Models of Successful Water Sector Reform: Identifying the Building Blocks

Similar documents
INTERNAL UTILITY REFORMS THAT WORK: A REVIEW OF TRENDS

KEY INFRASTRUCTURE CONCEPTS KEY INFRASTRUCTURE CONCEPTS

KEY INFRASTRUCTURE CONCEPTS. Dr. Allen Eisendrath Office of Infrastructure & Engineering, USAID/Washington

Use of Operating Contracts for Managing Infrastructure Enterprises under Difficult Conditions. Office of Infrastructure and Engineering USAID

Double Tax Treaties. Necessity of Declaration on Tax Beneficial Ownership In case of capital gains tax. DTA Country Withholding Tax Rates (%)

Argentina Bahamas Barbados Bermuda Bolivia Brazil British Virgin Islands Canada Cayman Islands Chile

World Consumer Income and Expenditure Patterns

TRENDS AND MARKERS Signatories to the United Nations Convention against Transnational Organised Crime

STOXX EMERGING MARKETS INDICES. UNDERSTANDA RULES-BA EMERGING MARK TRANSPARENT SIMPLE

ANNEX 2: Methodology and data of the Starting a Foreign Investment indicators

ide: FRANCE Appendix A Countries with Double Taxation Agreement with France

(of 19 March 2013) Valid from 1 January A. Taxpayers

DOMESTIC CUSTODY & TRADING SERVICES

Summary 715 SUMMARY. Minimum Legal Fee Schedule. Loser Pays Statute. Prohibition Against Legal Advertising / Soliciting of Pro bono

Withholding Tax Rate under DTAA

Dutch tax treaty overview Q3, 2012

INTERNATIONAL FRAMEWORK FOR NUCLEAR ENERGY COOPERATION (IFNEC)

Employer Social Charges 13/10/2017 EURO/USD USD 1.20 JPY/USD 0.01 AUD/USD USD 0.73 GBP/USD Charges patronales obligatoires %

Withholding tax rates 2016 as per Finance Act 2016

SHARE IN OUR FUTURE AN ADVENTURE IN EMPLOYEE STOCK OWNERSHIP DEBBI MARCUS, UNILEVER

Setting up in Denmark

EQUITY REPORTING & WITHHOLDING. Updated May 2016

Clinical Trials Insurance

Finland Country Profile

Albania 10% 10%[Note1] 10% 10% Armenia 10% 10% [Note1] 10% 10% Austria 10% 10% [Note1] 10% 10%

Table of Contents. 1 created by

Guide to Treatment of Withholding Tax Rates. January 2018

Scale of Assessment of Members' Contributions for 2008

APA & MAP COUNTRY GUIDE 2017 CANADA

Czech Republic Country Profile

Czech Republic Country Profile

Request to accept inclusive insurance P6L or EASY Pauschal

Turkey Country Profile

COUNTRY COST INDEX JUNE 2013

APA & MAP COUNTRY GUIDE 2018 UKRAINE. New paths ahead for international tax controversy

SANGAM GLOBAL PHARMACEUTICAL & REGULATORY CONSULTANCY

Financial wealth of private households worldwide

Czech Republic Country Profile

Other Tax Rates. Non-Resident Withholding Tax Rates for Treaty Countries 1

Turkey Country Profile

Summary of key findings

Trends, like horses, are easier to ride in the direction they are going

Valid from 1 January A. Taxpayers

Public Pension Spending Trends and Outlook in Emerging Europe. Benedict Clements Fiscal Affairs Department International Monetary Fund March 2013

Enterprise Europe Network SME growth outlook

Dutch tax treaty overview Q4, 2013

Household Debt and Business Cycles Worldwide Out-of-sample results based on IMF s new Global Debt Database

APA & MAP COUNTRY GUIDE 2017 DENMARK

FY2017 RESULTS. 1 February 2017 to 31 January Inditex continues to roll out its global, fully integrated store and online platform.

