Utility reform in Romaniaexample in Cluj

Presentation of The Regional Environmental Center

for Central and Eastern Europe

Christelle KapoenSeptember 2008

www.rec.org

Contents

1. Romanian water sectora. Challengesb. Reform strategies

2. Utility reform in Cluja. Cluj municipal utilityb. Reform objectivesc. Institutional / organisation reform d. Financial reforms (cost-recovery)e. Reform results

3. Success factors

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1. Romanian water sector

• Institutional responsibilities• Ministry of Environment and Water responsible

for national water strategies and policies• Apele Romana, national water authority,

responsible for implementation of water policies and monitoring

• National Authority for Regulation and Tariffs is responsible for the pricing strategy in the water sector

• Service responsibilities• Municipal/county governments are responsible

for service provision• Decentralized local utilities or utility

departments carry out the services.

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Situation in the nineties

• Decentralization of water sector with aim to give autonomy, but low independency

• Detoriated water system•Especially the sewerage network and

wastewater treatment systems

• Low level of connections in rural area•17 % water / 3 % waste water

• Low tariffs, low collection rate, low affordability

• Lack of investments, and dependency on national government

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1a. Challenges

• EU accession• Acquis communautaire

Rehabilitation, extension, water quality improvement and development of wastewater systems

• Attract International funding• EU, EBRD, WB, ..• Commercial banks and private sector operators• Attract investment to extend water / wastewater

networks and systems and rehabilitation of old ones Full cost-recovery / improve operational efficiency

and performance

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1b. Reform strategies

• Reform of municipal utilities• Autonomous public utilities and improve

operations, efficiency and cost-recovery• If possible, regionalisation, to improve investment

ability / efficiency / performance of smaller utilities• Attract EU funds (ISPA, EU cohesion funds, ..)• Example: Cluj water

• Private sector participation• Reform of the utility• Outsourcing of operations (O&M, investment etc)

to improve operations, efficiency and self-sufficiency

• Attract private capital• Example: Bucharest concession with Veolia

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2. Utility reform in Cluj

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2a. Cluj water utility

• R.A.J.A.C. Cluj, municipal utility

• Detoriated system: high UFW, coverage problems, no wastewater treatment

• Inefficiency: overstaffing, poor O&M, financial problems

BUT

• Many surrounding villages and towns were worse off than Cluj

• Cluj has done successful rehabilitation, extension and reforms with help of EC/EBRD

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Utility system of Cluj

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2b. Objectives for development and reform

• Meeting EU regulations

• Funding available but conditional

• Development, rehabilitation and extension of networks and systems

• Capacity building to transform the utility to an efficient service provider recovering costs

• Regionalisation: increase of coverage and efficiency

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Funds for development

• Several funds for development like EBRD, EU (ISPA, Phare) and others

• Support from national government • About 130 million Euro for investments

• about 19 million Euro loan EBRD (MUDP, SAMTID)• About 17 million Euro loan EIB (ISPA)

Investments in water / wastewater infrastructure C.A.S.S.A

36.35

61.17

3

14

13.5

MUDP II

ISPA

Taxa speciala

government sources

SMATID

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2c. Institutional / organisation reformConditional to funding for rehabiliation & extension of

systems:

• Capacity Building and Organisational development:• HRM (reduce over-staffing) and HRD (staff development)• Improved O&M• Revision of tariff system, billing & collection • Public awareness and PR

• Expansion of operation from Cluj town to Cluj county

• Establishment of Somes Water Company C.A.S.S.A• Corporatization of Cluj R.A.J.A.C.• Autonomy // Accountability

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Reform phase 2: regionalisation

• Reform of C.A.S.S.A into Regional Operator (2005)• Shareholders Cluj and Salaj counties plus other

municipalities• Replacing all previous water companies

• Make use of experience of Cluj Performance improvement program

• Connection of water supply system Cluj / Salaj and others• Harmonize and centralise support functions (finance, HRM

etc)• Synergies and improvement of O&M (equipment, GIS)• Improved financial and technical performance (quality

management, monitoring & control)

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SC PubliservRAGCL GherlaSC Aquasom Dej

Institutional set-up

ROCC.A.S.S.A.

RAJAC Cluj

SC Crisul Huedin

Cluj County Council

Salaj County Council

Councils Dej, Gherla, Huedin

Councils Zalau, Jibou, Cehul Silvaniei, Simleul Silvaniei

Shareholders

Concession contract

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Utility systems of CASSA

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Utility operations CASSA

After Reforms:

• 621.000 inhabitants to be served in Cluj/Salaj counties

• Over 65.000 connections (42.000 water // 25.000 wastewater)

• 9 water supply systems (7 WTPs)

• 8 wastewater treatment systemsFuture:

• One centralised system

• 100 % water coverage and 80 % wastewater services

• Increased operational and technical performance

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2d. Financial reform

Coincided with the organisational reform

Problems:

• Financial losses

• Problems with collection of receivables

• Declining water consumption

• No reliable data about costs of O&M, assets and investments

• Financial agreement and targets with financers

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Reform to improve cost-recoveryAction plan

• Asset management and budgeting• Inventory van valuation of asset base• Determining cost base (depreciation, O&M needs)

• Business planning and investment planning• Budgeting and inclusion of investments/depreciation

• Tariff revision plan

• Charging improvement• Improvement of metering: installation, calibration, Meter

reading• Unified procedures for billing and collection

• Collection rate improvement / bad debt policy

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Tariff design principles

• Full Cost Recovery (including depreciation and loan obligations)

• Implementation of “Beneficiary/Polluter pay principle”

•No differentiation between consumer groups•No cross-subsidisation across municipalities•No Pro-poor policies

• Charging based on consumption

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Pricing of CASSA services

Recovery of costs for

• Connection (fee for making the connection)

• Water usage / wastewater collection

Bill contains several elements•Metered water usage•Wastewater collection (100% water)•Meteorological consumption (property size)•Special tax for investments•VAT

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Tariff policy implementation

• Affordability based on average 120l/c/d

• Actual water consumption fell from 180 l/c/d to 90 l/c/d

• Bill as % of household income is thus about 4,5 %

1999 2004 2008Metered water usage ct per m3 10 21 38Wastewater collection ct per m3 5 8.5 18Meteorological collection ct per m3 5 8.5 18Special tax ct per m3 0.3 0.6 2VAT in % 0% 19% 19%Affordability 1.5 - 2.5% 3 - 6 %

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2e. Results of Reforms

• On the way to meet EU obligations and investor’s obligations

• Reduced UFW, increased coverage and services

• Increased technical and financial performance• Reduced inefficiency and O&M costs• Reduced bad debts• Increased knowledge and monitoring capacity on

technical and financial indicators• Increased financial income

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3. Success factors

• Relate investment plan with investment needs,

• Laws and regulations (health, environment, etc)• Systems condition and urban planning

• Relate investment plan with financial potential

• cost-recovery plan (affordability) and reform plans

• Design reform strategy and business plan before Capacity Building

• Autonomy and decision making power

Thank you