The challenge & solution of Sustainable Cost Recovery

Transcription

1 The challenge & solution of Sustainable Cost Recovery Jack Moss, THE INTERNATIONAL FEDERATION OF PRIVATE WATER OPERATORS Technical Workshop 1 Water & Finance UNEP-FI Global Roundtable 2007 Melbourne October

2 Sustainable Water & Sanitation Services Long-term business needs stable and predictable long-term finance Investments and cost management for long life assets Revenue streams sufficient and predictable Charges that are adequate, equitable and affordable Fundamentally a political question 2

3 The Vicious Spiral of Low Funding Inadequate Investment Operational Inefficiency Inadequate Maintenance Infrastructure Degradation Low Perception of Value Low Fee Revenues & Low Willingness to Increase Tax Based Water Funding Low Service Quality 3

4 UN Secretary General s Advisory Board on Water & Sanitation We need sustainable cost-recovery policies with efficient tariffs and adequate subsidies and cross-subsidies. Hashimoto Action Plan - March

5 Sustainable Cost Recovery an Endorsed Principle Camdessus report Definition Gurria report 2006 UNSGAB Policy Impetus UN Human Development Report 2006 IWA Reference Paper 5

6 Unsustainable VS Sustainable Unsustainable Costs Sustainable Value Perception Revenue Costs Revenue Value Perception 6

7 Constituent Components Costs Revenue Value Internal operating costs User charges Direct benefits Maintenance & Refurbishment Capital costs Infrastructure & Depreciation Subsidies from public budgets (taxpayers) Aid grants 7 Externality benefits Avoided costs, damage & risks

8 The Dominant Processes Efficiency to Compress Costs Socio-economic Optimisation of Revenue Societal Maximisation of Value Internal Operating Costs Maintenance & Refurbishment Capital Costs Infrastructure & Depreciation User Charges 8 Internal Cross Subsidies Subsidies from Taxation Aid Grants Direct Benefits Externality Benefits Avoided Costs, Damage & Risks

9 Sustainable Cost-Recovery Recovery Camdessus recommendation Long-term cost-recovery policy anticipating needs Subsidies from public budgets secured well in advance Revenues from users as a group with cross-subsidisation to ensure affordability 9

10 Sustainable Financing = Stable Revenues Income from charges To be based on economic affordability (for whole community) Not to be based on "Political Affordability" Provides good visibility as "market signal" Good collection efficiency & cost Income from taxes Requires consistent allocation (but is often short-term) The challenge of budgetary competition Is invisible as "market signal" Administrative processes can be complex Grant aid Beneficial but not sustainable 10

11 Predictability of budget subsidies Budget subsidies from taxation are fine, but must be predictable and fixed in advance Pre-allocated predictable budget subsidies allow long term planning and efficient investment Post-loss budget subsidies do not provide any incentive for efficiency nor ensure perenniality of service 11

12 Affordability for all user categories Differentiated service provision: a realistic approach (Some for all) Cross-subsidies are acceptable Cost recovery should be collective not individual Special low tariffs for the very poor compensated by mean tariff that ensures cost recovery Targeting with cross-subsidies 12

13 Sustainable Financing Works Financial predictability of subsidies enabling long-term investment Europe & USA Development of infrastructure with subsidised funds (US Municipal Bonds) European Union Regional Development & Structural Funds e.g. Spain, Accession Countries Basin Agencies in France Strategic subsidy for a fixed percentage (typically 50%) of capital infrastructure is a rule that gives predictability and incentivise investment 13

14 Individual Affordability & Individual subsidies Chile External subsidy based on family earnings Colombia Cross-subsidy based on habitat (geographical area as a proxy) Jakarta Cross-subsidy based on property Increasing Block Tariffs cross-subsidy usually based on consumption. Not targeted, do not ensure affordability 14

15 Chile Where do the water subsidies go? Richest 20% Bogota Kathmandu Bangalore Middle 60% Poorest 20% Source: Komives and others 2005, reported by Human Development Report

16 The appropriate mix We need sustainable cost-recovery policies with efficient tariffs and adequate subsidies and cross-subsidies. Hashimoto Action Plan - March

17 The Vicious Spiral of Low Funding Potential Investments Potential Investments Driven Driven away away by by Perception of Perception of High Risk & Low Returns High Risk & Low Returns Inadequate Investment Operational Inefficiency Funds Funds lost lost to to System: System: Non recovery Non recovery Corruption Corruption Rents Rents Inadequate Maintenance Infrastructure Degradation Low Perception of Value Low Fee Revenues & Low Willingness to Increase Tax Based Water Funding Good Good Quality Quality Human Human Resources Resources Driven Driven away away By lack of Opportunity By lack of Opportunity & Low Achievement & Low Achievement 17 Low Service Quality Loss of positive externalities & increase of negative externalities

18 THE INTERNATIONAL FEDERATION OF PRIVATE WATER OPERATORS