Ukraine. WTS Global Country TP Guide Last Update: December Legal Basis

Instruction Deadline. *Settlement Cycle

Withholding Tax Handbook BELGIUM. Version 1.2 Last Updated: June 20, New York Hong Kong London Madrid Milan Sydney

JPMorgan Funds statistics report: Emerging Markets Debt Fund

Spain France. England Netherlands. Wales Ukraine. Republic of Ireland Czech Republic. Romania Albania. Serbia Israel. FYR Macedonia Latvia

ORD ISIN: DE / CINS CUSIP: D (ADR: / US )

Visa types and fees (US Dollars) Fees shown for regular service. Fees are doubled for all applications filed upon expedited service.

Gerry Weber International AG

2008 Regional African countries Bamako Convention on the of import into Africa including radioactive waste

FY2016 RESULTS. 1 February 2016 to 31 January Inditex continues to roll out its global, fully integrated store and online model.

Sweden Country Profile

Total Imports by Volume (Gallons per Country)

Austria Country Profile

Export and import operations Tax & Legal, April 2017

Total Imports by Volume (Gallons per Country)

Total Imports by Volume (Gallons per Country)

Global Business Barometer April 2008

Total Imports by Volume (Gallons per Country)

Total Imports by Volume (Gallons per Country)

Total Imports by Volume (Gallons per Country)

Total Imports by Volume (Gallons per Country)

Romania Country Profile

Total Imports by Volume (Gallons per Country)

Linking Education for Eurostat- OECD Countries to Other ICP Regions

Tax Newsflash January 31, 2014

HEALTH WEALTH CAREER 2017 WORLDWIDE BENEFIT & EMPLOYMENT GUIDELINES

Countries with Double Taxation Agreements with the UK rates of withholding tax for the year ended 5 April 2012

Total Imports by Volume (Gallons per Country)

Postal rates. As of January 2016

BULGARIAN TRADE WITH EU IN THE PERIOD JANUARY - APRIL 2017 (PRELIMINARY DATA)

BULGARIAN TRADE WITH EU IN THE PERIOD JANUARY - MAY 2017 (PRELIMINARY DATA)

INCENTIVES & TARGETS KEY FEATURES OF SUCCESSFUL OPERATING CONTRACTS

FTSE Global Equity Index Series

Contents. Andreas Athinodorou Managing Director International Tax Planning

Slovenia Country Profile

WATER AND WASTEWATER SERVICES IN THE DANUBE REGION SUMMER SCHOOL TSLR TORINO, SEPTEMBER, 2015

Non-resident withholding tax rates for treaty countries 1

n O v e m b e R Securities Industry And Financial Markets Global Addendum 2007 Volume I I No. New York n Washington n London n Hong Kong

Reporting practices for domestic and total debt securities

Global Consumer Confidence

Total Imports by Volume (Gallons per Country)

CREDIT INSURANCE. To ensure peace, you must be prepared for war. CREDIT INSURANCE FUNDAMENTAL SOLUTION IN CREDIT RISK MANAGEMENT

Belgium Country Profile

a closer look GLOBAL TAX WEEKLY ISSUE 249 AUGUST 17, 2017

Definition of international double taxation

Planning Global Compensation Budgets for 2018 November 2017 Update

FTSE Annual Country Classification Review Published: 26 September 2018

PENTA CLO 2 B.V. (the "Issuer")

Reporting Month: Sept 2017

2009 Half Year Results. August 25, 2009

Transcription:

Models of Successful Water Sector Reform: Identifying the Building Blocks Dr. Allen Eisendrath Senior Infrastructure Finance Specialist Office of Infrastructure & Engineering, USAID/Washington 1

Cost Recovery for Water & Sanitation is Very Low! Median tariff Degree of cost recovery US$/m3 Nil Partial O&M Partial capital HIC 0.96 8% 42% 50% UMIC 0.35 39% 22% 39% LMIC 0.22 37% 41% 22% LIC 0.09 88% 9% 3% Global 0.35 40% 30% 30% Source: Foster & Yepes 2

