WORLD BANK TECHNICAL PAPER NO. 483 Europe and Central Asia Poveny Reduction and Economic Management Series Work in progress for public discussion December 2000 Communal Infrastructure in Slovenia Survey of Investment Needs and Policies Aimed at Encouraging Private Sector Particpation Mo/mir Mrak Recent World Bank Technical Papers No. 410 Sayeg, Successf7d Conversion to Unleaded Gasoline in Thailand No. 411 Calvo, Options for Managing and Financing Rural Transport Infrastructure No. 413 Langford, Forster, and Malcolm, Toward a Financially Sustainable Irrigation System: Lessons from the State of Victoria, Australia, 1984-1994 No. 414 Salman and Boisson de Chazournes, International Watercourses: Enhancing Cooperation and Managing Conflict, Proceedings of a World Bank Seminar No. 415 Feitelson and Haddad, Identification of Joint Management Structures for Shared Aquifers: A Cooperative Palestinian-Israeli Effort No. 416 Miller and Reidinger, eds., Comprehensive River Basin Development: The Tennessee Valley Authority No. 417 Rutkowski, Welfare and the Labor Market in Poland: Social Policy during Economic Transition No. 418 Okidegbe and Associates, Agriculture Sector Programs: Sourcebook No. 420 Francis and others, Hard Lessons: Primary Schools, Community, and Social Capital in Nigeria No. 421 Gert Jan Born, Robert Foster, Ebel Dijkstra, and Marja Tummers, Evaporative Air-Conditioning: Applications for Environmentally Friendly Cooling No. 422 Peter Quaak, Harrie Knoef, and Huber Stassen, Energy from Biomass: A Review of Combustion and Gasifica- tion Technologies No. 423 Energy Sector Unit, Europe and Central Asia Region, World Bank, Non-Payment in the Electricity Sector in Eastern Europe and the Former Soviet Union No. 424 Jaffee, ed., Southern African Agribusiness: Gaining through Regional Collaboration No. 425 Mohan, ed., Bibliography of Publications: Africa Region, 1993-98 No. 426 Rushbrook and Pugh, Solid Waste Landfills in Middle- and Lower-Income Countries: A Technical Guide to Planning, Design, and Operation No. 427 Marifio and Kemper, Institutional Frameworks in Successfil Water Markets: Brazil, Spain, and Colorado, USA No. 428 C. 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Townsend, Agricultural Incentives in Sub-Saharan Africa: Policy Challenges (List continues on the inside back cover) WORLD BANK TECHNICAL PAPER NO. 483 Europe and Central Asia Poverty Reduction and Economic Management Series Communal Infrastructure in Slovenia Survey of Investment Needs and Policies Aimed at Encouraging Private Sector Participation Mojmir Mrak Tw World Bank Washington, D.C. Copyright @ 2000 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing December 2000 12 3 4 04 03 02 0100 Technical Papers are published to communicate the results of the Bank's work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. 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Library of Congress Cataloging-in-Publication Data Mrak, Mojmir Communal infrastructure in Slovenia: a survey of investment needs and policies aimed at encouraging private sector participation / Mojmir Mrak. p. cm. - (World Bank technical paper; no. 483. Europe and Central Asia poverty reduction and economic management series) Includes bibliographical references. ISBN 0-8213-4797-7 1. Public utilities-Slovenia-Finance. I. Title. II. World Bank technical paper; no. 483. III. World Bank technical paper. Europe and Central Asia poverty reduction and economic management series. HD2768.S574 M7 2000 363.6'094973--dc2l 00-043962 Contents Foreword ................................................................vi Abstract .. ..............................................................vii Executive Summary ........................................................ix 1. Introduction ............................................................1 Background .........................................................1 Objective of the Study ..................................................2 Methodology Applied in the Study .........................................2 Sources of Data . .......................................................3 Structure of the Study ..................................................4 2. Environment for Communal Infrastructure Investment ...........................5 Major Changes Affecting Post-Independence Communal Infrastructure Investment ..........................................................5 Existing Legal and Institutional Environment for Communal Infrastructure Development ........................................................6 Financing of Local Communities ..........................................8 Price Setting for Public Services and Tariff Structures ...........................9 Financial Performance of Command Service Enterprises ....................... 11 3. Communal Infrastructure Investment Needs and Funding Gap .....................17 Past Trends and Medium-Term Perspective on Communal Infrastructure Investment: Macro Perspective ...........................................17 Questionnaire Findings on Communal Infrastructure Investment: Micro Perspective .....................................................19 The Funding Gap . ......................................... ........... 