Water and Public Finance: Tales from Albania PER

download report

Transcript Water and Public Finance: Tales from Albania PER

Water and Public Finance
Tales from Albania PER
Mike Webster, ECA-Infrastructure
Public Finance Analysis and Management Course – April 2007
Core message: PER can help Line Ministry
“make their case” to the Ministry of Finance
Ministry of Water
Ministry of Finance
(sector policy etc.)
(fiscal policy etc.)
PER linked
spending
to
outcomes
•Spending
•Outcomes
•Budget allocation
Slide 2
Outline
1. Spending
2. Outcomes
3. Linking spending to outcomes
4. Was it worth it?
Slide 3
Outline
1. Spending
2. Outcomes
3. Linking spending to outcomes
4. Was it worth it?
Slide 4
Albania
3.1 million people
$2,600 GDP/cap
GDP growth 5.5%
18.5 % headcount
poverty rate
 Transition from
communism in 1990
 Stabilization &
Association
Agreement with EU in
2006




Slide 5
Institutional fragmentation
Central
Government
MoF
•Capital
grant
•Operating
subsidy
MoWater
•Policy
•Supervisory
Boards of
utilities
MoI
•Transfer
ownership
and Board
to LG
•Allocate
investment
Local
Government
54
utilities
600
commune
systems
Slide 6
Central govt. financing of sector
MoF /
MoPWTT
Capital
grant
Operating
subsidy
Utilities /
Communes
Capital costs
Operating costs
•Expansion
•Tariffs
•Rehabilitation
•Subsidy
Slide 7
Total spending by type and source
(million Lek)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Capital spending
GOA
Donor
Private
sector
1,522
223
1,599
146
566
209
1,054
377
702
207
977
776
1,377
560
1,903
653
56
1,759
2,022
105
3,008
2,001
205
2,792
1,650
205
Operating spending
GOA
Utility
Arrear
(tariffs) clearance
139
590
31
550
45
400
136
700
55
850
72
916
77
1,108
1,100
280
1,085
1,521
1,604
1,621
1,500
927
2,130
2,000
1,254
2,130
991
GOA spending
as % total as % of
budget
GDP
1,661
1,630
0.50%
611
0.20%
1,190
0.30%
757
0.20%
1,049
0.60%
0.20%
2,554
1.50%
0.40%
3,704
2.00%
0.60%
4,863
2.50%
0.70%
5,935
3.00%
0.80%
5,037
2.30%
0.60%
Total spending
as % of
GDP
2,474
1.10%
2,327
0.70%
1,219
0.40%
2,267
0.50%
1,814
0.40%
2,741
0.50%
4,222
0.70%
5,499
0.90%
8,612
1.30%
10,272
1.30%
9,022
1.10%
Slide 8
View from the Ministry of Finance
 Total spending is relatively limited: 0.7% GDP,
2.5% of total expenditures
 But sector’s dependency on central government
transfers has increased:
– Operating subsidy increased 5 fold in 5 years
– Growing “inter-enterprise arrear” issue between water
and energy utilities
– Utilities “rewarded” for inefficiency through operating
subsidy
 And investment transfers are allocated “no strings
attached”
Slide 9
Financing utilities’ operating costs
 Operating costs increasing
(due to cost of electricity)
6,000
 Tariffs increasing (but not
keeping pace with costs)
5,000
4,000
3,000
2,000
 Gap between costs and
utility revenues increasing;
therefore operating subsidy
and arrear payments
increasing
1,000
2000
2001
2002
2003
2004
2005
Repayment of arrears
GOA operating subsidy (less arrears)
Collected Tariffs
Operating cost (incl. depc)
Slide 10
Outline
1. Spending
2. Outcomes
3. Linking spending to outcomes
4. Was it worth it?
Slide 11
Poor sector performance
 Low access
– Water supply: 78% access (66% in rural areas)
– Wastewater: 50% access, no wastewater treatment
 Poor service quality
– 6 hours/day
– poor water quality
 Vast investment needs
– Decrepit and deteriorating water systems
– Massive wastewater investments to meet EU requirements
– Need 0.6% of GDP annually, whereas current spending is
0.3%
Slide 12
Inefficient utilities…
 High costs (increased 30% over past 5 years)
– Increased power costs (electricity increased 60%)
– High staff costs (overstaffed utilities)
– High losses (69%)
• Technical losses (leaks – poor maintenance, old systems)
• Commercial losses (illegal connections, no metering, i.e., consumption much
higher than billed amount)
 Low revenues
– Tariffs (set to recover 70% of O&M costs)
– Collections (only collect 66% of bills)
 Resulting in utilities revenues covering 50% of operating costs
Slide 13
Water Production - (lcd)
Tiranë WSSE
Durrës WSSE
Vlorë WE
Permet WE
Shkodër WSSE
Elber WSSE
Korçë WSSE
Pogradec WSSE
Lezhe WSSE
Berat WSSE
Kruje WSSE
B. Curri WE
Vau Dejës WE
Sarandë WSSE
Pukë WSSE
l/c/d
…e.g. non-revenue water
1,350
1,200
1,050
900
750
600
450
300
150
0
Water Sale - (lcd)
Slide 14
100
90
80
70
60
50
40
30
20
10
0
0
Albania
Moldova
Russian Federation
Ukraine
Tajikistan
Kazakhstan
Kyrgyz Republic
Azerbaijan
Armenia
Non-Revenue Water (%)
Georgia
Romania
Armenia
Albania
Azerbaijan
Georgia
Kyrgyz
Republic
Croatia
SAM
Moldova
Kazakhstan
FYR of
Macedonia
Latvia
Estonia
Lithuania
Russian
Federation
Ukraine
Tajikistan
...particularly relative to ECA
Staff Per 1,000 Connection
12
10
8
6
4
2
Slide 15
