Transcript Cross-Border Cooperation through Environmental Planning

Cross-Border Cooperation through
Environmental Planning and
Investment
Institutional Strengthening Workshop
Budva, Montenegro, 5 September 2007
Policies for reform of water sector
utilities in SEE (Balkans)
Session Overview
 Introduction to the water sector industry in the
Southeast Europe (SEE)
 Rationale for reform in the sector
 Benchmarking & performance measurement
indicators
 Key Success Features and Alternatives for
reform and transformation
 Lessons Learned from Transformation Effort
 Conclusions and recommendations
Definition of the Water Sector
 Provision of services in:
1. Safe, drinking & continous water supply. Water
supply system includes:


Raw water intakes, transmission pipes, drinking
water treatment plants;
Water distribution networks, pumping plant, storage
reservoirs, and related infratsructure
2. Environmentally accepted wastewater disposal.
Wastewater systems includes:

Sewerage network, pumping plants, reservoirs and
wastewater treatment plants (WWTPs)
Water Sector Strategic Context in SEE
Organization & regulation of water sector
 Organized mostly at municipal level: organization
through municipal departments or municipal (public)
enterprises is the most common form in the region, i.e.
municipal WSS (water & sewerage) utilities.
 Framework water legislation exists in all
countries: the local government water regulation is the
most common form, involving municipal authority setting
tariffs (political influence)
 Coverage of the population with water supply,
sewerage and wastewater tretament is far from
complete.
Water Sector Strategic Context in SEE
Reasons for Poor Performance in Infrastructure:
 Delivery of infrastructure services usually
occurs without competition
 Individuals & organizations responsible for
managing & delivering services are not given
incentives
 Users are not involved in the process*
* Source: World Bank, World Development Report 1994,
Infrastructure for Development
Transition Indicators of WSS Sector in the
CEE Countries – EBRD Perspective
Category 1
Category 2
Category 3
Category 4
Albania; Belarus;
BiH; Kyrgyz Rep.;
Tajikistan;
Turkmenistan
Armenia;
Azarbaijan;
Macedonia;
Georgia;
Kazakhstan;
Moldova; Russia;
Serbia;
Montenegro;
Slovak Rep.;
Ukraine;
Uzbekistan
Bulgaria; Croatia;
Latvia; Lithuania;
Poland; Romania;
Czech Rep.;
Estonia; Hungary;
Slovenia;
Minimal
Decentralization
and
Comercialisation
Moderate
Decentralization
and
Comercialisation
Fairly large
degree of
Decentralization
and
Comercialisation
Large degree of
Decentralization
and
Comercialisation
The “vicious” cycle of WSS Utility
Lack of Financing
Core Issues
Poor operational
efficiency
Deteriorated
climate for
private sector
participation
Service
performance
problems
Poor tarrif
collection & cost
recovery
Low “bankability” of
municipal utility and its
investment projects
Poor Management
Practices
Water services
demand:
Customer perception,
affordability and
political acceptability
Core Issues of WSS Utilities
 Operational Efficiency


Inefficient internal operations
Over-sized or poorly configured systems inherited
from the past
 Performance problems in service provision:




Low service coverage
High physical water losses and UFW
Unreliable and variable drinking water quality
Inadequate wastewater treatment capacity
 Management Practices
 Planning, communication, and control
The concept of “Bankable” WSS Utility
 The concept incorporates considerations of the
creditor’s confidence in both the:
1. Viability of the public utility or municipal government
as a creditworthy institution, and
2. Viability of the utility’s investment project to be
financed as a reliable source of future revenue flow
 “Bankable” WSS utility is defined as one fully
recovering:



its operating & maintenance (O&M) costs and taxes
Debt service
Meeting givernance and business performance
norms
Taken from USAID Publication: Case Studies of Bankable Water and Sewerage Utilities
The concept of benchmarking
‘A systematic process of searching for best
practices, innovative ideas, and highly effective
operating procedures that lead to superior
performance, and than adapting those
practices, ideas, and procedures to improve the
performance of one organization’
Metric benchmarking (Performance Indicators):
What is wrong?
Process benchmarking (Activities):
Why is that wrong?
Performance Indicators in the water
sector – metric benchmarking
Quantitative comparative assessment of company
performance over the time