28 4. Policy Measures Conducive to Higher Level of Communal Infrastructure Pricing of Communal Infrastructure Services ................................32 Competition, Including Restructuring of Service Providers and Private Sector Involvement ...................................................33 Legal and Regulatory Framework .........................................33 5. Conclusions ...........................................................35 The Current Situation in the Communal Sector ..............................35 iii Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Communal Infrastructure Investment Needs and the Funding Gap ................ 35 Policy Measures Conducive to Higher Levels of Communal Infrastructure Investment .36 Bibliography and Sources ...............................................59 Tables Table 2.1. Average Prices of Communal Services, 1991-1996 (Current Prices in Slovenian Tolars) . .......................................................11 Table 2.2. Relative Importance of the Surveyed Communal Sector Enterprises: Selected Indicators, 1997 (In Percent) ...............................12 Table 2.3. Structure of Assets and Liabilities Account of the Surveyed Communal Sector Enterprises, 1995-1997 (In Percent) ...........................13 Table 2.4. Structure of Revenues and Expenditures of Surveyed Communal Service Enterprises, 1995-1997 (In Percent) ................................14 Table 2.5. Net Profit/Loss of the Surveyed Communal Sector Enterprises, 1995-1997 (In SIT Million) .......................................15 Table 2.6. Selected Performance Indicators for Surveyed Commercial Sector Enterprises, 1995-1997 (In Percent) ................................16 Table 3.1. Annual Level of Communal Infrastructure Investment under "Mrak Investment Needs" Scenario, 1998-2002 (In SIT Billion, Constant Prices) ................................................18 Table 3.2. Annual Level of Communal Infrastructure Investment under "PHARE Investment Needs" Scenario, 1998-2002 (In ECU Million) ................ 19 Table 3.3. Cumulative Investment under the Three "Investment Needs" Scenarios, 1998-2002, (In SIT Billion; Constant Prices) ..........................29 Table 3.4. Cumulative Funding Gap, based on the Three "Investment Needs" Scenarios, 1998-2002 ............................................29 Annexes Annex 1 Table A. 1.1. Asset and Liabilities Account of the Surveyed Communal Sector Enterprises, 1995-1997 (In SIT) ....................................38 Table A. 1.2. Profit and Loss Account of the Surveyed Communal Sector Enterprises, 1995-1997 (In SIT) ....................................39 Table A. 1.3. Performance Indicators for the Surveyed Commercial Sector Enterprises, 1995-1997 ..........................................40 Annex 2 Table A.2.1. Local Communities Covered in the Sample .........................41 Table A.2.2. Volume and Structure of Investment, 1995-1997 (In SIT Million) ........ 42 Table A.2.3. Structure of Communal Infrastructure Investment, 1995-1997 (In SIT Million) ..............................................43 iv Contents Table A.2.4. Sources of Funds for Communal Infrastructure Investment, 1995-1997 (In SIT Million) .............................................44 Table A.2.5. Level of Communal Infrastructure Investment Plan Implementation, 1995-1997 (In Percent) ........................................45 Table A.2.6. Reasons for Poor Implementation of 1995-1997 Communal Infrastructure Investment Plan (From 1-not important to 5-very important) ............ 46 Table A.2.7. Volume and Structure of Communal Infrastructure Investment Plans, 1998-2002...................................................47 Table A.2.8. Annual Level of Communal Infrastructure Investment Plans, 1998-2002 .. .48 Table A.2.9. Reasons for High 1998-2002 Communal Infrastructure Investment Plans (From 1-not important to 5-very important) ........................49 Table A.2.10. Most Important Reasons for Possible Delays in the Implementation of 1998-2002 Communal Infrastructure Investment Plans ................50 Table A.2.1 1. Communal Infrastructure Investment Plans for 1998-2002: Sources of Funds......................................................51 Table A.2.12. Communal Infrastructure Investment Plans for 1998-2002: Which of the Financial Sources is Considered Least Reliable (From 1-not important to 5-very important) ..........................................52 Table A.2.13. Communal Service Providers and their Expected Role in Financing 1998-2002 Communal Infrastructure Plans .........................53 Table A.2.14. State Budget and its Expected Role in Financing 1998-2002 Communal Investment Plans .............................................54 Table A.2.15. Main Patterns of Credits to be Raised for Financing 1998-2002 Communal Investment Plans .............................................55 Table A.2.16. Importance of Individual Factors in Picking Up a Creditor for Communal Investment (From 1-not important to 5-very