Implementation of Water Utility Directives

Sanja Barbalić, Hrvatske vode, Croatia

TIME FRAME

EC – DG Environment and DG Enlargement: Explanatory screening

3-11.4. 2006

Republic of Croatia: screening (bilateral)

15-19.5. 2006

EU Council: Benchmarks defined

3.4.2007

Republic of Croatia: Negotiating position

11.7. 2008

Technical consultations between EC DG Environment and DG Enlargement and the Republic of Croatia concerning coordination of positions and identification of transitional periods

2008 – 2010

EU Council adopts EU’s common position for chapter opening

18.2. 2010

Chapter formally opened at an international conference

19.2. 2010

Chapter provisionally closed

22.12.2010

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BACKGROUND

• An approach to introducing European standards into water utility activity is the result of negotiations between the Republic of Croatia and the European Commission under Chapter 27 Environment, which were conducted in the 2006-2010 period.

• The results of negotiations are systematized in a document called "The Implementation Plan (Revised) for Water Utility Directives", adopted by the Croatian Government in November 2010.

• The Plan contains cost estimates and defines the dynamics of construction of public water supply systems and urban wastewater collection and treatment systems until full compliance with the European Union standards/requirements transposed into the Croatian legislation.

ASSUMPTIONS Implementation plan for water utility directives includes:

• Harmonization with the provisions of the Urban Waste Water Treatment Directive (91/271/EEC)

• Harmonization with the provisions of the Drinking Water Directive (98/83/EEC)

Implementation of the Directives includes the creation of conditions for:

• Construction, development, operation and maintenance of water utility systems in accordance with the requirements and standards laid down in the Directives

• Regular performance of public service (water rights acts) and regular performance of expert tasks: monitoring, investigation works, preparation of studies, etc.

Implementation of UWWT and DW Directives depends on the social affordability of water tariff which is:

• A joint source of financing;

• The only source of financing the operations; and

• One of the most important sources of financing the construction of systems through the fees of Hrvatske vode and development fees.

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UWWT DIRECTIVE - AGGLOMERATIONS

• Republic of Croatia – 4.285 million – total population (2011)

– 56,594 km2 – mainland surface

– 75.7 inh/km2 – average population density

– 6,756 settlements

– 634 inhabitants – average settlement size

• Settlements with less than 500 inhabitants

– 82% of total number – 5,568 settlements

– 18% of total population

• Four main regional centers representing ~30% of total population (together with near-by smaller settlements)

– Zagreb – 688,163 inhabitants

– Split – 167,121 inhabitants

– Rijeka – 128,384 inhabitants

– Osijek – 84,104 inhabitants

• Agglomerations – concept: – one agglomeration is served by one

collecting system, and by one WWTP;

– total number - 763 agglomerations of which 294 are > 2,000 PE

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SENSITIVE AREAS

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IMPLEMENTATION DEADLINES

Sensitivity Agglomeration size (PE)

TOTAL

2,000-10,000 10,000-15,000 15,000-50,000 50,000-150,000 >150,000

Black Sea basin - sensitive area

Wastewater collection Secondary treatment

12 years - 31 Dec 2023

(126 agglomerations)

Wastewater collection More advanced

treatment 9 years - 31 Dec 2020

(10 agglomerations)

Wastewater collection More advanced treatment

7 years - 31 Dec 2018

(29 agglomerations)

Wastewater collection More advanced

treatment 7 years -

31 Dec 2018

(2 agglomerations)

167

Adriatic Sea basin - sensitive area (discharge on the mainland and in part of the sensitive sea)

Wastewater collection Secondary /

appropriate* treatment 12 years -

31 Dec 2023

(26 agglomerations)

Wastewater collection More advanced

treatment 9 years - 31 Dec 2020

(5 agglomerations)

Wastewater collection More advanced treatment

7 years - 31 Dec 2018

(8 agglomerations)

Wastewater collection More advanced

treatment 7 years -

31 Dec 2018

(0 agglomerations)

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Adriatic Sea basin - area of the "normal sea"

Wastewater collection Appropriate treatment

12 years - 31 Dec 2023

(53 agglomerations)

Wastewater collection Secondary treatment

12 years - 31 Dec 2023

(16 agglomerations)

