Financing possibilities in accordance with the WFD and cost recovery for water services in Hungary Judit Rákosi, ÖKO Inc. Budapest

Transcription

1 Financing possibilities in accordance with the WFD and cost recovery for water services in Hungary Judit Rákosi, ÖKO Inc. Budapest Towards Integrated River Basin Management Bratislava

2 Table of Content 1. Present financing system of investments 2. Future financing system of investments 3. Cost recovery in water supply and wastewater treatment 4. Affordability 5. Economic incentives 6. Water pricing policy in the future

3 Present financing system of the investments 1. Network extensions (developments) of the waterworks are financed by the local governments with the help of state subsidies. Subsidy rate is 75%. In the case of state-owned regional facilities the state is the investor. Funding of flood protection, monitoring and nature conservation and other measures related to WFD is allocated from the central budget in full.

4 Present financing system of the investments 2. The most cost-demanding programme is the waste water programme. Between 2004 and 2006 mostly all the national and EU environment protection subsidies were used for financing the developments in the frame of this programme. Besides waste management and flood protection are supported considerably from these sources. The amount paid by the EU in 2004 was not too high, because of the recent start of the real implementation of the accepted ISPA and EIOP projects, the expenditures increased in 2005 and will increase in 2006.

5 CF indicative financing structure ( ) million Euro million Cohesion Fund Central State Budget (CSB) Municipality Altogether % Wastewater collection and treatment Drinking water improvement Municipal solid waste management Altogether Rate of financing (%)

6 Financing plan of the Operative Program of Environment and Infrastructure million Euro million ERDF CSB Municipality Water quality improvement (Drinking water, waste water) Altogether % Animal waste management Treatment of healthcare, construction and demolition waste Protection of groundwater and drinking water aquifer with remediation measures Nature conservation and sustainable flood management Development of air and noise monitoring Environmental friendly development of energy management Altogether Rate of financing (%)

7 Private capital involvement in financing in public waterwork (PPP) Private capital has minor role in the field of drinking water supply and of sewage water collecting and treatment systems. In the waste water and drinking water sectors only service can be handled by private companies, however their share of ownership cannot exceed 49% according to the legislation in force. Central development resources (target financing) and EU sources are only available for municipalities. For centrally financed developments there is a 10 years obligation of service in force. Until today there have been 8 instances of Privat Service Providers. Of the seven presently operating PSPs only one started after 1997, the other six PSPs have a history dating back to the mid 1990 s. There is no private sector investment for the main infrastructure.

8 Lessons from the period Improvement of project preparation (planning phase) Improvement of project absorption capacity at beneficiaries (experts at municipalities) Avoidance of the overplanning by capacities Substantial role for inspection of affordability and willingness to pay issues during planning process

9 Future financing system of investments The local Hungarian financing possibilities depend to a great extent on the negotiations with the EU (about the Hungarian budget from CF, ERDF, EAFRD etc). The Hungarian National Development Plan II ( ) and its Operative Programmes are under preparation at present. From a WFD perspective the Environmental Operative Programme (EOP), managed by the MoEW, is of outstanding importance, but the 7 Regional Operative Programmes (ROPs) and the National Agricultural and Rural Development Programme (NARDP) can also be considered significant.

10 WFD related issues financed by EOP supported from CF, ERDF (draft plan) 1. Wastewater collection and treatment of agglomerations above 2000 PE Flood prevention The complex water protection investments concerning the particulary treated water protection areas The measures counterbalancing the danger of water bodies at risk from a hidromorphological aspect (currents, lakes) The improvement of water supply and water quality of backwaters, and their rehabilitation

11 WFD related issues financed by EOP supported from CF, ERDF (draft plan) 2. Governmental measures concerning the implementation of the Water Framework Directive (e.g. monitoring, WFD information centres) Municipal waste management (e.g complex systems and recultivation), environmental remediation Most of the money is expected to be spent on the wastewater programme in the future as well, which makes up about 40% of the Environmental Operative Programme (EOP) s planned budget. Nevertheless flood control and other water management measures will have a significant (above 10%) share too.