important) ...............56 Table A.2.17. Which Creditor Would You Prefer at Equal Cost of Financing (From 1-least preferred to 5-most preferred) .............................57 Table A.2.18. Private Investors and their Expected Role in Financing 1998-2002 Communal Investment Plans ....................................58 v Foreword The Poverty Reduction and Economic Management Unit in the World Bank's Europe and Central Asia Region has been undertaking a series of analytical works on issues pertinent to the economies in the region. These issues include transition issues; issues of economic integration pertinent for the Central and Eastern Europe countries which are candidates for accession to the European Union; poverty issues; and other economic management issues. The analytical work has been con- ducted by staff of the unit, other World Bank staff, and specialists outside of the World Bank. This technical paper series was launched to promote wider dissemination of this analytical work, with the objective of generating further discussion of the issues. The studies published in this series should therefore be viewed as work in progress. The findings, interpretations, and conclusions are the authors' own and should not be attrib- uted to the World Bank, its Executive Board of Directors, or any of its member countries. Pradeep Mitra Director Poverty Reduction and Economic Management Unit Europe and Central Asia Region The World Bank vi Abstract This report was prepared by Professor Mojmir Mrak, Faculty of Economics, University of Ljubljana, and served as a background paper for the World Bank's Country Report Slovenia Economic Transformation and EU Accession. The author thanks Bojan Radej for organization of the tables in Annex I as well as for his numer- ous comments and suggestions on other parts of the text. The preparation of the study was sup- ported in part by the World Bank award to Harvard University. vii  Executive Summary The annual amount of public investment in communal infrastructure in Slovenia was about 0.4 percent of GDP in the 1992-1996 period and was well below the infrastructure needs of the coun- try. Any substantial increase in public funding of communal infrastructure in the near future is impossible given the austerity of the government's budget at the present time, and generation of additional financing through higher taxation and foreign borrowing are macroeconomically unsustainable. To support its policy of improving and expanding communal infrastructure essen- tial to economic development, Slovenia therefore has no choice but to seek other sources of financ- ing, specifically in the private sector. Budgetary and financial considerations, while extremely important, are not the only arguments justifying increased private sector participation in both the provision of communal services and in the financing of communal infrastructure investments. Even more urgent is the need to pro- vide the Slovenian economy and society in general with reliable and high quality infrastructure services. Furthermore, harmonization of Slovenian legislation with European Union (EU) envi- ronmental directives, and the actual implementation of these directives, requires from the coun- try large investments in the areas of water supply, wastewater collection and treatment, and solid waste management The Purpose of the Study There is already a large consensus in Slovenia for involving the private sector in communal infra- structure financing. However, there is presently no global strategy for translating this consensus into practice. The purpose of this study is to contribute toward a better understanding of com- munal infrastructure investment issues in Slovenia, especially the main bottlenecks in this area, and to discuss policies aimed at increasing the volume of communal infrastructure investment. Within this general framework, this study has the following three specific objectives: (1) to give an overview of the existing institutional, legal, and regulatory environment for communal infra- ix Communal Infrastructure in Slovenia: Survey ofInvestment Needs and Policies structure development, with a special focus on the financial performance of communal infra- structure service providers; (2) to provide a detailed analysis of communal infrastructure invest- ment both for investments made over the last few years and those planned for the next medium- term period; and (3) to briefly discuss suggested policy measures for increasing the volume of com- munal infrastructure investment The empirical backbone of this study is responses to a detailed questionnaire on communal infrastructure investment, filled out by a representative sample of local communities in Slovenia. The survey sample includes 26 local communities of different sizes and from all geographical regions of the country; the sample is roughly equivalent to a sixth of the total number of local com- munities in Slovenia. The total size of the population living in the survey sample local communi- ties is 307,000, again roughly equivalent to a sixth of the country's total population. Another impor- tant