Capital Summit 2015, Bucharest: Improving the efficiency of public water service through concession...

IMPROVING THE EFFICIENCY OF THE PUBLIC WATER SERVICE THROUGH CONCESSION IN BUCHAREST, THE CAPITAL CITY

OF ROMANIA

CAPITAL SUMMIT 2015

BELGRAD 22 – 24th April, 2015

Public Services

principles

The notion of public service has been long considered the foundation of all the peculiarities of the administrative law

and a criterion for administrative competence.

The core of the administrative action is to ensure the functioning of public services, which are the very reason

of administration.

CAPITAL SUMMIT 2015BELGRAD 22 – 24th April, 2015

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Public Services

global and European context

Public services sector have a special place in world economy as a whole and in the practice of most countries. The realities of the contemporary world clearly demonstrate the fast growing tendency

of the role of public services in the socio-economic life of developed countries. The dynamic of the public services sector is so strong that the twenty-first century can be referred to as the century of services, describing the current period as one of “TRANSFORMATION OF OUR CIVILIZATION INTO A

CIVILIZATION OF SERVICES”

The Treaty of Rome ......., for example, contains the phrase "Service of General Economic Interest (SGEI)." The Treaty of Amsterdam ......... .. admits the place SGEI has among the common values of the European Union, welcoming the role that these services play in promoting social and territorial cohesion of the Union. (TEC art. 16) The economic and social dimension of community services of public utilities and their role in maintaining social cohesion, requires and justifies the adoption and implementation of a set of measures aiming at sustainable development, meeting the European Union standards and eliminating economic and social disparities between its Member States and Romania.

GLOBAL CONTEXT

EUROPEAN CONTEXT


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Servicii publice

contextul national si local

At national level, the need to organize public services stems from the very raison d'être of the Romanian state, public services being necessary as they show, first and foremost, how the state fulfills

its duties in respect of the citizen’s fundamental rights.

The activities aimed at satisfying requirements of general interest in a given community are carried out not only by state organizations or of the local community but also by private individuals.Bucharest undergoes a full process of development and modernization, which is why it is permanently concerned with resizing all public services to increase population’s comfort, based on its own public services development strategy. Policies and objectives have been defined, solutions and courses of action are to be identified, capable to accelerate the development and improvement of community services of public utilities and also the development, rehabilitation and upgrading of the related urban technical infrastructure, in accordance with the obligations undertaken by Romania in the process of integration in the European Union.

NATIONAL CONTEXT

LOCAL CONTEXT


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PUBLIC SERVICES services reforms and development policies

- achieve compliance with the provisions of EU legislation on community services of public utilities;- fulfill the commitments undertaken by Romania regarding the implementation of the acquis communautaire applicable to community services of public utilities;- achieve compliance with EU standards on the quality and quantity of community services of public utilities;- increase EU funds absorption and attract investment funds;- increase the capacity to develop, promote and finance infrastructure investment projects of local interest.

- organizing community services of public utilities by considering population’s requirements;- introducing quality standards (performance indicators, levels of services) based on which the community services of public utilities can be monitored and evaluated; - promoting balanced contractual relations, result-oriented, based on the concept of delegated management;- establish a monitoring and evaluation system of the performance of management delegation agreements for community services of public utilities; - clarifying the principles and decision-making mechanisms regarding the initiation, substantiation, approval and funding of local public investments;- transparent use and increased capacity of attracting structural instruments, by preparing a portfolio of projects and investment targets specific to the rural technical infrastructure related to public utility community services;- extending delegated management of the public utility community services based on concession agreements and public-private partnership agreements, promoting privatization of operators-suppliers/providers of public utility community services and attracting private investment for developing and upgrading community systems of public utilities, taking into account the success achieved with the concession of the public water supply and sewerage services in Bucharest.

DEVELOPMENT POLICIES - GUIDELINES

REFORM OF SERVICES - GENERAL OBJECTIVES


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Concession of Public Water Supply and Sewerage Service

assumptions (before 2000)

During 1990-1999, the service was provided in Bucharest by the municipal water company, under the full control of the local authority; Average number of employees: 5.500Customers: 69.000Length of water network : 2.300 kmLength of the sewerage network : 1.800 km

Water Supply System:

• large areas not connected to the system

• low metering level

• large number of breakdowns of the distribution system

• lack of continuity in water supply

Sewerage System:

• large areas not connected to the system

• poor maintenance of the sewerage

• lack of a wastewater treatment plant

Global description:

“In the 90s, the water and sewerage system in Bucharest was exclusively operated by the public sector, its beneficiaries considering it inefficient and ineffective, reluctant to change, with serious deficiencies in terms of technical, organizational, financial and managerial performance”.

