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Full Cost Recovery (FCR)Process in Lao PDR
Mr. Noupheuak Virabouth
Director
Water Supply Authority (WASA), Lao PDR
Convention on Water and Wastewater in South East Asia
“Sharing our Experiences, Problems and Solutions”
Sheraton Hotel, Hanoi, Vietnam
June 7-9, 2005
The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the
Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guarantee
the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.
Terminology used may not necessarily be consistent with ADB official terms.
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Outline
Background
Effect of of Decentralization Policy on NPSEs
Water Supply Tariff Policy
What does WASA do?
Regulatory developments
Way forward
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Background- Country
Essentially rural country
Total population 5.7 million (in Y2003)
About 80% living in nearly 12,000 small ruralvillages scattered throughout the country
145 officially designated urban centres or townsin 142 districts
<25% of urban centres have a formal pipedwater system with household connections
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Background- Status of Formal WS System and Coverage
Overall coverage is 39% (in Y2003).
About 69% in Vientiane and foursecondary towns,
and about 17% in the 140 small towns
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Background – Management Model before 1999
Nam Papa Lao (NPL) – based in VientianeCapital City - sole provider of urban watersupply servicesProvincial water supply offices reported to NPL
System revenues were consolidated under onecentral account
Subsidization from large Vientiane scheme tosmaller provincial systems masked the poorperformance of the sector and the smallerschemes
Tariff was set uniform countrywide
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Background – Water Supply Sector Policy (1999)
Creation of Water Supply Authority (WASA)
Devolved responsibility for urban WSS from central toprovincial governments to already established NamPapa State Enterprises (NPSEs)
Each NPSE has responsibility within its own provincialboundary
NPSEs shall adopt uniform province-wide tariff
NPSPs responsible for setting tariffs to generate
sufficient revenue to meet the cost recovery, butThis tariff should be within the constraints of willingness topay and affordability of consumers, and
No system shall have tariff less than that required meetingall recurrent costs including O&M costs.
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Background – Management Model after 1999
Each provincial water supply office
became an autonomous provincial water
supply state-owned enterprise (PNP).
NPL became Nam Papa Vientiane (NPV)and then Nam Papa Nakhoneluang
(NPNL) (Nakhoneluang mean Capital City)
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Effect of DecentralizationPolicy on NPSEs
PNPs suddenly cut off from the financial subsidiesand much of the technical, administrative andmanagerial assistance formerly provided by NPL
NPSEs intended to be financially self supporting, butin reality:
Efficiency incentives weak
Financial management constrained by restrictive governmentfinancial regulations
Investment provided through government
Setting of tariffs lower than it should be – biggestobstacle to self-sustainability
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Water Supply Tariff Policy- Overall Objective and Concern
The water supply tariff policy (No.57/PM, 7 May 2004)states:
“The overall objective of this tariff policy is to provide the most appropriate balance that best protects the interest of the principal stakeholders in the water and waste water sector.”
What do stake holders want from tariffs?
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Consumers: Service value
Operators: Financial integrity
Environment: Protection of resources
Social fairness: Affordability
Economic factors: Economic development
Water Supply Tariff Policy- Short and long term objectives
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What does WASA do?
Promote the concept of comparative competition
Prepare tariff determination guideline and tariff review
Ensure that companies comply with regulations
Check that companies meet their responsibilities tocustomers
Check how companies perform to make sure thatcustomers get value for money
Recognize environmental constraints that thecompanies operate within.
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Regulatory Developments
1) Annual water sector performance reports
2) National tariff reviews
3) Individual NPSE tariff reviews
4) Saving water campaign
5) WASA website
6) Information collection and sharing (research,
studies, publications, videos and maps)
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Regulatory Developments1) Annual water sector performance reports
It is a regulatory tool for improvingserviceThe objectives are:
To inform the public as to how their watersupply operator is performing in relation to
others using the concept of comparativecompetitionTo encourage water operators to improve
their levels of serviceTo assist government in the identification of
investment needs throughout the countryTo inform the public about WASA Available on the WASA website
2002
2003
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Major analyses in the annual report
Technical Analyses:Service Coverage
Efficiency
Leakage
Financial AnalysesProfitability
Capital Investment
Detailed Tariff Analysis
Regulatory Developments1) Annual water sector performance reports
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Tariff analysis in 2003 Annual ReportUnit operating cost exc.Depreciation, tax, and returnon capitalImplied average tariff (totalincome/sale)Tariff required for full cost
recovery + 2% return oncapitalTariff reduction required forfull cost recovery + 2%return on capital
Regulatory Developments1) Annual water sector performance reports
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2005-2007 Tariff Review
Tariffs determined on the basis of sound
financial criteria leading to full cost
recovery in the future
Comparative competition effective in
determining efficient unit costs
Regulatory Developments2) National tariff reviews
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Tariff Review for Luang Phrabang- Full Cost Recovery achieved (1)
Performance Expectations
Regulatory Developments3) Individual NPSE tariff reviews
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Tariff Recommendations (2005 Price levels)
Tariff Review for Luang Phrabang- Full Cost Recovery achieved (2)
Regulatory Developments3) Individual NPSE tariff reviews
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Carry out byall provincialNam papas,
in eachprovince
countrywide
Regulatory Developments4) Saving water campaign
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Regulatory Developments5) WASA website: www.wasa.gov.la
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Regulatory Developments6) Information collection and sharing
Research, studies, publications, videos and maps
Small towns WSS case study (WSP-funded) - 2002
‘Consensus Building’ for PSP (PPIAF/WSP-funded) - 2004
Private sector pilots with GRET (2004-2006) Private sector study (PPIAF-funded) - 2005
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The Future
Periodic tariff reviews
Improved comparative competition to drive for further efficiency
improvements
To develop further competition in the market where possible
Development of the WASA website
Legislation database linked to the website
Training of WASA staff through Continuous Education Units (CEUs) to
gain international accreditation
Further studies, demonstration projects and research on appropriatemanagement models for Lao PDR small towns to assist GOL meet
NGPES targets by 2020
Linking with SEAWUN and EAPIRF
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Thank you for your attention!
Water Supply Authority
Department of Housing and Urban Planning
Ministry of Communication, Transport, Post and Construction
Vientiane, Lao P.D.R.
Tel: + (856 21) 451826, 452167 Fax: + (856 21) 451826
E-mail: [email protected]
www.wasa.gov.la