source of statistical data for the study is financial statements for the 19 communal sector enter- prises providing communal services in the 26 local communities covered in the survey sample. The Environment for Communal Infrastructure Investment In the post-independence period, the legal environment and the institutional framework under which Slovenian local communities and their respective communal sector enterprises operate has dramatically changed. Ownership of communal infrastructure has been transferred to local com- munities, which have also become responsible for investment in this area. Communal investments have further been affected by the fragmentation of local communities. As far as financing of local communities is concerned, the state has retained strong control over their revenues. The state is not only the legislator, but it also determines the framework for financing debt and continues to control the prices of many communal services. There are four main sources of budget financing for local communities: (1) the local community's own revenues (which include taxes on assets, income from capital investments, and inheritance and gift taxes; (2) revenues shared between the state and local community (which include income tax and taxes on real estate trading); (3) borrowing (debt levels have to be kept within limits strictly determined by the central government); and (4) transfers from the state budget (which include so-called finan- cial "equalization" and other transfers). Since early 1992, prices of communal services have continuously been under government con- trol and the existing tariff structure weighs more heavily on enterprises than on households. These two factors, accompanied by dramatic changes in the structure of communal service consump- tion, have strongly influenced financial performance of communal service providers. The finan- cial health of enterprises in this segment of the economy is well below the financial performance for the economy in general. In addition the surveyed communal sector enterprises had a nega- tive return on equity and dwindling profit margins in 1997, and the trend remains highly nega- tive. Similarly negative trends have been observed in the sales realized by given assets. Finally, high x Executive Summary and growing assets-to-equity and debt-to-equity ratios confirm that the surveyed communal sec- tor enterprises are undercapitalized and highly indebted. Results of the Survey on Communal Infrastructure Investment The survey has identified the following patterns of communal infrastructure investment in Slovenia over the 1995-1997 period: (1) communal infrastructure was, together with investment in roads, at the top of local communities' investment priorities; (2) more than half of total communal infra- structure investment was allocated for water supply and sewage. (3) over two-thirds of communal infrastructure investment was financed from state and local budgets, with the investment in the latter being significantly higher; (4) actual implementation of 1995-1997 communal infrastruc- ture investment plans varied widely across individual local communities; and (5) where the com- munal infrastructure investment-to-implementation ratio was poor, financial problems are seen as the main reason. As far as communal infrastructure investment needs for the 1998-2002 period are concerned, the fol- lowing conclusions can be made on the basis of the survey: (1) communal infrastructure invest- ments are planned to be on average 3 times higher than in recent years; (2) investment priority will shift from water supply to sewage, wastewater treatment, and solid waste management; (3) grow- ing demand for communal services and adjustment to EU environmental directives are the main driving force behind ambitious communal infrastructure investment plans; and (4) lack of finan- cial resources is claimed to be the single most important reason for possible delays in investment plan implementation. The structure of communal infrastructure financingenvisaged by the respondents to the 1998-2002 survey is dramatically different from the structure in place for 1995-1997 financing. The main changes are as follows. First, overall budget financing of communal infrastructure investments, that is, from both local and the state budgets, is planned to become relatively less important than in the past; its share is expected to fall from 68 percent in the 1995-1997 period to 53 percent in 1998-2002 period. Second, in contrast to recent years when local budgets had a dominant share of total budget financing of communal infrastructure investment, in the next medium-term peri- od the state budget is expected to predominate as the source of budget funds. Third, the suggested shift in the structure of budget financing clearly reflects local communities' expectation that the state budget will be one of the main funding sources for meeting ambitious communal infra- structure investment plans. Taking into account the present fiscal condition of Slovenia, this view seems to be far from reality. Third, communal sector enterprises and the Eco Fund are expected