Alexander Martoussevitch, OCDE - Coping with over-fragmentation: sustainable business models in WSS in EECCA

First National Conference on Inter-Municipal Cooperation

Coping with over-fragmentation: sustainable business models

in WSS in EECCA

Moldova, 5-6 June, 2012

Alexander Martusevich,OECD/EAP Task Force secretariat

EAP Task Force

Content

• OECD/EAP Task Force work on water and work methods

• Over-fragmentation of WSS in EECCA: negative impacts

• Benefits from Inter-Communal Cooperation (ICC)• Sustainable business models should be carefully

selected and pilot tested before massive replication !

• Set of models for pilot testing in WSS in Moldova• Concluding remarks

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OECD/EAP Task Force work on water• Facilitates two processes

- Environment for Europe process; and

- European union Water Initiative, EECCA component

• Programme of Work on Water:– contribute to achieving the Millennium Development

Goals on water and sanitation in EECCA, so that good quality water and sanitation services are delivered reliably, sustainably and at least cost to the population

– support economically, financially and environmentally sound management of water resources, including adaptation to climate change

• Synergies with broader OECD work on water- Water security, water & climate; water-food-energy

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Strengthening water management: activity clusters

• Strengthening institutions for WSS– Private sector participation– Over-fragmentation of water supply and sanitation

systems and sustainable business models

• Strengthening the economic and financial dimensions of water policies– Strengthening the use of economic instruments for

WRM– Financing strategies for rural WSS– Adaptation strategies for WSS

• Assessing water policies and institutions

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Work methods

• National & Regional policy dialogues (e.g. Armenia, Moldova, Kyrgyzstan, Ukraine)

• Policy relevant analytical work• Pilot projects• Partnerships• National projects / Regional approach

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Over-fragmentation of WSS in EECCA: negative impacts -1

The case of Kiev Oblast, Ukraine (1): - in total, 25 cities and more than 1,100 rural settlement with population of 1,7 mln;

One cluster of 10 small cities and towns:- identical water source and landscape

characteristics ;- 375,ooo inhabitants, 83% coverage by 10 water

companies;- 85,000 private cottages (75% coverage), 290,000

multi-apartment buildings (85% coverage)

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Over-fragmentation of WSS in EECCA: negative impacts - 2

Performance of the water companies: • Employee efficiency - 1 employee/200 connected

inhabitants (!)• Physical water losses - 35% and more • Energy consumption high - 1kWh/m3 of abstracted

water • Total direct O&M cost, average - 5 UAH/m3 (0,46

EUR/m3) of abstracted water • Year-to-year financial result – negative• Infrastruture – almost 50% fully depreciated • Maintenance works – minimal

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High variability of tariffs …

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… and Affordability issue

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Estimated benefits of voluntary agglomeration

• Political will to establish single water companies with a uniform WSS tariff in the 10 settlements

• Selected benefits:- soften affordability constraints

- easier access to credit and capital market- becomes attractive for private operators & investors- Estimated operational benefits / cost savings:

Cost optimisation (conservative: 1 staff/350 connected population)

Energy saving 15-20% of currentWater loss (physical) reduction – 30%

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Inter-communal cooperation is even more topical for poorer regions

• E.g. in Ukraine, Average household income: in Kiev City to Zhitomir oblast. = 16-18 times !

• Typical rural settlement in EECCA: low household income; very low fiscal capacity of local budget, hence no access to credit; lack of technicians able to repair WSS equipmentShare of expenditure on food stuffs in total household consumption expenditure in selected EECCA

EAP Task Force

Country 2001 2002 2003 2004 2005 2006 2007 2008

Armenia 64.6 66.6 67.1 56.4 57 56.5 53.5 51.9

Azerbaijan 68.3 53.6 54.7 56.1 53.7 53.6 52.9 56.9

Belarus 56.1 52.8 47.9 46.0 44.6 42.3 41.5 41.2

Moldova 44.7 43.1 42.4 44.4 43.2 34.3 35.4 33.5

Tajikistan 72.4 69.2 66.1 64.5 63.7 57.8 58.3 58.7

Ukraine 61.9 60.4 59.9 60.2 60.3 57.1 55.9 56.0

Moldova: tariff growth and variability of tariffs

Accumulated CPI vs CPI for WSS services

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The present situation is NOT sustainable…

E.g. in rural Kyrgyzstan, WSS tariff collection rate on average was at some 10-15% of what was billed

• … But not each and every alternative business model would necessarily work much better!E.g. according to a recent DFID & ADB report, some 60% of the Community Drinking Water Users Unions created in some more than 300 Kyrgyz villages have faced serious problems and many of them completely failedIn contrast, in Moldova, all 20+ Water Consumers Associations established with assistance from the SDC-funded APASAN project operate quite well

- the reasons of the huge difference in the performance of (almost) similar models are yet to be understood… Sustainable business models should be carefully selected and pilot tested before massive replication !

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Set of models for pilot testing in WSSin Moldova …

… Will be discussed at the EUWI NPD meeting on 08 June. Would likely include the following models (none of the them is a universal solution / panacea!):

• Water Consumers Associations (APASAN model)• Small scale private operators servicing one-few villages• Voluntary Agglomeration of water utilities (single

utility servicing a cluster of small towns and villages)• Obligatory regionalisation: regional water utilities

servicing the whole rajon/province• PPP = Public-Private Partnership – inviting big private

operators (e.g. for Soroca-Balti water main or Chisinau)

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Concluding Remarks

• Recommended models for WSS could be pilot tested by other development partners (e.g. GIZ, USAID, etc.)

• ICC is not least topical for Municipal Waste Management -see (OECD, 2007) Lessons Learnt from Financing Strategies for MWM Sector in Selected EECCA Countries

• OECD/EAP Task Force is discussing with development partners the idea of developing Guiding Principles for Rural WSS Reform in EECCA , inter alia addressing ICC issues

THANK YOU FOR YOUR ATTENTION!