1. Utility reform in Romania example in Cluj Presentation of The Regional Environmental Center for Central and Eastern Europe Christelle Kapoen September 2008

2. www.rec.org Contents 1.Romanian water sector a.Challenges b.Reform strategies 2.Utility reform in Cluj a.Cluj municipal utility b.Reform objectives c.Institutional / organisation reform d.Financial reforms (cost-recovery) e.Reform results 3.Success factors

3. www.rec.org 1. Romanian water sector Institutional responsibilities Ministry of Environment and Water responsible for national water strategies and policies Apele Romana, national water authority, responsible for implementation of water policies and monitoring National Authority for Regulation and Tariffs is responsible for the pricing strategy in the water sector Service responsibilities Municipal/county governments are responsible for service provision Decentralized local utilities or utility departments carry out the services.

4. www.rec.org Situation in the nineties Decentralization of water sector with aim to give autonomy, but low independency Detoriated water system Especially the sewerage network and wastewater treatment systems Low level of connections in rural area 17 % water / 3 % waste water Low tariffs, low collection rate, low affordability Lack of investments, and dependency on national government

5. www.rec.org 1a. Challenges EU accession Acquis communautaire  Rehabilitation, extension, water quality improvement and development of wastewater systems Attract International funding EU, EBRD, WB,.. Commercial banks and private sector operators Attract investment to extend water / wastewater networks and systems and rehabilitation of old ones  Full cost-recovery / improve operational efficiency and performance

6. www.rec.org 1b. Reform strategies Reform of municipal utilities Autonomous public utilities and improve operations, efficiency and cost-recovery If possible, regionalisation, to improve investment ability / efficiency / performance of smaller utilities Attract EU funds (ISPA, EU cohesion funds,..) Example: Cluj water Private sector participation Reform of the utility Outsourcing of operations (O&M, investment etc) to improve operations, efficiency and self-sufficiency Attract private capital Example: Bucharest concession with Veolia

7. www.rec.org 2. Utility reform in Cluj

8. www.rec.org 2a. Cluj water utility R.A.J.A.C. Cluj, municipal utility Detoriated system: high UFW, coverage problems, no wastewater treatment Inefficiency: overstaffing, poor O&M, financial problems BUT Many surrounding villages and towns were worse off than Cluj Cluj has done successful rehabilitation, extension and reforms with help of EC/EBRD

9. www.rec.org Utility system of Cluj

10. www.rec.org 2b. Objectives for development and reform Meeting EU regulations Funding available but conditional Development, rehabilitation and extension of networks and systems Capacity building to transform the utility to an efficient service provider recovering costs Regionalisation: increase of coverage and efficiency

11. www.rec.org Funds for development Several funds for development like EBRD, EU (ISPA, Phare) and others Support from national government About 130 million Euro for investments about 19 million Euro loan EBRD (MUDP, SAMTID) About 17 million Euro loan EIB (ISPA)

12. www.rec.org 2c. Institutional / organisation reform Conditional to funding for rehabiliation & extension of systems: Capacity Building and Organisational development: HRM (reduce over-staffing) and HRD (staff development) Improved O&M Revision of tariff system, billing & collection Public awareness and PR Expansion of operation from Cluj town to Cluj county Establishment of Somes Water Company C.A.S.S.A Corporatization of Cluj R.A.J.A.C. Autonomy // Accountability

13. www.rec.org Reform phase 2: regionalisation Reform of C.A.S.S.A into Regional Operator (2005) Shareholders Cluj and Salaj counties plus other municipalities Replacing all previous water companies Make use of experience of Cluj Performance improvement program Connection of water supply system Cluj / Salaj and others Harmonize and centralise support functions (finance, HRM etc) Synergies and improvement of O&M (equipment, GIS) Improved financial and technical performance (quality management, monitoring & control)

14. www.rec.org SC Publiserv RAGCL Gherla SC Aquasom Dej Institutional set-up ROC C.A.S.S.A. RAJAC Cluj SC Crisul Huedin Cluj County Council Salaj County Council Councils Dej, Gherla, Huedin Councils Zalau, Jibou, Cehul Silvaniei, Simleul Silvaniei Shareholders Concession contract

15. www.rec.org Utility systems of CASSA

16. www.rec.org Utility operations CASSA After Reforms: 621.000 inhabitants to be served in Cluj/Salaj counties Over 65.000 connections (42.000 water // 25.000 wastewater) 9 water supply systems (7 WTPs) 8 wastewater treatment systems Future: One centralised system 100 % water coverage and 80 % wastewater services Increased operational and technical performance

17. www.rec.org 2d. Financial reform Coincided with the organisational reform Problems: Financial losses Problems with collection of receivables Declining water consumption No reliable data about costs of O&M, assets and investments Financial agreement and targets with financers

18. www.rec.org Reform to improve cost-recovery Action plan Asset management and budgeting Inventory van valuation of asset base Determining cost base (depreciation, O&M needs) Business planning and investment planning Budgeting and inclusion of investments/depreciation Tariff revision plan Charging improvement Improvement of metering: installation, calibration, Meter reading Unified procedures for billing and collection Collection rate improvement / bad debt policy

19. www.rec.org Tariff design principles Full Cost Recovery (including depreciation and loan obligations) Implementation of “Beneficiary/Polluter pay principle” No differentiation between consumer groups No cross-subsidisation across municipalities No Pro-poor policies Charging based on consumption

20. www.rec.org Pricing of CASSA services Recovery of costs for Connection (fee for making the connection) Water usage / wastewater collection Bill contains several elements Metered water usage Wastewater collection (100% water) Meteorological consumption (property size) Special tax for investments VAT

21. www.rec.org Tariff policy implementation Affordability based on average 120l/c/d Actual water consumption fell from 180 l/c/d to 90 l/c/d Bill as % of household income is thus about 4,5 %

22. www.rec.org 2e. Results of Reforms On the way to meet EU obligations and investor’s obligations Reduced UFW, increased coverage and services Increased technical and financial performance Reduced inefficiency and O&M costs Reduced bad debts Increased knowledge and monitoring capacity on technical and financial indicators Increased financial income

23. www.rec.org 3. Success factors Relate investment plan with investment needs, Laws and regulations (health, environment, etc) Systems condition and urban planning Relate investment plan with financial potential cost-recovery plan (affordability) and reform plans Design reform strategy and business plan before Capacity Building Autonomy and decision making power

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