WHAT HAPPENS TO INFRASTRUCTURE WHEN COST RECOVERY IS LOW? Defunct wastewater treatment plant, Armenia Broken secondary pipe, Romania Corroded pipes, chlorination station, Armenia Indonesian illegal water connections 3

KEY FEATURES OF SUCCESSFUL REFORMS Autonomy and accountability of the water utility Incentives for reform; penalties for failure Progressive performance standards Cost reflective pricing Our cases: Armenia, Australia, Brazil, Bulgaria, Chile, Colombia, Cote d Ivoire, Czech Republic, Egypt, Estonia, France, Germany, Hungary, Indonesia, Jordan, Latvia, Lithuania, Malaysia, Morocco, Netherlands, Poland, Romania, Russia, Senegal, Singapore, South Africa, Spain, Sweden, Thailand, UAE, Uganda, UK, US, Ukraine, Vietnam, Zambia 4

OBJECTIVE Autonomy & accountability of the water utility Incentives for reform; penalties for failure Progressive performance standards Cost reflective pricing HOW SUCCESSFUL REFORMERS ACHIEVE THESE OBJECTIVES Complete decentralization Corporatization & corporate governance reform Regionalization An effective regulatory agency Incentive based operating contracts Private sector participation Shift from capital grants to sustainable financing mechanisms 5

THREE STRUCTURAL REFORM APPROACHES Local Government Croatia, Czech Republic, Estonia, Germany, Hungary, Lithuania, Netherlands, Poland, Romania, Sweden, U.S. Regional By free will: Czech Republic, Estonia, Germany, Kosovo, Macedonia, Malaysia, Netherlands, Poland, Sweden By law: Armenia, Australia, Chile, Romania, Thailand, UK National Water and Sewerage Corporation Azerbaijan, Egypt, Jordan, Morocco, Cote d Ivoire, Senegal, Tunisia, UAE, Uganda 6

DECENTRALIZATION IS THE MOST COMMON REFORM APPROACH. CONDITIONS FOR SUCCESSFUL DECENTRALIZATION INCLUDE: FULL LEGAL TRANSFER OF ASSETS, AUTHORITY & RESPONSIBILITY FOR WATER & SEWERAGE CLEAR, REALISTIC PERFORMANCE STANDARDS & AN EFFECTIVE MEANS OF ENFORCEMENT A MECHANISM FOR FINANCING CAPITAL INVESTMENT CORPORATIZATION OF SERVICE PROVIDERS OPERATING CONTRACTS A MECHANISM FOR SETTING COST-BASED TARIFFS A TRANSITION PLAN 7

PLANNING TRANSITION TO COST RECOVERY Rs. per m3 45 40 35 30 25 20 15 10 5 0 2006 2007 2008 2009 2010 2011 Year 2012 2013 2014 2015 Total Costs, incl. capital Direct Operating Costs Affordability Ceiling Tariff This is a cash subsidy requirement 8

CORPORATE GOVERNANCE IS A KEY FACTOR What is Corporate Governance? Corporatization Commercialization Effective board and bylaws Performance framework Best practice examples: Australia, Chile, Senegal, Uganda, United Arab Emirates Ongoing USAID examples: Afghanistan, Armenia, Egypt, India, Jordan, Montenegro 9

Who replaces assets when they wear out? Who has the funds to replace assets as they wear out? What are the pressures for capital investment efficiency? What happens to revenues collected for depreciation? THE CAPITAL ASSET PROBLEM: THE STATE BUILDS & OWNS; THE UTILITY OPERATES AND MAINTAINS Surface Water Supply Pumps Groundwater & stream bed supply Storage Pumps Water Treatment Individual Groundwater Wells Distribution Network Elevated service reservoirs W A T E R U S E R S Septic Tanks Sewerage Drains Water Resource Management Bulk Water Supply Distribution Services Sanitation Services 10

