ROI infive years at 10% interest rate

2700

2 S. Debnath, S.K. Bose / Resources, Co

nit cost seems a little higher in this case, the real cost (at 2001–02rices) shows a reduction of 20–40%, once adjusted for cost inflation

ndex of 100% for a decade. The savings in terms of real cost coulde attributed to the advancements in SWM operations and other

ntiatives implemented by the MCGM in last decade (Mahadeviand Wolfe, 2008). However, caution should be exercised to com-are the costs across studies, due to the inhenerent difference inata sources and methods employed to derive these values.

Sensitivity analysis of the results from Table 2 shows thatwages’ (variable) and ‘salaries and benefits’ (fixed) account forround 67% of the expenses while ‘repairs and maintenance’ (fixed)overs another 15%. Even though wages and salaries seems to bet parity (1.17: 1), this also reflects high level of manual labor anddministrative overheads, supported by findings of other studiess well (Kumar et al., 2009; Sharholy et al., 2008). Operational effi-iency is another factor that could have impacted the costs but haseen ignored here as the calcuations are based on 100% efficiency

evel. The miniscule earnigns of MCGM is another imporant area,hich indicates that the MSW services is (almost) a free service and

he prevaling structure of tipping fees is insufficient to cover theperational costs, supported by other studies as well (Mahadeviand Wolfe, 2008). These results should encourage municipalecision-makers to search for avenues that would help the munici-alities reduce unit cost of MSW operations. MCGM could evaluatetrategies like outsourcing of SWM operations, partnership withrivate sectors, implement staggered tipping fees, etc. FCA tech-ique is capable of helping the decision-makers to evaluate the costf alternative strategies and compare multiple ‘what-if’ scenarios.

.1. Insights from FCA to support internalization of externalities

This section explores FCA and its ability to support decision-aking alternatives by including externalities as part of the

ramework. The overall cost of MSW operations (including selectedxternalities) at INR 3741 TPD is almost 30% over and above theccounted costs, in addition to the inventory of LFGs that hasot been monetized. By following scientific waste managementrinciples, the GHGs that could be captured in Mumbai from theurrent level of garbage would generate INR 42 million/year worthf carbon credit (as per the rates prevalent in voluntary carbon mar-et) and save equivalent fuel cost worth INR 249 million/year. Byonsidering the investment opportunity in scientific landfilling atstimated cost of INR 130 per m3 and operating cost of INR 250er MT of waste (Parthan et al., 2012a), a 100 ha (10 m deep) sani-ary landfill at current level of waste generation would break-evenn less than four years (INR 400 million in capital and INR 650

illion in operations). By inviting participation from the privateector, operating costs could be further reduced. Similarly, devel-pment of formal recycling network could help MCGM generatedditional income of INR 3.75 billion/year (assuming double theinimum rate of recyclables as compared to the rates of infor-al recycle market), thereby creating an investment opportunity

f INR 2.70 billion/year (at 10% plus yield) and rehabilitate 50% ofhe rag-pickers at minimum wages (Table 4).

So, by including externalities, FCA is able to support theecision-making process by providing information on all costs ofhe selected value chain that is relevant to evaluate ‘true’ costf opportunities – an improvement as compared to the tradi-ional accounting frameworks, where part of these costs wouldever even surface. As part of socially relevant MSW services,he municipalities may evaluate the strategies to develop robustnd economically viable recycle chain and involve itself as part

f its central collection and sourcing hub, which can help thendustries with steady source of recyclables and benefit the econ-my as a whole. In addition, strategies to rehabilitate rag-pickersould also offer transit pool of individuals/contractors and help

a Assumed carbon rates for Indian projects in voluntary emission market(Ecosystem Marketplace, 2011, p. 27).

the municipalities rationalize its manpower costs. The discussionon the strategies to internalize the externalities are supported bythe insights gained from extended FCA framework and its abilityto cover the contingencies, external, and environmental costs, inaddition to the economic ones. These insights are helpful to ideatethe out-of-the-box alternatives as well, for example, by consideringlevy of uniform tipping fee of one rupee/TPD, MCGM could gener-ate a revenue pool of INR 2.60 billion in a year, a corpus that issufficient to rehabilitate remaining 50% of the rag-pickers, whilecreating a nominal burden of INR 1.70/month/capita–an approachthat could help MCGM to be self-reliant and discharge its socialresponsibilities at the same time. However, this would call foroperational autonomy of the municipalities along with streamlinedpolicy goals.

6. Conclusion

The objectives of this research article were to: (a) develop costfunctions of SWM operations, (b) use data from public accountingrecords to examine its fitment, and, (c) extend the framework toincorporate externalities of Indian SWM environment. In this study,MSW cost sheet was developed by defining SWM cost functions,classifying financial expenses and forming cost objects, and group-ing the cost objects as part of relevant cost functions. Althoughadoption of accrual-based accounting system is a recent phe-nomenon in Indian municipality accounting services (ICAI, 2009;NIUA, 2010), this exploratory study developed unit costs by rely-ing on the data from accounting statements. The findings from thestudy indicated the feasibility of having FCA as an interim arrange-ment to use accounting data and generate information that wouldbe relevant for improvements in decision-making. Future studieson accounting of the MSW services might use primary data fromthe books of accounts and explore correlation of demographic dif-ferences with variations in the cost profiles.

