Albania Water Supply and Sewerage Policy and Financing Strategy Model. Philip D. Giantris President Valu Add Management Services 3 November 2016

Transcription

1 Albania Water Supply and Sewerage Policy and Financing Strategy Model Philip D. Giantris President Valu Add Management Services 3 November 2016

2 What This Presentation Will Not Do!!! It will not present the Water Sector financing strategy for Albania, since to date, Albania has not made that decision. It will not propose what the Water Sector financing strategy for Albania should be, since that is the role of the Government of Albania. However, it will not deny that Albania is facing a major Water Sector financing crisis, which is solvable, but not without major revisions in service targets; significant increases in annual investment dedicated to the sector, increased efficiency of performance, and regularly increased tariffs.

3 What Causes a Water Sector Financing Crisis? Lack of a well quantified capital program, built on a master plan, that is directly tied to specific service and performance targets. Lack of an operational efficiency improvement program that is tied to specific, standard performance indicators. Political interference in the sound, commercial management of water supply and sewerage utilities, and in the tariff setting process at the local and national level.

4 Importance and Basis for Developing Water Sector Financial Gap Analysis Gap analysis aids in determining performance disparities or significant quantitative differences between how the sector is being managed and what should be the expected level of performance to be attained in the sector. Gap analysis naturally flows from benchmarking and other assessments tools. Once the general expectation of performance is understood, it is possible to compare expectation with current level of performance. Gap analysis identifies gaps between the optimized allocation and integration of the inputs (resources), and the current allocation-level. This helps to reveal areas that need to be improved.

5 Who Should Be Interested in Water Sector Financial Gap Analysis? An Individual Utility (Local Government) should care, since if done correctly, and for a period equal to a normal master plan, it virtually removes doubt from financial forecasting and decision-making. A Central Government should care, since world-wide, the treasury of Central Governments has always been, and will be, a major player in the financing of essential, public infrastructure. An Investment Institution (IFI) should care, so that it can better understand the financial risk (embarrassment) associated with long-term debt issuances.

6 Albania s Decision to Address a Water Sector Financial Gap Analysis Result of Many Fathers Ministry of Transport and Infrastructure developed the first quantified water sector strategy ( ). A National Water Supply and Sewerage Master Plan was prepared that addressed the capital investment needs to meet EU Water Directives, but without a financial feasibility analysis. Technical Secretariat of the National Water Council started to do the underlying studies needed for an Integrated Water Resources Management Plan and established the Water for People Working Group. The World Bank conducted a State of the Sector Report for the countries in the Danube River Catchment. The World Bank offered to fund the development of a Financial Gap Analysis Model for Albania.

7 Financing Sustainable Water Supply and Sewerage Services for All Expenditures O&M Sources of Funds Targets Service Improvement Service Expansion Asset Renewal Gap? Tariffs Taxes Transfers Subsidies Bridge Financing Financing Costs

8 Albania Water Sector Financing Strategy Project Phase I: What and How Much? : Define a set of feasible National Sector Program objectives and targets, and determine how much the corresponding services cost? Phase II: How to Pay for It? How to use tariffs, taxes and transfers to finance water supply and sewerage services in a manner that is efficient, sustainable, and allows for the achievement of National Sector Program?

9 Structuring of Financial Gap Analysis Model Excel-based model developed to ensure there is internal consistency between policy targets, expenditure needs, and any capital financing that is identified. Adheres to a common terminology and understanding of sources of funds The 3-T s (Transfers, Tariffs, Taxes). Works for all future individual water utilities as well as for the entire country. Driven by activating any number of pre-determined Policy Measures to be applied in a defined scenario. Can work in both English and Albanian languages. Indifferent to whether the management option is public or private sector driven.

10 Structure of Albania Water Sector Financial Model

11 Elements of the Financial Analysis Model Four Distinct Groups: Each with Modules and Segments Policy-Oriented Group: Policy-maker enters desired targets for the water sector. Targets may be entered at national and /or at local government level. Input Data Group: These are partly factual data on the water sector and partly projections for the future (population, income growth, price responsiveness of demand, etc). These data are entered at the local government level and for each water utility. Calculation Group: All calculations are done in this module. Summary Statistics and Outputs Group: Calculated results are presented at the various geographical levels (national, municipal, and rural versus urban).

12 Structure of Model Cockpit to Aid Decisions Cockpit Group contains three modules where the policymaker or model user specifies the following: Policy objectives or targets to be achieved in the water sector as a stated value. Proposed tariff/tariffs that policy-maker feels can be supported both through public perception and social means. Proposed financing assumptions for the investment needs generated, based on the sector objectives. Model foresees an iterative process whereby the policy maker/user suggests a set of tariffs, evaluates the outcome in terms of affordability and cost coverage for utilities, and revises the targets, capital funding levels, or tariffs, as appropriate.