Water resources indicators
Personnel indicators
Physical indicators
Operational indicators
Quality of Service indicators
Financial and economic indicators
Purpose: Identify areas of under-performance
Process Benchmarking
 Focused on individual processes (set of
activities) within the organization. There are
four key processes:
1.
2.
3.
4.
Production process
Distribution process
Sales process
General process
 The purpose is to improve the performance by
“learning from others”
The Transformation Process
 The key question:
How to end up the “vicious” cycle and
successfully transition form the state of
poor technical, financial and managerial
performance to a “bankable” condition?
Key initial factor: The degree of the utility’s
autonomy from the municipal government
Key Features Contributing to the Success of
the Transformation Process
External Features
Internal Features
Taken from USAID Publication: Case Studies of Bankable Water and Sewerage Utilities
Key External Success Features
 External Features
 Effective and transparent legal/regulatory
framework
 Strong leadership and political will
 Financial assistance from public sources
 Fiscal discipline imposed in financial agreements
 Coordinated technicall assistance from the
international community
Taken from USAID Publication: Case Studies of Bankable Water and Sewerage Utilities
Key Features Contributing to the Success of
the Transformation Process
 Internal Features


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

Public outreach/participation
Fair labor transition process
Installing a business culture within the organization
Improved understanding of the customer base
Accessing external expertise and experience
through contracting
Taken from USAID Publication: Case Studies of Bankable Water and Sewerage Utilities
Transformational Strategies
Corporatization
Performance
Agreements
Private Sector
Participation
Taken from USAID Publication: Case Studies of Bankable Water and Sewerage Utilities
Corporatization
 The process of restructuring and reform the
utility by applying the management practices
and internal incentives that “mimic” those of
private businesses:
 Sound corporate governance
 Driven by customer demand and
 Focused on financial targets important to achieve
operational efficiency and full cost recovery
Establish clear
commercial
objectives
Establish
appropriate
managerial
authority and
autonomy
Implement
effective
performance
monitoring
Ensure
competitive
neutrality
Provide
rewards and
sanctions for
performance
Corporatization (cont.)
 Corporatization is associated with:
 Making rational investment choices where resources
are limited by hard budget constraints
 Employing cost recovery approaches to maximise
user based revenues to the extent possible and
within affordability constraints
 Ensuring managerial independence while holding
utility managers accountable for delivering an
acceptable quality of service
 Transparency and competition in the procurement of
goods and services to ensure good value for money
and avoid opaque practices and corruption
Performance-based Agreements
 Performance-based agreements between water
authorities and local utilities with explicit targets
and clear incentives for service providers
 Targets may include:
 Unaccounted for water
 Accounts receivable
 Connection efficiency
 Performance fee to the operating utility
 Penalties may be involved against persistent
failure to achieve certain targets
Private Sector Participation
 Range of options of private sector involvement
with the public sector under different conditions
of risk and reward to both parties:
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Service contracts
Management contracts
Lease contracts
Concessions
BOT contracts, and
Divestiture (Privatization through sale)
Menu of PSP Structuring Techniques
High
Divestiture
Concession
“REWARDS”
(Returns to
The Private
Sector)
Lease
Service/
Management
Contract
Construction
Contract
Low
Low
High
“RISK”
(Private Sector Investment Required)
Characteristics of PSP Arrangements
Type of
contract
Duration
What the
public sector
receives
What the
contractor
receives
Nature of
contractor
performance
Service contract
1-3 years
Minimized costs
Improved quality
Fee from the
government
Definitive,
technical type
of service
Management
contract
3-8 years
Increased
efficiency
Fee incentives
Manage the
operation
Lease
8-15
years
Working capital
Rent
All revenues,
fees or charges
Manage,
operate, repair,
maintain
Concession/
BOT
15-30
years
Investment
capital
Concession fee
All revenues
from consumers
Manage,
operate, repair,
maintain, invest
Lessons Learned fromTransformation
Efforts
 Take advantage of events that raise public demand for
transformation
 Seek out and support champions for transformation
 Conducive legal/regulatory framework is key
 Incorporate public participation into assistance activities
 Consider labor implications for transformation
 Identify possibilities for mobilizing both public and private
resources
 Emphasize the application of sound business practices
Taken from USAID Publication: Case Studies of Bankable Water and Sewerage Utilities
Conclusions
 Poor performance of the water utilities in the
Balkans (the vicious cycle)
 Low bankability and lack of financing
 WSS utility benchmarking as a management
tool for assessment and improvement
 Different strategies for transformation towards
bankable conditions
 Key success features for transformation and
lessons learned