to retain their shares (around 15 and 5 percent, respectively) in the overall funding structure of communal infrastructure investment. Fourth, in contrast to the past, bank credits are expected to become an important source of communal infrastructure funding. Their participation in the overall funding structure is expected reach 13 percent in the 1998-2002 period, while during xi Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies 1995-1997 this source of financingwas practically unused in the sample countries. Fifth, only one local community in the sample has explicitly put build, operate and transfer (BOT) type project financing as a funding source for its communal infrastructure investments. The Funding Gap for Communal Infrastructure Investment To improve living standards, improve environmental protection standards, and facilitate the country's accession to the European Union, Slovenia needs to invest between SIT189,5 and SIT223.5 billion in the development of its communal infrastructure over the period 1998-2002. This is equivalent to between 1.1 and 1.4 percent of the projected GDP of the country. However, macroeconomic projections realistically estimate public investment in this sector at not more than SIT69.4 billion, or 0.4 percent of GDP. Based on these projections, it is estimated that the public funding for communal infrastructure projects will fall short of actual needs by an amount equiv- alent to 0.7 to 1.0 percent of GDP, or between $150 and $200 million a year in nominal terms. Policy Recommendations In order to close or at least significantly reduce the funding gap between communal infrastruc- ture investment needs and available public funds, Slovenia must design and implement a whole range of coordinated economic policy measures. They should all have a more commercial approach to communal infrastructure sector development. The commercialization of infrastruc- ture services refers to all reforms that stimulate a business approach to these activities. Specific policy recommendations are listed below. * Price and taniff reforms. A core element of the market-oriented transformation of public util- ities in Slovenia is more careful pricing of services. Proper pricing, together with effective collection of tariffs, is crucial for both balancing supply and demand for communal infra- structure services, and achieving financial viability and accountability of infrastructure ser- vice providers. Proper pricing of communal services will encourage efficient use of services and provide the right incentives for private sector participation in both provision of services and communal infrastructure investment. Moreover, tariff reform involves both a general increase of prices and tariffs and internal transformation of tariff structures. This reform is aimed at reducing and eventually eliminating the policy of cross-subsidization, which weighs more heavily on enterprises than on households * Competition, including private sector involvement. The introduction and promotion of compe- tition wherever possible-including an increase in private sector provision of communal ser- vices and communal infrastructure investment-is a key element of policy reforms aimed at cost-effective provision of communal services. Competition also facilitates the task of reg- ulatory bodies. Where competition cannot be introduced directly (that is, competition with- xii Executive Summaty in the market), and this is often the case with public utilities due to their monopolistic ten- dencies, it is often possible and desirable introduce competition indirectly (that is, com- petition for the market)). In this case, firms compete for the right to provide services for a given period of time under a concession or lease contract. * The legal and regulatory framework. Another important condition for improving the financial viability of communal infrastructure service providers is appropriate legislation that estab- lishes a legal environment conducive for operational independence of enterprises. It is also necessary that the "rules of the game" apply to all participants, which means that state-owned enterprises are subject to the same discipline of commercial law and bankruptcy as any pri- vate sector enterprise. Infrastructure service providers must be properly supervised, par- ticularly where monopolies or exclusive rights exist. An efficient regulatory framework, with clear-cut rules and regulatory bodies that are truly independent of the enterprises they reg- ulate and of all political and administrative influence, is essential both to private investors (on which their willingness to invest depends on proper regulation), and for the protection of consumers. xiii  1. Introduction Background Investment in communal infrastructure has not attracted much analytical interest in Slovenia over the last few years. However, there are presently at least four important reasons for a more systematic analysis of the subject. 