13 Structure of a Cockpit Input Sheet C1: Policy initiatives Coverage WATER SUPPLY SEWERAGE Current Target Current Target Enter minimum level: Enter minimum level: Urban 50% 95% 99% 99% Urban 50% 95% 99% 99% Rural 10% 75% 85% 90% Rural 2% 25% 50% 75% And/or relative improvement: And/or relative improvement: Urban 0% Urban 0% Rural 0% Rural 0% Reduction of Non-Revenue Water (NRW) WATER SUPPLY Current Target Reduction in technical losses by rehabilitation of water network Enter acceptable level of technical loss 40% 30% 25% Increased metering of existing connections Enter share of metering 100% 100% 100% Calibration of meters in order to reduce NRW Enter share of correctly calbibrate 0% Reduction in illegal connections Enter reduction relative to now 0% Efficiency improvements WATER SUPPLY SEWERAGE Current Target Current Target operations efficiency operations efficiency Collection efficiency (billing) Collection efficiency (billing)

14 Financial Model Data Input Macroeconomic and Population Data Institute of Statistics (INSTAT) Ministry of Finance Density data by LGU from INSTAT Water Utilities and Sewerage Monitoring and Benchmarking Unit Data Water Regulatory Authority National Water Supply and Sewerage Master Plan Water Supply and Sewerage Support Program Data Assumptions Included but Not Limited to: Demand (Price and income elasticity)

15 Financial Model Results Overview of targets and performance Projected Utility Performance Unit Urban water coverage % 92% 97% 99% Rural water coverage % 40% 60% 80% Urban sewerage coverage % 65% 70% 80% Rural sewerage coverage % 15% 25% 50% Wastewater treatment - urban % 59% 70% 80% Wastewater treatment - rural % 15% 25% 50% Non Revenue Water % 59% 47% 38% Metering level % 81% 100% 100% Production metering % 100% 100% 100% Collection rate % 94% 96% 98% Staff efficiency (staff/1.000 conn.) staff/1,000 p Continuity (hours/day) hours/day O&M cost coverage % 166% 231% 252% TOC coverage % 90% 97% 98% Investments by policy measures, 1,000 LEK PM1: Cost of new urban water connections 13,444,194 37,857,945 47,623,445 PM2: Cost of new rural water connections 1,554,545 9,236,416 16,918,286 PM 3: Cost of new urban wastewater connections 11,377,270 60,600, ,047,524 PM4: Cost of new rural wastewater connections 23,605,401 50,080, ,269,704 PM5: Cost of rehabilitation of network 10,673,892 26,904,122 43,134,352 PM6: Cost of change to meter 285, , ,823 PM7: Cost of calibration of metres 2,189,384 3,284,076 4,159,829 PM8: Cost of removing illegal connections 795, , ,382 PM9: Increased metering of water production 29,407 33,549 36,863 PM10: Imposed efficiency improvements in operations PM11: Improved collection efficiency PM12: Energy efficiency 2,523,389 2,994,421 4,407,519 PM13: Water (Juri.) 3,091,507 3,111,802 5,546,775 PM14: Water (OS) 345, , ,634 PM15: WWTP (Juri.) 8,590,063 15,206,724 39,748,588 PM16: WWTP (OS) 1,480,941 1,480,941 2,626,932 Total investments 79,986, ,591, ,626,657 Investments financed from external sources 435,962,622

16 LEK/m³ Gap 1,000 ALL Surplus Funding Gap and Tariff Affordability Analysis 10,000,000 Funding surplus/gap 8,000,000 6,000,000 4,000,000 2,000, ,000,000-4,000,000-6,000, Investment funding surplus/gap OPEX funding surplus/gap Total costs Total funding surplus/gap Tariff Affordability Lowest decile affordability tariff LEK/m³ Third decile affordability tariff LEK/m³ Average income affordability tariff LEK/m³ Total tariff households Affordability given pro-poor scheme LEK/m³

17 Early Indications in Scenarios Considered Major realignment of public capital investment is needed if Albania wants to seriously negotiate its accession terms for compliance with the EU Water Directives. A major improvement in commercial operational efficiency is needed if water supply and sewerage utilities are not going to be an on-going financial burden to Central and Local Government treasuries. Public officials (elected and appointed) need to rethink affordability of services in the water sector, and not use it as a campaign issue at each election. Water is currently significantly under priced in Albania and cannot cover even operations and maintenance costs in a number of utilities.

18 So How Do We Address Water Supply and Sewerage Services for the Poorest of the Poor? FRIDAY 4 NOVEMBER - 14:20 PLENARY SESSION 4. WATER SUPPLY AND SEWERAGE ACCESS AND SERVICES: WHO PAYS FOR THE POOREST OF THE POOR?

19 THANK YOU PROJECT CONSULTANTS TO THE WORLD BANK A JOINT VENTURE COWI GROUP - DENMARK VALU ADD MANAGEMENT SERVICES - ALBANIA