Previous studies have developed MSW cost models by consid-

ering the contributions of the informal sector as a potential gainto the municipalities (Chaturvedi, 2003; Mahadevia and Wolfe,2008; Yedla and Kansal, 2003), while the social costs borne by therag-pickers due to different socio-economic reasons, e.g., existing

nserv

sohttatcicw

aiiwmsifommr

nitMpcsitopnF

A

ERam

A

Zia and Devadas (2008) Kanpur SWM practices and opportunitiesof improvements

aStudies focused on MSWM cost analysis.

S. Debnath, S.K. Bose / Resources, Co

uboptimal legal, economic, and policy arrangements, remainedbscure (Agarwal et al., 2005; Chaturvedi, 2003). On the otherand, the release of LFGs due to the organic decay of waste inhe dumping grounds was found to be inadequately covered inhe reviewed literature and should be explored further by scholarsnd practitioners. Between these two extremes, FCA demonstratedhe capabilities to seamlessly integrate externalities by includingontingent, external, and environment related costs, and in evaluat-ng investment strategies for its internalization. The municipalitiesould use these capabilities to gain insights of its other services asell.

Although the classification and collection of data is somewhatrbitrary in the selected example (of MCGM), the aim of this studys not to establish the accuracy of data or its classification but tonvite the attention toward the transparency of FCA framework,

hich can support the municipalities with identification, ascertain-ent, and control of costs and steer the decision-makers toward

trategies that would promote optimal allocation of resources. Byntegrating the social costs of policy choices, the extended FCAramework is capable of generating information on complete rangef costs. This would help the ULB policy makers to employ judiciousix of instruments and target socially relevant economic arrange-ents like improved recycle chain, better waste sorting practices,

ehabilitation of rag-pickers, etc.If the prevailing MSWM practices of newly industrialized

ations do not change for better in the immediate future, increas-ng waste levels and suboptimal utilization of resources will forcehese economies to divert resources from other sectors and develop

SW infrastructure to augment additional capacity which couldrove detrimental to the overall growth plans of these regions. So,orrective steps are needed to overhaul the SWM operations, adoptcientific waste management practices and develop cost-effectivenitiatives. Adoption of FCA is a mandatory step in this process so aso help the municipalities gain operational insights, reduce overallperating cost, and contribute toward informed decision-makingrocesses. Professional accounting services and academia can part-er with the municipalities in supporting the implementation ofCA and extending its coverage to other municipal services.

cknowledgements

The authors thankfully acknowledge the contributions of theditor and anonymous reviewers of Resources, Conservation &ecycling for their valuable comments on earlier versions of therticle, which has significantly improved the overall quality of theanuscript.

ppendix I.

Peer-reviewed articles reviewed on Indian MSWM practicesAuthor(s) Location Coverage

Agrawal et al. (2004) Wastes management ofnon-ferrous metals (aluminum,copper, lead, and zinc) duringextraction process

Agarwal et al. (2005) Delhi Role of informal sector in MSWrecycling

Bain et al. (2010) Mysore Industrial symbiosis for wasterecycling and economic activitiesin Mysore industrial hub

Chakrabortya et al. Delhi Comparison of methods to

(2011) compute methane generation from

landfillChaturvedi (2003) Delhi Contributions of informal sector in

SWM practices and ownershipissues of waste

ation and Recycling 83 (2014) 87– 95 93

Hazra and Goel (2009) Kolkata Waste management practices inKolkata

Khan and Ansari (2010) Aligarh Case study of SWM practices ofAligarh municipal corporation

Kumar et al. (2009) Municipal SWM practices of 52cities (class I, II, and III) of India andSWM life cycle

Manomaivibool (2009) Waste management of electricaland electronic equipments (WEE)and its producers’ responsibilities

Mondal et al. (2010) Varanasi Environmental impact analysis ofsolid waste disposal

Narayana (2008) Kerala Municipal SWM and disposalpractices

Nunan (2000) Hubli –Dharwad

Organic waste collection anddisposal practices of themunicipalities

Pappu et al. (2007) Current state of India’s solid wasteproduction and recycling potentialto manufacture building materials

Parthan and Milke(2009)a

Cost analysis of SWM practices ofIndia

Parthan et al. (2012a)a Economic study using cost functionanalysis to evaluate SWM practices

Parthan et al. (2012b)a Possible methodologies to estimatedifferent cost functions of SWMpractices

Pattnaik and Reddy(2010)

Pondicherry Assessment of generation,collection, transportation, andsegregation of wastes in the region

Rathi (2003) Gujrat Current state of affairs on cleanerproductions in Gujrat and policyinitiatives to improve further

Rathi (2006)a Mumbai Waste generation and treatmentunder three different economicarrangements

Rathi (2007)a Mumbai Alternate SWM treatmentopportunities and cost implications

Rawat et al. (2009) Kanpur Quantification and distribution ofheavy metals in the soil from smallscale industries in the region.