1. Large Investment Needs. In the second half of 1997, an empirical study was conducted on the gap between Slovenia's infrastructure investment needs and the resources available for this purpose (Mrak 1997, p. 29). One of the study's main conclusions is that infrastructure invest- ment needs in Slovenia amount to 8.7 percent of GDP for the 1997-2000 period. Of this total, investment needs equivalent to 1.8 percent of GDP were identified in the area of commu- nal infrastructure, including investment in water supply, sewerage and wastewater treatment, and solid waste management. One of the recognized weaknesses of the 1997 study is the rel- atively poor quality of data for forecasting communal investment in the period 1997-2000. Due to the lack of financial and human resources, the study was accordingly prepared exclusively on the basis of aggregate data provided by the Slovenian Ministry of Environment and Physical Planning (MEPP). 2. StrongDependence of Communal Infrastructure Financing on Budgetary Resources. In recent years, Slovenia has been financing its communal infrastructure by relying heavily on transfers from the state budget. Given the tightness of the state budget at the present time, any substantial increase of infrastructure financing from these sources is unlikely in the near future. 3. Private Sector Participation. Budgetary and financial considerations, while very important, are not the only issues justifying an increase in private sector participation, in both the provi- sion of infrastructure services and the financing of infrastructure investments. Even more significant is the urgent need to provide the Slovenian economy and society in general with reliable and high-quality infrastructure services. There is already a considerable general consensus in Slovenia concerning the need for the private sector's stronger involvement in 1 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies the economic infrastructure sector. However, there is presently still no strategy to transform this general consensus into practice. 4. Adjustment to the EU's Requirements. The underfinanced communal infrastructure-a common pattern in transition economies-is not only a growing obstacle for the country's econom- ic development and the general well-being of its population, but also a bottleneck in Slovenia's expeditious accession to the EU. Harmonization of the Slovenian legislation with the EU environmental directives, and their actual implementation, requires from the acces- sion country large investments in water supply, wastewater collection, and the treatment and management of solid waste. Objective of the Study The general objective of the study is to improve understanding of communal infrastructure investment issues in Slovenia, identifying in particular the main bottlenecks in this area, and to discuss policies aimed at increasing the amount of communal infrastructure investment. Within this general framework, the study has three more specific objectives: (1) to give an overview of the existing institutional, legal, and regulatory environment for communal infra- structure development with a special focus on the financial performance of communal infra- structure service providers; (2) to provide a detailed analysis of communal infrastructure invest- ment for both investments made over the past few years and those planned for the next medium- term period and (3) to briefly discuss policy measures for increasing the amount of communal infrastructure investment. Methodology Applied in the Study The empirical part of the study focuses on quantifying the financial gap between communal infra- structure investment needs and the funds available for this purpose. Methodologically it is based on several infrastructure investment scenarios for the 1998-2002 period. The first set of scenar- ios, composed of three "Investment Needs" scenarios, reflects communal infrastructure investment needs, as defined in the investment plan documents of line ministries and infrastructure service providers and as provided, in the replies to the questionnaire sent to a representative sample of local communities in Slovenia. In order to meaningfully assess the gap between Slovenia's communal infrastructure investment needs and its capacity for funding these investments, the "Investment Needs" scenarios are com- pared with a baseline scenario based on macroeconomic projections for the country's mid-term development. This baseline, the "Actual Level" scenario, is designed around the infrastructure investment levels for 1998-2002, as projected in the 1998 Spring Report published by the Institute of Macroeconomic Analysis and Development (IMAD). 