HOW DO SUCCESSFUL REFORMERS DEAL WITH CAPITAL ASSETS? TWO OPTIONS: Assets become part of a corporatized service provider, and are treated as part of the business Assets are owned by the local government entity responsible for service, and operating contracts are let to use the assets Checking the meters ARE THERE OTHER OPTIONS WHAT WORK WELL? Assets are owned by the local government, and operated by a department of government. As far as I know, nothing else is successful. Assets must be part of the business. 11

GOOD EXAMPLES OF THE DECENTRALIZED MODEL Netherlands Decentralize assets & responsibility Form public companies Agglomerate to regional utilities Czech Republic Decentralize assets & responsibility Encourage 2 models: mixed utility or operating utility Establish national standards Agglomerate to regional utilities Introduce Water Extraction Law, charging tax of 2 CZK per m3 extracted Hungary Partially decentralize assets & responsibility Form public companies Establish national standards Agglomerate to regional utilities Serious problems related to asset ownership and financing issues Lithuania Decentralize assets & responsibility Form public companies Create national regulator Establish national standards Agglomerate to regional utilities 12

Other regulators, inspectors LAWS, REGULATIONS City Administration (Client) Other regulators, inspectors PERFORMANCE CONTRACTS Example - Corporatised Eastern European water utility with performance based contract with City Bank & audit services Sources of Finance Environmental Responsibilities Domestic Charter & Performance Based Contract OWNERS (multiple shareholders) Board of Directors Corporate Governance Plan OJSC VODOKANAL Management Team Staff VK Business Plan Water & wastewater services Payments Customers Budget Organisations Suppliers Contractors Social & Public Responsibilities Commercial & Industrial 13

THE OPERATING AGREEMENT MODEL IN AFGHANISTAN Ministry of Urban Development & Housing Afghan Urban Water Supply and Sanitation Services Company USAID Afghanistan assistance for operating contract designs & implementation in up to 6 SBUs Board of Directors Performance Agreements -Targets - Capex - Operating support - Bonuses Other SBUs Mazar-e-Sharif SBU Heart SBU Kabul SBU Kandahar SBU 14

FORMING A REGIONAL OPERATING SERVICES COMPANY: ORISSA, INDIA USAID India assistance for corportization plan, business plan & operating contract designs Orissa State Government owns Board of Directors Orissa Water & Sanitation Services Corporation BACKGROUNDERS PHEO loses $.1 per m3 Revenues don t even cover electricity bills Japan is providing wastewater facilities NRW is between 50% & 75% Operating contract Operating contract Operating contract Operating contract Bhubaneshwar Kathak Puri Other Towns 15

ALTERNATIVE SUCCESSFUL MODELS Armenia: Mixed Corporatization & PSP Form two national water corporations & two town corporations Management contracts, followed by a lease for Yerevan Establish national standards & enforcement mechanisms Establish national regulatory agency Australia: Regionalization & Commercialization Establish policy for water reform: National Competition Policy & CoAG Water Strategy Form state water companies Allow regional government to make their own decisions on ownership, regulation and operation Establish national standards & enforcement mechanisms Each state establishes own regulatory agencies & method UK: Regionalization, Corporatization & Divestiture Form regional companies Sell public ownership Establish national standards & enforcement mechanisms Establish national regulatory agency & method Chile: Regionalization, Corporatization & Divestiture Form eight regional companies Sell public ownership Establish national standards & enforcement mechanisms Establish national regulatory agency & method Establish water market Thailand: Regionalization & Corporatization Form two corporatized regional companies Establish management & staff incentive systems 16

Miljakovac 2 SYSTEM TECHNICAL OPTIMIZATION ZONAL MANAGEMENT EXAMPLE OF BELGRADE WATER & SEWERAGE COMPANY There are 35 consumption units in the Belgrade company. 27 are monitored by installed equipment + 8 occasionally monitored by mobile equipment. To reduce losses, systematic water accounting was installed in each division, with a manger for each division 17

