73747 July 2012 P U B LI C -P RI VAT E INFR ASTR UCTUR E AD VISORY FACILITY IMPACT STORIES PPIAF Support to the Regulatory Framework in the Water Sector in Bulgaria PPIAF support in Bulgaria has prepared the groundwork for increased private sector participation in the water sector. In 2000 PPIAF provided assistance to design a new regulatory framework in the water sector aimed at encouraging increased private sector participation in the sector. The Government of Bulgaria accepted the report’s recommendations, leading to a second request to help �nalize legislation for the establishment of a new regulator for the sector. PPIAF support led to the promulgation of the Water Supply and Sewerage Services Regulation Act in February 2005, which led to the establishment of the State Energy and Water Regulatory Commission, responsible for regulating water supply and sewerage services, with a view to opening the sector to increased private sector participation. In 2000 there were 48 water and wastewater companies in Bulgaria, of which 13 were fully state-owned, 16 jointly owned (51% state and 49% municipalities), and the remainder fully municipally-owned. The sector was fragmented and suffered from insuf�cient resources, heavy political interference, and low quality of service. Water and wastewater companies were generally inef�cient, characterized by over-employment, high levels of non-revenue water, and poor collection rates. Urgent reform of the sector was motivated by: i) the need for good quality water and wastewater services, which would require improved ef�ciency to generate suf�cient resources for operations and maintenance of existing assets, and investment in new assets; ii) the necessity to improve water and wastewater quality to meet European Union accession guidelines. The Government of Bulgaria initiated a reform program to improve the operational ef�ciency of the water companies with the aim of introducing private sector participation to the sector. As part of this reform process, the government bid out a 25-year concession for the So�a water system, which was awarded to So�yskaVoda in October 2000 (supported through a $29.2 million loan from the European Bank for Reconstruction and Development). However, the regulatory framework for the sector remained inadequate, and the Government of Bulgaria requested two PPIAF grants to help establish an independent regulator to ensure good quality service and affordable tariffs for citizens. PPIAF SUPPORT The �rst PPIAF-funded report reviewed current sector performance and the legal and regulatory frame- work for private sector participation in the water sector. In particular, the report focused on the establish- ment and role of a proposed water regulatory body, and provided recommendations on the design of a new regulator to: encourage the development of ef�cient, effective, and �nancially sustainable water service provision; issue water and wastewater licenses; develop performance standards for water and wastewater companies; and communicate a national water policy and strategy with regards to private participation in the sector. The report recommended that the water regulatory body should be established at a national level, formed as a commission under the Council of Ministers to give maximum independence from government www.ppiaf.org interference and from water company influence. In addi- and quality of services of enterprises in the gas, electric, dis- tion, it was suggested that a new Water Services Act (or trict heating, and water supply and sewerage sectors. revisions to the existing Water Act) should be drafted as In 2010, with non-revenue water in Bulgaria averaging 60% the mechanism for establishing the water regulatory body, and an estimated €3.5–4.0 billion of investment required to and to reflect the government’s water sector strategy on replace and upgrade the water supply and sewerage network, encouraging private sector participation in the sector. the Ministry of Regional Development and Public Works an- Following the acceptance of the recommendations from the nounced plans to revolutionize the water sector in Bulgaria �rst PPIAF activity, further PPIAF assistance was requested through 48 concessions modeled on the So�a concession. in November 2002 by the government to review and �nal- The plans include the transfer of current utilities’ assets from ize draft legislation for the creation of the water regulatory municipalities to new water associations, which would man- body. A decision was also taken to place the regulator as part age the infrastructure. of the already existing State Energy Regulation Committee. DONOR COORDINATION OUTCOMES In addition to the PPIAF support, several other donors also In February 2002, following the completion of the �rst provided assistance to the Bulgarian water sector. The Euro- PPIAF activity, the Government of Bulgaria took the decision pean Union’s water quality requirements and environmental to establish a water regulatory body as a state commission guidelines were used to help Bulgaria meet European Union under the Council of Ministers, as recommended within the accession requirements. The World Bank and European In- PPIAF report. The Government of Bulgaria decided to enact vestment Bank managed technical assistance to help intro- a new law for the establishment of the water regulatory duce private sector participation in multiple water utilities body, with the new legislation detailing the powers and du- across Bulgaria. The European Bank for Reconstruction and ties of the water regulatory body. Development provided technical assistance and �nancing for the 25-year concession for the So�a water system, awarded In July 2002 the Government of Bulgaria also began draft- to So�yskaVoda in October 2000. Finally, the International ing a new water sector strategy focused on the introduction Finance Corporation is supporting the concession of the of the private sector as a means to improve operational ef- Pleven Regional Water Company. �ciency and integrated management of water resources in the context of the European Union Water Framework Direc- tive. The development of a national water strategy was a IMPACTS speci�c recommendation of the PPIAF-funded report. The In 2006 the government engaged the International Finance National Strategy for Management and Development of the Corporation PPP Transaction Advisory team to implement a con- Water Sector (2004–2015) was subsequently approved by cession for the Pleven Regional Water Company. The mandate the Council of Ministers in 2004. is still ongoing, but preliminary �ndings suggest that the con- In September 2004 parliament passed a bill on water ser- cession, once implemented, will mobilize $225 million of pri- vices regulation. The bill put the proposed State Energy and vate investment, improving water service for 280,000 people. Water Regulatory Commission in charge of regulating wa- ter supply and sewerage services. The regulation applied to all water companies regardless of the ownership and form of management. The Water Supply and Sewerage Services RELATED PPIAF ACTIVITIES IN Regulation Act was promulgated on February 25, 2005. As BULGARIA a result of the law’s promulgation, the State Energy and Wa- • 2000: Water and Sewerage Regulatory Framework, ter Regulatory Commission was established, effectively add- $350,000 ing responsibility for regulation of the water sector to the • 2002: Drafting of Legislation to Establish a Water remit of what was previously the State Energy Regulatory Sector Regulator, $75,000 Commission. The State Energy and Water Regulatory Com- mission assumed responsibility for tariff setting, licensing,