1 EECCA-wide trends of water utility performance Tatiana Efimova Helsinki, May 2007 E A P TASK FORCE

2 Structure of presentation State of water infrastructre in EECCA Impacts on public health and the environment Current state of financing EECCA water sector User charges Public budgets External finance Conclusions

3 WSS infrastructure in EECCA is in critical condition Key trends unchanged since 2005 Yerevan Ministerial The water supply and sanitation network is extensive, but increasingly deteriorating The quality of service is decreasing as a result, impacting on public health Sewerage and wastewater treatment facilities are often the first service items to be shut down resulting in increased environmental impacts Adverse impacts on public health stagnate at high levels The most alarming situation of water infrastructure exists in small and medium cities and in rural areas On the positive side: water consumption and production are decreasing, metering is spreading

4 Source: EAP Task Force Water Utility Performance Indicator Database

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6 US 1996 Source: EAP Task Force Water Utility Performance Indicator Database

7 =>Medium sized cities are particularly affected (here continuity of service by size of settlement in Moldova) Source: OECD EAP TF /EUWI /Jacobs (2007), Facilitating policy dialogue, and Developing a National Financing Strategy for Urban and Rural Water Supply and Sanitation in Moldova

8 Access of rural population to sustainable, clean drinking water in Kyrgyzstan Source: National Statistical Office of Kyrgyzstan.

9 Health data shows a mixed picture Some health indicators have been improving (e.g. infant mortality rate) While others are deteriorating in some countries (e.g. infections with viral hepatitis A) But all indicators are significantly above EU levels Anecdotal evidence of out-breaks of water related diseases are numerous WHO reports that 13,000 children under 14 die every year due to poor water in the ECE region

10 Environmental impacts Wastewater treatment infrastructure is insufficient and where it exists often out of operation As a consequence municipal water systems have become the main polluters of surface waters in many EECCA countries EEA assess most rivers in Ukraine as polluted or highly polluted, a similar situation exists in almost all areas of intensive economic activity in EECCA This is increasingly affecting the quality of drinking water sources Both the Caspian and Black Seas are assessed as under severe environmental stress, mainly due to municipal water pollution according to EEA

11 Current state of financing WSS in EECCA 50-90% of water utility revenue is generated by user charges The rest mostly comes from public budgets But these funds are insufficient even to cover operational costs In some countries utility revenue from tariffs covers less than 20% of operating costs

12 Source: EAP Task Force Water Utility Performance Indicator Database

13 Reasons: Water tariffs are extremely low Collection rates of water charges from HH, even though they are improving, are still low (e.g. typically about 60%) Operation of water utilities is inefficient due to excessive leakage, inadequate technical equipment, and over-staffing Metering policies, while crucial for more accountability and social policies, are hurting utility revenues However: improving economic conditions and household income create new opportunities to improve the situation

14 Affordability is a constraint Tariffs are and will remain the main source of finance for the sector But even at present, very low water tariffs many people face an affordability problem; as EECCA proceed with reforms this situation is likely to worsen Mechanisms to protect the poor exist but are frequently insufficiently targeted at those in need

15 Projections for Yerevan, Armenia Distribution of Households by Charges for Water/Wastewater Services as a Percentage Consumer Expenditures (%)

16 Public budgets Public budgets are the second largest source of finance and will need to continue playing an important role In many countries, financing from public budgets will need to increase significantly if the MDGs are to be achieved (e.g. in Moldova a fourfold increase to 2% of public expenditure spending is needed) Governments need to set in place mechanisms that ensure sufficient fiscal transfers to local level actors on a predictable and stable basis

17 External finance is small compared to needs Bilateral and multilateral ODA for WSS in EECCA

18 Conclusions Infrastructure trends remain negative and resulting impacts on public health and the environment at high levels Reforms in line with Almaty Guiding Principles undertaken, but not producing results, yet Efforts should focus on local level actors and rural areas Financing of sector reforms will require significant efforts from users and public budgets and in poorest countries external assistance will be potentially important