Water balance at KOTEŽ KMM 3 Water inflow Invoiced water Water loss Measure unit m3/day l/s m3/day l/s m3/day Quantity 3004,21 34,77 2167,20 25,08 837,01 l/s/km /km 4,54 3,28 l/s 9,69 1,26-27,86% in relation to measuring at KMM3 18

Pipe break repair 150 mm level 19

After repair, consumption reduced by 37 liters/sec 20

PHOTOS TAKEN JULY 2004 Non-operational Yerevan WWTP Old, oversized water pump Poorly paid but technically competent staff Extensive corrosion and leakage 21

THE NEW ARMENIAN WATER SECTOR BEFORE THE REFORM: Armenia Water Company with many branches; all decapitalizing; most with about 30% to 40% O&M cost recovery. THE REFORM: State Water Committee Public Services Regulatory Comission State Water Committee Armenia Water Company covers 40 towns & 300 villages; now under 4 year management contract; 100% state-owned Armenia Water Company Yerevan Water Company under 10 year lease; 100% state-owned Lori Water Company 51% State / 49% municipality Armavir Water Company 51% State / 49% municipality Shirak Water Company 51% State / 49% municipality 22

WHAT IS THE FINANCIAL RECOVERY PLAN? ARMENIA WATER COMPANY TRANSITION TO COST RECOVERY Water Cost, USD per m3 1.2 1 0.8 0.6 0.4 0.2 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total Costs, incl. capital Direct Operating Costs Affordability Ceiling Tariff Year 23

WHAT ARE THE RESULTS AFTER 7 YEARS? Progress in O&M Cost Recovery Percent of O&M Cost Recovery in 2007 160 140 120 100 80 60 40 20 0 100 60 100 100 YWC AWC Lori Shirak Nor Akunk Full Economic Cost Company 70 140 24

Reform is working, but it is clearly a direct result of the private management contracts that USAID and World Bank supported: RESULTS OF THE YEREVAN MANAGEMENT CONTRACT 2000 2005 Change Water Produced 431 mil. m3 354 mil. m3-18% Gravitational Water Supply 183 mil. m3 212mil. m3 16% Energy Supply 240 mil. m3 124 mil. m3-48% Continuity of Service 7.2 hours/day 18.4 hours/day 2.6 times Collection Efficiency 21% 79% 3.8 times Customer Metering 2% 91% 45 times 25

and the Armenia Water Company management contract is also succeeding: SUMMARY OF AWC MANAGEMENT CONTRACT Performance 2005 2006 Collections ( million AMD) 1,834 2,308 25.8% Collection efficiency (%) 36% 63% 75.0% Customers making payments 53,000 80,000 50.9% Hours of service (average per day) 7 9 27.4% Electricity used (million kwh) 62 53-13.7% Water disinfected (% supplied) 68% 80% 17.6% Liters of fuel used per vehicle 3,800 2,017-46.9% Average monthly staff salary 25,000 49,000 96.0% 2004 consumption 2004 salary 26

FINANCIAL CONDITIONS OF AWC IS CLEARLY IMPROVING, BUT STILL WEAK Armenia Water Company Working Ratio (expenses/revenues) Working Ratio 2.5 2 1.5 1 0.5 1.95 1.76 1.39 0 2004 1 2005 2 2006 3 Contract Year 27

SUMMARY OF SUCCESSFUL REFORMS Reforms are succeeding and widespread! No single model dominates but there are solid building blocks. Success is driven by: better utility governance, establishing an accountable, autonomous & competent management team, setting a framework with progressive targets and incentives sustainable, grant/loan-based financing mechanisms Piecemeal efforts are not worth the effort Key message for donors, shareholders & lenders:»incentivize Reform. Rs. per m3 45 40 35 30 25 20 15 10 5 0 PLANNING TRANSITION TO COST RECOVERY 2006 2007 2008 2009 2010 2011 Year 2012 2013 2014 2015 Total Costs, incl. capital Direct Operating Costs Affordability Ceiling Tariff 28