…but significant performance variation
across the country
Total water
connections
Tirana
Durres
Elbasan
Vlore
Shkoder
Korca
Fier
Sarande
Average
for
all
utilities (2001-04)
ECA
Developing
countries1/
European Standards
Developed countries
122,072
43,287
30,886
27,611
23,501
21,000
20,776
4,727
+/- 600,000
Staff per 1,000 Non revenue
connections
water
Albanian utilities
8.6
69%
8.7
76%
6.6
90%
6.4
79%
7.7
67%
4.0
25%
8.1
78%
16.0
87%
11.0
69%
International comparators
4
38%
2 to 8
23%2/
1.0
1 to 2
<12%
15%
Collection
ratio
Operating cost
recovery ratio
68%
52%
102%
60%
69%
98%
43%
78%
66%
150%
54%
104%
75%
83%
180%
27%
60%
55%
93%
Approx.
80%
>95%
100%
88%
30-80%
>130%
>100%
Slide 16
…and inequitable distribution
.8
.6
.4
.2
% Served
 Income inequality in
service quality, and poor
households generally not
connected
1
Population Served with Running Water
0
2
4
6
8
deciles of real per capita consumption, in New Lek
Urban
10
Rural
Source: LSMS 2005
 Rural urban divide
6
4
2
 Some regional disparity
0
by MoTAT, 2002-2005, per capita
Log of average annual water investment
8
Water Investment and Poverty Rate
0
.2
.4
.6
Poverty rate, 2002, mapped by LSMS(2002) and Census(2001)
.8
Source: Census(2001), LSMS(2002) and MoTAT(2005).
Slide 17
Outline
1. Spending
2. Outcomes
3. Linking spending to outcomes
4. Was it worth it?
Slide 18
Core finding: MoF subsidy creates
disincentive for performance improvements
 Reverse incentive to increase own revenues: higher the gap between
operating costs and own revenues, the higher the subsidy
 Central financing at right level, but misallocated:
– Operating subsidy should be reduced
– Capital grant should be increased
 Once operating subsidy reduced, utilities will be forced to increase their
own revenues through:
– Increasing collections
– Increasing tariffs
– Reducing costs
 Affordability analysis confirm there is ample room for increasing residential
tariffs. If necessary, operating subsidy can be converted into poverty
targeted scheme.
 Capital grant should include performance in allocation formula
Slide 19
Proposed tariff increases are affordable
(% of monthly household income)
Tariff
Lek/m3
Minimum
Low
Medium
High
income income income income
Current average
residential tariff
27
3.2%
2.0%
1.1%
0.7%
O&M cash cost recovery
tariff (no depreciation)
41
4.8%
3.0%
1.7%
1.0%
O&M cost recovery tariff
(with depreciation)
52
6.1%
3.9%
2.2%
1.3%
Full cost recovery
74
8.7%
5.5%
3.1%
1.9%
Slide 20
“Hidden cost” analysis in ECA
 “Hidden costs” based on:
– Collection failure
– Tariffs below cost recovery
– Excessive losses
 Single measure of hidden costs in infrastructure
sectors
– Completed in energy and gas in 22 countries
– 26 in water
 Results at: http://ecadata-worldbank.org/ecadata/
Slide 21
Eliminating inefficiencies could generate
almost 0.8 % of GDP in savings, annually
Potential (annual) Savings from Eliminating “Hidden Costs” (1)
Source of potential savings (annual)
Lek millions
A- Collection failure (improve collection ratios from 70 to 95 percent)
835
B- Under pricing (raise tariffs to cover O&M costs from 70 to 100 percent)
857
C- Excess losses (reduce NRW from 69 to 20 percent) (2)
5,042
Total Savings
6,734
As share of GDP
0.8%
(1)
Using methodology developed in ECA
(2)
Reducing technical losses will require significant investment
Slide 22
Outline
1. Spending
2. Outcomes
3. Linking spending to outcomes
4. Was it worth it?
Slide 23
What was the value added of the PER?

Provided analytical framework for sector dialogue in the
context of existing project lending (DPO and investment
lending)

Provided both external clients (MoF, line ministry) and internal
clients (Country Team) robust analysis for major policy reform

Performance-based incentives structures piloted in investment
project (4 utilities) and scaled-up in DPO (30 utilities)

Policy condition in DPO
Improve the central government budget allocation system to water utilities
to leverage improvements in their financial & technical performance by:
i. Reducing operating subsidies
ii. Designing a performance-based policy for investment transfers
iii. Developing performance contracts between line ministry, Municipalities and
Utilities
Slide 24
Core message: PER can help Line Ministry
“make their case” to the Ministry of Finance
Ministry of Water
Ministry of Finance
(sector policy etc.)
PER linked
spending
to
outcomes
•Spending
•Outcomes
(fiscal policy etc.)
•Budget allocation
•Build capacity in govt. e.g. monitoring unit
•Benchmarking is most interesting to govt. and utilities
•PREM/sector collaboration is the value added for Bank and the client; and
can assist buy-in/collaboration between line ministry, MoF, MoI
Slide 25
Full document on external website
http://go.worldbank.org/7CX925BS30
Slide 26