12 WFD related issues financed by ROP s supported from ERDF (draft plan) Wastewater treatment (canalisation and individual treatment too) of agglomerations below 2000 PE, Surface drainage of settlements, Diagnostic studies of drinking water bases, and the full implementation of the Drinking Water Quality Improvement Programme.

13 WFD related issues financed by NARDP supported from EARDF (draft plan) NARDP contributes to increase the efficiency of the integrated river basin management by environment friendly utilization of dead branches and their impact areas by supporting the ecological agricultural land use of the farmers living on the lands initiated in the rehabilitation of flood plains, and also by promoting the good agricultural practice needed to obtain a good ecological state of waters.

14 Institutional issues in water supply and wastewater sector The compulsory task of local governments to provide settlements with healthy drinking water and to arrange for the disposal and treating of communal wastewaters. While in 1992 there were 33 water public utility operators in Hungary, by now their number has almost reached 380. This has further increased the existing differences in the quality of operation of public utility water supplies.

15 Ownership and operation The legal arrangements concerning the ownership and operation of public utility facilities are not unified across the country. There are five regional water companies owned by the State. The typical case: The companies operate the facilities owned by the local governments under specific contracts, and pay rent to the local governments to compensate for the depreciation of the facilities. Companies founded by local governments may own some public utility facilities themselves.

16 Cost recovery system in the water supply and waste water treatment at present Price authority: municipality except in the 5 case of 5 regional company. The tariffs in general cover the operational and maintenance costs and partially cover reconstruction, replacement costs. Average water price: 0.65 EUR/m3 (for households), 0.7 EUR/m3 (for industry) Average wastewater price: 0.61 EUR/m3 (for households), 0.72 EUR/m3 (for industry) There are large differences in water prices between different providers and settlements. There is a subvention of 22 million Euro from the state budget was voted to pay extremely high cost of the supplied households in 2004.

17 Cost recovery rates at national level in 2002 (WFD report) Name Drinking water Sewage Total (Million HUF) Capital costs** Operational costs Total costs Fee revenues Cost recovery rates at a national level (%) *Total fee revenues / total costs x 100) **Capital costs include the development costs covered by state and municipal sources, and replacement costs covered by depreciation and lease fees

18 Cost recovery rates at national level in 2002 (WFD report) Cost recovery rate at national level is: total fee revenues /total costs x 100). Costs include O+M and the development costs covered by state and municipal sources, and replacement costs covered by depreciation and lease fees. The cost-recovery rate of water supply is 94% on national level exceeds significantly that of sewage disposal and treatment (44%). The DW and WW rate together is 64%. The reason of this big difference, that in the frame of the waste water programme great volume investments had been realized, by far the greater part from state subventions, and as for the smaller part from selfgovernment sources.

19 Cost recovery rates at company level in 2002 (WFD report) Name Drinking water Sewage Total (MillionHUF) Capital costs (depreciation, lease fees) Operational costs Total costs Fee revenue Total revenues (excl operational support) Total revenues Cost Recovery Rate at Company Level CRRC1** (%) Cost Recovery Rate at Company Level CRRC 2***(%) Cost Recovery Rate at Company Level CRRC 3.****(%) * Calculated on the basis of the costs and revenues appearing in the company accounts, balance sheets **(fee revenues / total company costs x 100) *** (company revenues including operational support / total company costs x 100) **** (total revenues / total company costs x 100)

20 Cost recovery rates at company level in 2002 (WFD report) Cost recovery rate at company level is total fee revenues (excluding state subvention) / total company costs x 100). Company costs include O+M and depreciation and lease fees. The company cost-recovery rate of water supply is 97% and sewage disposal and treatment (95%). The fee revenues do up the 96,6% of the costs on company level, the cost recovery rate of the revenues with subvention is 102,2% Company rates of return are only average figures; there are significant differences in this respect between the individual providers. The amounts of depreciation currently accounted for and the rental fees charged are not enough to cover real substitution and reconstruction demands.

