1. Development of National Water Tariff Study
Presentation by Giel Verbeeck
REC IPA Conference 2 April 2014

2. Synopsis Project Name: Development of National Water Tariff Study
Reference No:
Europe Aid/130917/D/SER/MK
Contracting Authority:
Central Financing and Contracting Department, Ministry of Finance (CFCD)
Beneficiary:
Ministry of Environment and Physical Planning (MoEPP)
Consultant:
EPTISA - GEING
02 April 2014

3. Technical Meeting 3 - Economic Instruments
Project rationale
Environment
EU approximation in the area of water and environment
Economics
Financial sustainability of the water sector at an affordable price
Allocation of resources
Commitments considering waste water treatment connectivity
24/11/2018
Technical Meeting 3 - Economic Instruments

4. Technical Meeting 3 - Economic Instruments
Project objectives
Analysis of the existing situation with respect to infrastructure, legal, financial and social aspects
Developed tariff methodology to be implemented, likely, under a new tariff system
Developed economic instrument for cost recovery and action plan for its implementation
-> Based on:
Coordination with stakeholders
Collaboration with pilot utilities (Skopje, Kumanovo, Prilep)
24/11/2018
Technical Meeting 3 - Economic Instruments

5. Technical Meeting 3 - Economic Instruments
Activities
Preparation and Implementation of Stakeholders’ Involvement Plan
Analysis and Assessment of the Existing Situation at National Level and Local Level in Water Sector Related to Water Supply, Collection and Treatment
Development of an Economic Instrument for Effective and Affordable Cost Recovery in the Water Sector Related to Supply, Collection and Treatment
Formulation of the Water Tariff Methodology and Structure of the Water Tariff
Development of Action Plan for Implementation of the Economic Instrument
24/11/2018
Technical Meeting 3 - Economic Instruments

6. Technical Meeting 3 - Economic Instruments
Service Providers
Regions in RM
Number of municipalities
Number of Public Service Providers
Water supply and waste water service providers
Water supply service providers
Waste water service providers
East 11 10 1
North east 6 4
Pelagonija 9 5 2
Polog
Skopje 17
South east
South west 7
Vardar
TOTAL 80 50 14 3
24/11/2018
Technical Meeting 3 - Economic Instruments

7. Technical Meeting 3 - Economic Instruments
Sector performance
Indicator
2008
2009
2010
2011
2012
1.1 Water Coverage (%) 91
2.1 Sewerage Coverage (%) 75 74 72 73
4.1 Total Water Consumption (l/person/day)
181
172
157
155
158
4.7 Residential Consumption (l/person/day)
133
125
120
119
115
6.1 Non Revenue Water (%) 62 61 64 63
6.2 Non Revenue Water (m3/km/day)
116 94 96 89
103
8.1 % Sold that is Metered (%)
24/11/2018
Technical Meeting 3 - Economic Instruments

8. Typical project profiles
Although each utility and municipality is different, for the purpose of this project a distinction into three profiles is made:
profile 1 consists of the utility providing water services to the municipalities forming the city of Skopje
Profile 2 consists of the remaining utilities that serve a population of at least 25,000: around 17 utilities operating in 18 medium sized municipalities. The average population served is 58,000. most of the utilities belonging to this profile have received some form of technical assistance in the past.
Profile 3 consists of remaining 42 utilities that serve communities of less than 25,000 population (on average 10,000). The size of these utilities is typically small and multipurpose utilities. They are unlikely to comply with any more advanced tariff methodology aiming at cost recovery.

9. UWWTD Investment Needs
€500 - €670 million (COWI, 2010)
€293 per inhabitant (taking average and all population)
Average Case: ~50% of wastewater treatment is tertiary
nutrient removal in sensitive areas
Agglomerations
Collection
Treatment
Total
Proportion
2,000-10,000
68,760,864
28,581,850
97,342,714
17%
10,000 – 100,000
194,376,435
150,972,307
345,348,742
59%
>100,000
62,790,240
82,209,939
145,000,179
25%
325,926,539
261,764,096
587,690,635
55%
45%
Again you are familiar with this, so I will not spend much time on it, but I just wanted to recall hat the 2010 estimates prepared by COWI indicate an investment need to between 500 and 600 million, which equates to about 290 euros per person. The table shows the average of the cost estimates made by COWI
Moreover you can also see that the bulk of the costs fall on the medium and larger agglomerations
And that the investment costs for collection are (depending on which treatment scenario you take) similar to those for treatment
This reflects the fact that collection networks are very expensive to build, but that there are already a large number in place
OK – this is a lot of money, but it is comparable with the expenditure of other Candidate – Accession Countries
24/11/2018
Technical Meeting 3 - Economic Instruments

