Module-c community Based Financial Management

Step 
– 5: 
Recovery of 
O&M Costs 
This consists of introducing progressively an “O&M costs recovery only”, mainly 
by subsidizing costs (for example the price of spare parts, M&E cost, the cost of 
fuel) at the beginning, and providing free technical support for some 
maintenance. Although this approach can be necessary for poor communities, 
the use of subsidies can send wrong signals to a market, especially for spare 
parts. Some arrangement will need to be made about who will recover the other 
costs that the community will not cover, and how. 

---

Ministry of Water, Irrigation and Electricity 
 Operation and Maintenance Management Manual 
Training Module - D 
Community Based Financial 
Management 
 
DEMEWOZ CONSULTANCY 
19
MODULE 
– D:
 
COMMUNITY BASED FINANCIAL MANAGEMENT FOR RURAL 
WATER SUPPLY SCHEMES 
 
Identifying operation and maintenance costs 
Box 1: Operation and maintenance costs include 
All the above types of O&M cost should be considered in calculating and setting 
of tariff. 
 
What is O & M Cost? 
The scope of the cost recovery for a water scheme includes three groupings of 
cost; 
i. Running (operation) cost 
ii. Maintenance cost 
iii. Replacement cost 
For the purpose of simple explanation, the case of a hand pump, which is one 
of major water schemes, is shown as an example. 
 Material costs 
– consumables, chemicals, energy, tools, spare parts 
and equipment 
 Works personnel - staff involved in operation, maintenance, routine 
preventive maintenance, repairs, and construction for minor 
rehabilitation 
 Management personnel - staff involved in planning, supervision, 
financial management, administration, and monitoring 
 Financial costs - interest, amortization, depreciation, exchange rate 
variations, inflation 
 Environmental costs - water source protection and conservation,
 Support costs