Wastewater collection Secondary treatment 7 years - 31 Dec 2018

9 years - 31 Dec 2020 **

(2 agglomerations) (11 agglomerations**)

Wastewater collection

Secondary treatment 7 years -

31 Dec 2018

(4 agglomerations)

Wastewater collection Secondary treatment

7 years - 31 Dec 2018

(2 agglomerations)

88

* - Coastal areas ** - Coastal agglomerations with tourism having a significant share in overall load (>30%)

294

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IMPLEMENTATION OVERVIEW

• Agglomerations > 2,000 PE – around 93% of the estimated maximum load

– representing 80% of population which should be connected to the sewerage system

Deadlines for implementation No. Of Agglomerations

31.12. 2018. 47

(All above 15,000 PE)

31.12. 2020. 26

(mainly 10,000 – 15,000 PE)

31.12. 2023. 221

(mainly 2,000 – 10,000 PE)

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WATER SUPPLY

• Zones – A TOTAL of 68 water supply zones -

reporting units defined predominantly on the basis of technical analysis of the existing state and development plans for water supply

– An AVERAGE water supply zone has 56,000 inhabitants and annual water consumption of about 2,200,000 m3

• Investments will fully address the problem of:

– increased quantities of chlorides, nitrates, turbidity, naturally increased contents of arsenic, iron and manganese as well as

– microbiological pollution

either present or on a risk of pollution in water supply systems (public and local)

• Croatia has requested: – a transitional period until 31 December

2018 for the implementation of provisions concerning microbiological parameters, and

– as a MS, Croatia intends to request a transitional period of 3+3+3 years for compliance with certain chemical parameters, in total until the year 2021 + potentially 3 years

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PUBLIC WATER SUPPLY /

LOCAL WATER SUPPLY SYSTEMS

• Local water supply systems – 443 local WSSs (>50 inhabitants) with 632 water intake structures; cover 6% of the population

• Individual water supply – own wells; estimation: 14% of the population

Inh. %

Total number of population in Croatia (2001 Census) 4,437,460

Total population in the area of the selected 31 zones 2,564,344

Of which:

Estimated population in the area of the selected 31 zones that

can connect to controlled public systems

1,878,099 73%

Population connected to uncontrolled systems 216,820 8.5%

Non-compliant with microbiological parameters only 108,339 4.2%

Non-compliant with chemical and microbiol. param. 24,576 1.0%

At risk of failing to meet microbiological parameters 3,854 0.2%

Total non-compliant with microbiological parameters

(108,339+24,576+3,854)

136,769 5.3%

Non-compliant with chemical parameters only 9,430 0.4%

Total non-compliant (136,769+9,430) 146,199 5.7%

Compliant at small uncontrolled systems (216,820 –

146,199) – but at risk

70,621 2.8%

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TOTAL ESTIMATED INVESTMENT COSTS

• The costs of full compliance with the EU Directive concerning urban waste water treatment are estimated at € 3,192,000,000. Activities will cover 4.29 million of Croatia’s population with a total load of 7.24 million PE (according to the 2001 Census) treated.

• The costs of full compliance with the EU Drinking Water Directive are estimated at € 1,352,000,000. Activities will cover 1,240,000 of Croatia’s population (according to the 2001 Census).

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FIRST ESTIMATE OF IMPLEMENTATION COSTS

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Financing issues – Affordability assessment

optimistic projection of net available household income NAI

• The affordability of costs has been checked in terms of allocation of 2% (2.5%), 3% and 4% of the net available income for households (NAI) for covering total implementation costs for water utility directives.

• The lowest level of data aggregation were counties, NUTS2 regions (then 3 now 2) and national level. The data on NAI on the municipality level were not available (then and now). The only information was that we can expect even higher NAI variability than for counties.

• For the purpose of analysis, for each selected affordability level max. financial capacity was calculated and compared with the total implementation costs for the 3 levels of aggregation.

