Utility reform in Romaniaexample in Cluj

Presentation of The Regional Environmental Center

for Central and Eastern Europe

Christelle KapoenSeptember 2008

www.rec.org

Contents1. Romanian water sector

a. 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

www.rec.org

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.

www.rec.org

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

www.rec.org

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

www.rec.org

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

www.rec.org

2. Utility reform in Cluj

www.rec.org

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 problemsBUT• Many surrounding villages and towns were

worse off than Cluj• Cluj has done successful rehabilitation,

extension and reforms with help of EC/EBRD

www.rec.org

Utility system of Cluj

www.rec.org

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

www.rec.org

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

www.rec.org

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

www.rec.org

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)

www.rec.org

SC PubliservRAGCL GherlaSC Aquasom Dej

Institutional set-up

ROCC.A.S.S.A.

RAJAC Cluj

SC Crisul Huedin

Cluj County CouncilSalaj County Council

Councils Dej, Gherla, HuedinCouncils Zalau, Jibou, Cehul Silvaniei, Simleul Silvaniei

Shareholders

Concession contract

www.rec.org

Utility systems of CASSA

www.rec.org

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

www.rec.org

2d. Financial reformCoincided 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

www.rec.org

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

www.rec.org

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

www.rec.org

Pricing of CASSA servicesRecovery 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

www.rec.org

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 %

www.rec.org

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

www.rec.org

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