Saini et al. (2012) Different waste-to-energy (WTE)opportunities, based on the profileof waste composition

Sepúlveda et al. (2010) Recycling of waste electrical andelectronic equipments (WEE)through informal sector

Sharholy et al. (2008) Municipal SWM of Indian citiesand alternate SWM policies ofgarbage disposal

Shylajan andBhattacharjya (2007)

Level of urbanization, growingpopulation of cities, and SWMpractices of Indian cities

Uiterkampa et al.(2011)

Delhi Comparative study of SWMpractices and lack of theoreticalframeworks to compare practicesacross developing countries

Vij (2012) Urbancities

SWM practices of urban cities

Yedla and Kansal(2003)a

Mumbai Cost of SWM practices, cost-benefitanalysis and role of hidden costs

9 nservation and Recycling 83 (2014) 87– 95

A

t(

(

((

RenINR

ft/an

2,67

8,99

11,6

S

T

(

A

W

W

W

Working of methane generation from municipal solid waste (MSW).

(D) Equivalent coal consumption (in million INR)=Total energy potential ofmethane generated

978,383 million kcal/year(from B)

/Gross calorific value (GCV) ofcommercial coal

5000 kcal/kg

× Rate per ton of coal (INR/ton) 1270 INR/ton=978,383 millionkcal/year × 1270INR/ton/5000 kcal/kg

4 S. Debnath, S.K. Bose / Resources, Co

ppendix II.

Savings in Municipal Solid Waste (MSW) costs due to the con-ribution of Informal SectorA) Total quantity of waste removed by

informal sector=1600 MT/day

Assuming average price of unsortedrags

=INR 3/kg

Gross earnings by rag-pickers =1600 MT × INR 3/kg=INR 4.8 million/day

B) Financial cost saved due to lower waste =1600 MT × INR 3224 kg/day=INR 5.2 million/day

Where, INR 3224/kg is the overall costs of waste removalTable 2).C) Saving in the life of dumping ground due to longer lifeParticulars Area of dumping

ground (hectares)Conversion factor(sq. ft/hectare)

Equivalent sq. ft

Mulund&Gorai

34.45 107639 3,708,164

Deonar 116.00 107639 12,486,124

Total 150.45 16,194,288

a Based on the property rates of peripheral business districts (ICICI Propertyervices, 2012).b MCGM (2010).

otal savings in ground rent (INR/day) =INR 1857 million/365 days=INR 5.1 million/day

D) Overall saving (B) + (C) − (A) =INR 5.4 million/day

ppendix III.

orking of methane generation from municipal solid waste (MSW).

(A) Formula for calculating methanegeneration potentiala

Data

=Total MSW generated (TPD) 6700 TPD× MSW landfilled (%) 100%× DOC in MSW (%) 21.075% (from C)× Fraction Dissimilated DOC (%) 77%× 0.5 tons CH4/tons Bio gas 0.5× Conversion factor (16 tons CH4/12 tonsC)

16/12

(−) Recovered CH4 (tons/yr)=(6700 TPD × 100% × 21.075% × 77% × 0.5 × 16/12) × 365 days – 0=264566.418 tons/year

a Yedla and Parikh (2002).

orking of methane generation from municipal solid waste (MSW).

(B) Total energy potential of methane generated (in million kcal/year)=Total methane quantity (tons/yr) 264,566 tons/year

(from A)× Methane capture rate (%) 60%/Density (kg/m3) 0.722 kg/m3

× Calorific value (kcal/m3) 4450 kcal/m3

=264,566 tons/year × 60% × 4450 kcal/m3/0.722 kg/m3

=978,383 million kcal/year

orking of methane generation from municipal solid waste (MSW).

(C) Degradable Organic Carbon (DOC) in MSW (%) is as per IPCCguidelinesa

=0.4 (A) + 0.17 (B) + 0.15 (C) + 0.30 (D)Where A = Paper and plastics (%), B = Garden and non food-waste (%),C = Food waste (%), and D = Wood and straw waste (%)Consideringb A = 15%, B = 35%, C = 37.5%, and D = 12.5%

DOC in MSW = 0.21075 = 21.075%

a IPCC (2000).b Mahadevia and Wolfe (2008).

t (in million– at INR 60/sq.num)a

Useable period(in years)b

Saving in life due tolowered waste level (inyears)

NPV of savings inrentals (in millionINR at 9% discount)

0 2 0.46 521

0 9 2 1330

60 2.46 1857

=INR 248.51 million/year=INR 648,847 per day

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