Population connected NRD (kn/inh/ann) 3% (mill.kn/ann) 4% (mill.kn/ann) 2% (mill.kn/ann)

2007 2010 2030 2007 2010 2030 2010 2030 2010 2030 2010 2030

Grad Zagreb 720.556 717.730 681.880 46.130 54.741 112.887 1.179 2.309 1.572 3.079 786 1.540

Zagrebačka 218.965 233.868 271.035 38.690 47.682 105.854 335 861 446 1.148 223 574

Krapinsko-zagorska 85.995 94.724 118.091 32.383 36.442 76.801 104 272 138 363 69 181

Varaždinska 153.723 157.129 161.703 32.237 35.516 73.332 167 356 223 474 112 237

Koprivničko-križevačka 79.800 86.322 103.196 33.673 37.120 75.384 96 233 128 311 64 156

Međimurska 116.027 115.130 108.006 30.169 33.636 70.243 116 228 155 303 77 152

Bjelovarsko-bilogorska 41.547 58.924 110.340 33.627 37.859 79.832 67 264 89 352 45 176

Virovitičko-podravska 75.911 78.058 81.731 29.181 31.625 64.326 74 158 99 210 49 105

Požeško-slavonska 69.195 71.303 75.116 29.083 32.727 68.958 70 155 93 207 47 104

Brodsko-posavska 100.468 112.788 146.556 25.738 28.271 58.258 96 256 128 342 64 171

Osječko-baranjska 265.717 274.007 289.247 31.804 36.519 78.420 300 680 400 907 200 454

Vukovarsko-srijemska 175.672 178.184 179.206 29.687 34.278 74.050 183 398 244 531 122 265

Karlovačka 98.202 103.899 117.556 32.093 35.465 73.465 111 259 147 345 74 173

Sisačko-moslavačka 106.352 119.037 153.705 32.126 35.724 74.428 128 343 170 458 85 229

Primorsko-goranska 294.500 291.938 272.996 39.168 45.850 96.798 402 793 535 1.057 268 529

Ličko-senjska 43.836 45.022 46.976 31.703 36.771 78.335 50 110 66 147 33 74

Zadarska 129.012 133.378 141.816 33.692 40.697 90.119 163 383 217 511 109 256

Šibensko-kninska 97.227 98.522 98.798 34.006 41.753 92.362 123 274 165 365 82 183

Splitsko-dalmatinska 419.188 419.794 405.793 32.458 37.932 81.425 478 991 637 1.322 318 661

Istarska 203.241 201.420 188.188 39.315 45.322 94.264 274 532 365 710 183 355

Dubrovačko-neretvanska 106.696 107.899 107.531 34.882 41.342 88.358 134 285 178 380 89 190

REPUBLIKA HRVATSKA 3.601.829 3.699.078 3.859.465 35.609 41.380 87.424 4.648 10.142 6.197 13.523 3.098 6.761

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Financing – Gap Analysis in 2008/2009

Conclusions presented to decision makers:

• on the lowest, municipality = project level only very few municipalities are financially capable to finance O&M costs of future systems (for 3% affordability level) so subsidies will be required for:

– covering O&M costs

– total investment costs of 4.5 bill.EUR (arr. 35 bill.kn)

• the higher level of aggregation – the lower the financial gap

• the longer period of implementation – the lower the gap

Aggregation on counties level

Total gap (mill. kn)

2% 3% 4%

Counties - total -26.751 -9.983 -2.410

Aggregation on NUTS2 level

Total gap (mill.kn)

2% 3% 4%

JH -9.459 -2.382 160

SIH -9.045 -3.734 122

SZH -6.634 -859 320

NUTS2 - total -25.138 -6.975 0

Aggregation on national level

Total gap (mill.kn) Gap – Negotiating position

2% 3% 4% 2% 3% 4%

Republic of Croatia -24.749 -5.756 602 -15.821 72 1.272

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Income – cost ratio: Starting point for further discussions

Affordability ratio

3,0% net available income

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Bjelovarsko-bilogorska 2,65 2,65 2,65 2,65 2,75 2,86 2,97 3,07 3,18 3,33 3,48 3,64 3,79 3,94 Brodsko-posavska 2,01 2,01 2,01 2,01 2,07 2,13 2,20 2,26 2,32 2,43 2,54 2,65 2,76 2,88

Dubrovačko-neretvanska 2,80 2,80 2,80 2,80 2,95 3,12 3,29 3,47 3,65 3,81 3,99 4,16 4,34 4,52