Prof. Ioan Radu: Effects of the public private partnership on water supply and sewerage services –Bucharest Experience, ASE 2008


Concession of Public Water Supply and Sewerage Service

relevant aspect - gains

• The contract was awarded in 2000 (for 25 years), following a competitive international tendering procedure, organised by the Municipality of Bucharest, with the International Finance Corporation (IFC) – World Bank Group, as the Lead Advisor;

. The bidding was based on a single criterion: the lowest tariff. Apa Nova Bucharest (Veolia Water Group) won the tender because it offered the lowest combined water and wastewater tariff (calculated as the average of 7 tariffs proposed for specific time periods of the concession).

• The Contract is customer-oriented, with clear quantitative and qualitative objectives (Levels of Services) for the Concessionaire, with no imposition of obligatory investments (exception is Crivina Water Production Plant – 3 m3/s), monitored by the Municipality of Bucharest through the Municipal Authority of Public Services Regulation;

• The Concessionaire is remunerated with a strictly controlled tariff by the National Regulatory Authority for Public Services (ANRSC) and the Municipal Authority of Public Services Regulation (AMRSP).

• The Concessionaire may undergo serious financial consequences if it does not achieve the set of 24 technical and commercial Levels of Services (LoS) as provided for in the Contract (1,5 M€ contractual penalty per each LoS not complied with).


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Concession of the Public Water Supply and Sewerage Service

main stakeholders of the Concession

SHAREHOLDERS REGULATORY AUTHORITIES

REGULATORY AUTHORITIES

Municipality of

Bucharest

Employees

16,31 % 73,69 % 10 %

Economic Regulator: ANRSC - monitors and approves the requests for tariff adjustments/modifications

Technical regulator: AMRSP - monitors the compliance with LoS (Levels of Service) as defined in the Concession Contract

Expert Panel of the Concession: (3 international independent experts)- mandated to provide binding opinions on tariff adjustment/modification proposals and settle disputes between Apa Nova Bucuresti, regulators and Municipality of Bucharest on LoS, tariffs, etc.

CUSTOMERSCAPITAL SUMMIT 2015BELGRAD 22 – 24th April, 2015

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conclusions of evaluation

An independent evaluation study done in 2010 (at the request of International Finance Corporation) by the CASTALIA STRATEGIC advisors shows that:

“In Bucharest, the concession has clearly improved water and wastewater services. ... The main success drivers were:

• a committed public authority• a committed and expert advisory team• a well-prepared, high quality, and transparent transaction process• an unusually thoughtful and innovative contract design • well-designed and implemented contract monitoring and disputing resolution arrangements.”


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relevant aspects before and after Concession

Water network interventions Sewerage interventions

Before Concession Before Concession

After Concession After ConcessionCAPITAL SUMMIT 2015BELGRAD 22 – 24th April, 2015 10



Heath & Safety Equipments

Before Concession Before Concession




Customers receptionDispatchingBefore ConcessionBefore Concession


EU, Municipality of Bucharest and Apa Nova Bucuresti Partnership

Wastewater Treatment Plant - Glina

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Major Investments in water supply and sewerage systems

Since the Concession, Apa Nova Bucuresti invested approx. 400 mil. Euro in the system, as follows:

• Construction of Crivina Water Treatment and Drinking Water Production Plant and modernization of Arcuda and Rosu Water Treatment and Drinking Water Production Plants; • Cleaning and unclogging the Caseta – Dambovita (the biggest sewer collector of Bucharest);• Extension and rehabilitation of water and sewerage network, replacement of lead connections, and so on …


Tariff for Service

THE SERVICE IS NOT SUBSIDIZEDCAPITAL SUMMIT 2015BELGRAD 22 – 24th April, 2015 15

Tariff for Service

independent evaluation

CASTALIA STRATEGIC Advisors :

“How did Apa Nova manage to improve service more than average while keeping tariffs relatively low, without receiving any public subsidy?”

The answer lies in the ability of the Concession to increase efficiency. The efficiency gains enable Apa Nova to generate the operational cash-flow needed to cover loans and ensure the return on capital invested.”


IFC (World Bank) Study – evaluation after 10 years of Concession

“The financial incentive model designed for water supply services in Bucharest shows that if Bucharest had made the same investment to improve public services, but with the same efficiency as observed at the other public utility services operators in Romania which had not entered into a public-private partnership (PPP), the total cost of providing services for the period 2000-2010 would have been 349 Mil USD higher”.

Evaluation of water and sewerage Concession in Bucharest, 2010


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