10. UWWTD Investment Costs
Member State
Population
Investment million
Proportion of Total
€ per capita
Bulgaria
7,563,710
€2,135
6.10%
€282
Cyprus
819,140
€630
1.80%
€769
Czech Republic
10,506,813
€2,975
8.50%
€283
Estonia
1,340,127
€245
0.70%
€183
Hungary
10,014,324
€3,885
11.10%
€388
Lithuania
3,329,039
€525
1.50%
€158
Latvia
2,248,374
€840
2.40%
€374
Malta
414,372
€140
0.40%
€338
Poland
38,167,329
€11,165
31.90%
€293
Romania
21,462,186
€10,080
28.80%
€470
Slovenia
2,046,976
€805
2.30%
€393
Slovakia
5,424,925
€1,610
4.60%
€297
103,337,315
€35,035
€339
What did implementation of the UWWTD cost in other recent accession countries
There’s a summary here from the European Commission – bottom line – about 340 euros per head
24/11/2018
Technical Meeting 3 - Economic Instruments

11. Key implications of assessment
Large investment need (>€500m), mainly waste water collection and treatment
Financing strategy required to cover annual amounts of € 25m - € 35m
Sustainability through new tariff system:
Providing incentives to be cost and resource efficient
Respecting affordability and willingness to pay
24/11/2018
Technical Meeting 3 - Economic Instruments

12. Elements of Economic Instrument
Applicable economic instruments that have been tried and tested in EU member states:
Tariffs
Taxes and Charges
Subsidies
Voluntary Agreements
24/11/2018
Technical Meeting 3 - Economic Instruments

13. Technical Meeting 3 - Economic Instruments
Tariffs
Tariffs are an integrated part of EI package
New methodology to address:
Harmonisation (user/polluter pays principle)
Affordability and vulnerable groups
Incentives to reduce Non Revenue Water, improve efficient use of resources, asset management, investment and development
Business planning for multiple years ahead
24/11/2018
Technical Meeting 3 - Economic Instruments

14. Supplementary elements of EI
Tariffs alone cannot address the financial and environmental challenges.
A redesigned water abstraction charge may provide strong incentives to reduce Non Revenue Water in the entire water sector
A redesigned water pollution charge may provide the required co-financing needs
Voluntary agreements can support the development of an improved sector structure.
24/11/2018
Technical Meeting 3 - Economic Instruments

15. Assessing funding sources

16. Cost recovery economic instruments for the Macedonian water sector
Taxes
V.A.T.
(reduced 5% rate)
maximum % of household income, max % annual increase
Affordability and acceptability
Interest cost to go down again
Eligible cost based on benchmarks
Depreciation to increase
Tariffs
Finance for investment
Collection rate to go up
Costs of Capital
Replacement and renewal
Depreciation
O&M stable relative to scale/scope of service
Providing for a transition period
Bad Debt Expense
Operation and Maintenance
Agreed targets for efficiency ratios
3-5 year projection period for tariff calculation
Co-funding Waste Water Treatment Plants
Charges
Abstraction Charge
MKD/m3
Improve efficiency & generate funds
Regulatory focus on efficient O&M
Pollution Charge
MKD /m3

17. Process Alternative concepts for development of Economic Instrument
Comprehensive centralised reform
Minimum change
Compromise approach
Identification of applicable instruments for RM
Tariffs
Abstraction charge
Pollution charge
Voluntary agreement
Identification of economic instruments
Possibillities
Constraints
Policy framework
EU accession
River Basin Management

18. Conclusion and further steps
There is good scope for implementation of EI package to ensure water sector sustainability i.e. investment, finance, resource efficiency, optimised performance and EU compliance. Affordability is built into design of EI package.
After optimal concept is identified the EI package is to be specified and then tested with three pilot water utilities of Skopje, Prilep and Kumano
National workshop foreseen to further build consensus on existing situation and the way forward.

19. Thank you very much for your attention
БЛАГОДАРАМ!
Giel VERBEECK
A Project is implemented by EPTISA and its consortium partner GEING
Orce Nikolov 74, 1000 Skopje
Tel : +389 (0) , Fax : +389 (0)
This Project is funded
by the European Union