Grad Zagreb 3,12 3,12 3,12 3,12 3,27 3,42 3,58 3,73 3,89 4,07 4,25 4,44 4,63 4,82 Istarska 2,51 2,51 2,51 2,51 2,59 2,68 2,76 2,85 2,93 3,06 3,20 3,35 3,49 3,63 Karlovačka 2,63 2,63 2,63 2,63 2,72 2,80 2,89 2,97 3,06 3,20 3,34 3,49 3,64 3,79 Koprivničko-križevačka 2,55 2,55 2,55 2,55 2,65 2,75 2,86 2,96 3,06 3,20 3,35 3,50 3,64 3,79

Krapinsko-zagorska 2,52 2,52 2,52 2,52 2,65 2,78 2,91 3,04 3,18 3,32 3,47 3,63 3,78 3,94 Ličko-senjska 2,37 2,37 2,37 2,37 2,45 2,54 2,63 2,71 2,80 2,93 3,06 3,20 3,33 3,47 Međimurska 2,52 2,52 2,52 2,52 2,64 2,76 2,88 3,00 3,13 3,27 3,42 3,57 3,72 3,87 Osječko-baranjska 2,29 2,29 2,29 2,29 2,38 2,47 2,56 2,66 2,75 2,88 3,01 3,14 3,27 3,41

Požeško-slavonska 3,13 3,13 3,13 3,13 3,29 3,46 3,64 3,81 3,99 4,18 4,37 4,56 4,75 4,95

Primorsko-goranska 2,52 2,52 2,52 2,52 2,61 2,70 2,79 2,88 2,97 3,10 3,25 3,39 3,53 3,68 Sisačko-moslavačka 2,59 2,59 2,59 2,59 2,72 2,86 3,01 3,15 3,30 3,45 3,61 3,77 3,93 4,09 Splitsko-dalmatinska 2,76 2,76 2,76 2,76 2,95 3,15 3,37 3,58 3,81 3,98 4,17 4,35 4,53 4,72

Šibensko-kninska 2,52 2,52 2,52 2,52 2,60 2,68 2,76 2,84 2,92 3,06 3,20 3,34 3,48 3,62

Varaždinska 2,27 2,27 2,27 2,27 2,33 2,39 2,45 2,51 2,57 2,68 2,80 2,93 3,05 3,18 Virovitičko-podravska 2,36 2,36 2,36 2,36 2,47 2,59 2,71 2,83 2,95 3,09 3,23 3,37 3,51 3,66 Vukovarsko-srijemska 2,72 2,72 2,72 2,72 2,89 3,07 3,26 3,46 3,66 3,82 4,00 4,17 4,35 4,53 Zadarska 3,70 3,70 3,70 3,70 3,91 4,13 4,36 4,59 4,82 5,04 5,27 5,51 5,74 5,97

Zagrebačka 3,14 3,14 3,14 3,14 3,36 3,60 3,85 4,10 4,37 4,57 4,77 4,99 5,20 5,41

Republika Hrvatska 2,86 2,86 2,86 2,86 3,00 3,15 3,31 3,46 3,62 3,78 3,95 4,13 4,30 4,48 Affordable price of water is sufficient Affordable price of water is not sufficient

• The affordability of costs has been reassessed in terms of allocation of 2.5% and 3% of the NAI for covering total implementation costs for water utility directives.

– If households would allocate 2.5% of their NAI, for implementation of directives, the financing gap would revert only in the City of Zagreb.

– If households would allocate 3% of their NAI, the financing gap would at the level of the national average, revert at the very end of the implementation period.

– It is only the allocation at the level of 4% of NAI on the level of the RH that would ensure stable financing during the entire adjustment period, even though in this case significant financing gaps would occur.

• It has to be noted that costs are evenly distributed to the total quantity of water supplied (to households and industry). In other words, the practice used so far - defining different prices of water for households and industry - hasn't been taken into consideration.

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Rational for: consolidation / reform of water utility

sector • The reform of the utility sector is important:

• Selection of the „appropriate” number and size of service areas depends not only on financial aspects. The presentation of positive financial effects of „aggregation” should be the starting point of negotiation.

• The WB financed project Study on Institutional Options in the WS and WW sector produced a tool for the efficient preparation of negotiation platforms.

• The regulation defining the framework for this ambitious venture should be adopted by the end of the year.