21 Current affordability of water and wastewater services 2004 Net household income Affordability ratio on percent of net household income% 2 Affordability ratio on percent of net household income% 3 Item th HUF (average water and sewerage bill) (maximum water and sewerage bill) Average households 784,1 1,8 3 Low-income households (first 10% decilis) 263,7 5,5 9,1

22 Current affordability of water and wastewater services 2004 In Hungary the average costs of water and sewerage supply in individual households account for 1.8% of average household per capita net income in 2004 For low-income households where they pay average rates, such costs is more, then 5% their per capita income. The highest fees would already amount to 3% of the average household income and near to 10% of the low income households. For increasing the affordability level of poor people, a waterprice compensation system is formed for the consumers having low income in more and more settlements.

23 Municipal water and wastewater prices Municipal water and waste collection service expenditures in relation to net household income are high. The ratio of water and wastewater expenditures compared to total household income will increase with the future necessity to comply with EU requirements. If municipal governments would set prices that cover full amortization water and waste prices could increase by 5 to 100% depending on the nature of the project and size of population. Bad debts of service companies are increasing. As a consequence, it is expected that enormous pressure will be exerted to the government to increase the amount and proportion of state subsidies.

24 Financing problems of the municipalities Currently, the state- and the EU-subsidies play a considerable role in the finance of environmental projects of the municipalities To find own sources, however, is a serious challenge, especially for small ones Financing their operation and high prices pose a considerable problem

25 Economic incentives 1. The system of water resource contributions (abstraction fee), to be paid in proportion to water uses, has been introduced in 1974 in order to regulate the utilization of water resources based on the aim of the water use and the type of water used. Water resource contributions account for a relatively small part of the total costs of abstraction, both in the industrial, the agricultural and the public utility sector. This fee is the income of the central budget.

26 Economic incentives 2. The obligation of paying a water load fee has been introduced on 1 January 2004 for all polluters including companies that operate water public utilities who release their pollution into live water, in proportion to the quantity of pollutants discharged. Fee are channelled into the central budget as general incomes, because no mechanism has been implemented for allocating such fees and contributions to directly finance environmental protection measures. The obligation to pay a soil load fee was introduced on 1 July 2004 for all those who do not connect their facilities into the public sewage system (where such a system exists) and thereby pollute groundwater. The fee is the income of the municipalities. In case of a load to surface waters exceeding the limit value, polluters are to pay wastewater fine.

27 Water-pricing in the future 1. In order to support the full cost recovery requirement and to create fundaments for new pricing policy a new Water Service Act is under preparation including price control issues. Financing network extension developments entirely from fees by the year 2010 is an unrealistic aim, since there are significant EU subsidies available for helping to implement such developments. By 2015, returns from tariffs should fully cover the costs of operating, maintaining and replacements the networks, as well as minor quality improvements and developments. At the same time, an adequate system of compensatory subsidies must be introduced for socially disadvantaged consumers.

28 Water-pricing in the future 2. With regard to the foregoing, by 2010 the following measures shall be implemented in order to modernize the system of water rates and to help achieve the full compensation of costs: Creating a unified regulatory framework for the system of water prices, and specifying the factors to be considered when unified prices are determined (which does not mean that the existing system of pricing by local governments will be abolished). Creating a supervisory system to control pricing. Allowing assets permanently owned by local governments to be placed under trusteeship (asset management). Strengthening the public involvement and enforcement of customers rights. It is necessary to harmonize the system of fees for the use of the environment and the system of water load fees, as well as to ensure that such fees are then spent on environmental protection and resource protection, and to ensure that fees have a function of encouraging users to decrease pollution and save water.