Problem Possible solution Remark

Project feasibility is checked on the existing service area level and it is not feasible (almost all of them)

In order to make projects more feasible enlarge service areas

Service area is the area of operation of one water service provider. Enlargement means: one or more WW systems (agglomerations) and one or more WS systems (zones) within the responsibility of one service provider – individual facilities are included

Financial capacities variability within the Service area

Equal water price for entire Service area

Cross-subsidies within the Service area. Water and Wastewater services should be together wherever possible.

Retain the affordability level at 2.5 (3%) of NAI for all Service areas

Maintain the O&M costs of all future WSS systems together in one Service area within rational limits

Investment costs should be financed as much as possible from the „grant” funds. The parts of water tariff: development fee (income of utility/municipality) and water use and water protection fees (income of HV) should be carefully balanced in order to keep gap on reasonable level and still be within the affordability level for all Service areas.

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INSTITUTE OF ECONOMICS ZAGREB (2011): IMPLEMENTATION

PLAN FOR WATER UTILITY DIRECTIVES – FINANCIAL ASPECTS

- RECOMMENDATIONS

Structure of discounted values of a component of the selling price

of water supply and wastewater services in the 2010-2023 period

(Croatia)

New depreciation

9%

Current depreciation

12%

Other fixed costs 33%

Variable costs 15%

VAT 16%

Water use and protection fee

7%

Development fee 8%

• The Croatian institutional framework is

still in the process of harmonization with

the provisions of EU legislation.

• The Plan must be regularly updated and

adapted to specific circumstances.

• Project implementation shall be:

– Well-thought-out, rational and done in

cooperation of all stakeholders;

– Done using an integrated approach (role

of Hrvatske vode: institution in charge of

institutional and implementation aspects).

• The implementation of the water utility

directives shall be structurally and

dynamically prepared, evaluated,

selected and monitored both by projects

and as a whole.

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TIME FOR REVISION

• Reasons – A new census (2011)

– Intensive changes in the economic environment

– Adaptation to planning-financial cycles of the Cohesion Fund

• What should be reanalysed? – Dynamics of construction

– Affordability of water tariff (even with efficient reform of the utility sector and full mobilization of expert, technical and financial capacities).

• What should be checked? In terms of costs, savings might be made if efforts would be devoted to:

– Rationalization of technical solutions with appropriate revision of physical planning documents

– Improving efficiency in the provision of water utility services

– Harmonization of approach in feasibility check between

– Directive implementation plans (feasibility is optimized on the level of the distribution area / county/ region or the Republic of Croatia) and

– Project-level analysis of feasibility (for projects financed by the EU) where optimum effects are checked and achieved, very locally, exclusively in the area of project scope.

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LONG TERM INVESTMENT

PROGRAM

• Detailed inventory of water supply and sewerage: – Infrastructure – assets

– Connection rate

– Service quality level

– Performance

• Methodology and data for financial preparation of projects: – It is necessary to identify and include all potential sources of financing

and direct them at the Program (appropriate EU funds, IFI loans, available Croatian funds: the State Budget, budgets of local self-government units, etc.)

– Analyses shall be made: • For different levels of aggregation (project, agglomeration, zone, utility

company, service area, county, NUTS region, Republic of Croatia)

• By stakeholders in the process (ministries, utility companies, design engineers, contractors, ,..)

• Establishment of a system evaluating project efficiency and acceptability:

– Selection of efficiency evaluation methods at different levels of aggregation;

– Selection of efficiency evaluation methods by stakeholders (EU, state, LSGU, utility company, ...)

– Selection of efficiency evaluation methods for public information purposes

• Establishment of an information system

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INSTITUTE OF ECONOMICS ZAGREB (2011): IMPLEMENTATION

PLAN FOR WATER UTILITY DIRECTIVES – FINANCIAL ASPECTS -

CONCLUSIONS

• Implementation of the water utility directives is:

– an assumed institutional commitment, but also

– a motive for institutional adjustment, and

– technological-technical, organizational, personnel and financial restructuring of the sector of water utility management.

• Implementation of the water utility directives is a business development undertaking with strategic socio-economic significance.

• The planned HRK 33 billion investment for the implementation of water utility directives has characteristics of a new investment cycle which might generate significant multiple effects on the Croatian economy in general.

Thank you!

sanja.barbalic@voda.hr

www.voda.hr