2 Introduction Sources of Data Questionnaire on Communal Infrastructure Investment The empirical backbone of the study is a questionnaire on communal infrastructure investment designed in close cooperation with the MEPP, the Ministry of Finance (MoF) and Eco Fund. Representatives of local communities also contributed to preparation of the questionnaire; field visits were made to several local communities as part of the questionnaire pre-testing procedure. The questionnaire is composed of three sections. In the first, respondents were asked to pro- vide information about general characteristics of their local community and providers of communal services. The second section is aimed at obtaining information about the total amount of invest- ment in the local community in the 1995-1997 period and especially about the structure and fund- ing sources for communal infrastructure investment. In the last section, local community officials were asked to assess their communal infrastructure investment needs for the 1998-2002 period and provide information on projected sources of financing and expected problems in this area. Local communities included in the survey sample were asked that the questionnaires be filled outjointly by representatives of local communities themselves and representatives of their respec- tive communal service providers. The replies to the questionnaires were analyzed using standard statistical methods. Time and financial considerations influenced the sample of local communities included in the survey. The sample of surveyed local communities has the following characteristics: 1. It includes 26 local communities, which is roughly equivalent to a sixth of the 147 local com- munities of Slovenia. 2. The total size of the population living in the sample local communities is 307,000, which is again roughly a sixth of the country's total population (1.98 million). 3. The sample local communities are equally distributed among small local communities with less than 5,000 inhabitants (8 in the sample), medium-size local communities with popula- tions between 5,000 and 10,000 (10 in the sample), and large local communities with more than 15,000 inhabitants (8 in the sample) (see table A.1.1 in Annex II). 4. The sample includes local communities from all geographical regions of Slovenia. 5. Local communities with different legal forms of communal service providers are included in the sample. 6. The sample includes local communities that are recipients of "financial equalization" from the state budget and communities that do not have access to this form of financing. Although the sample is considered to be sufficiently representative, the replies to the ques- tionnaire may be biased in at least two ways: (1) information on communal infrastructure financ- ing was given only from the point of view of local community officials and providers of commu- nal services. The data therefore do not include the views of other groups interested in the process, such as consumers or bankers; (2) there was only a limited opportunity to cross-check the information 3 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies provided in the survey. For both reasons, the survey results should be considered as tentative and interpreted with caution. Other Sources of Data Another important source of statistical data for the study is the "Agency for Payments" database on 1995-1997 financial statements of Slovenian enterprises that includes data for communal sec- tor enterprises. There are two financial statements for each enterprise in the database, an assets/liabilities account and a profit/loss account. This study only analyzes financial statements for those 19 communal sector enterprises providing communal services in the 26 local communities covered in the survey sample (see above). It must be noted, however, that these enterprises' business activities-they accounted for roughly 20 per- cent of total net sales of communal service providers in Slovenia in the 1995-1997 period-are not exclusively performed in the sample local communities. Some of these businesses also pro- vide services to local communities not covered by the sample and this has to be taken into account in interpreting data on the performance of service providers covered in this study. Many other sources of information and statistical data were also used in the preparation of the study. Some of them are the following: 1. Documents of line-ministries and infrastructure service providers regarding their investment plans; 2. Interviews with officials from line-ministries and local communities, as well as with repre- sentatives of infrastructure service providers, banks, specialized consulting firms, and research institutions; 3. Documents prepared by multilateral institutions (the International Finance Corporation, the World Bank, the Organization for Economic Cooperation and Development, and the Economic Commission for Europe); and 4. MoF documents on budget expenditures and IMAD documents and projections on the macroeconomic situation. Structure of the Study In addition to the introduction and conclusion, the paper consists of three main chapters. In the first, the current situation in the communal sector is discussed. The existing institutional, legal, and regulatory environment for communal infrastructure development is presented, but the analy- sis focuses on the financial performance of communal infrastructure service providers. The sec- ond chapter discusses communal infrastructure investment in detail. The analysis starts with an overview of 1995-1997 investment patterns, but the main concern is quantifying the 1998-2002 gap between communal infrastructure "investment needs" and financing available as foreseen in macroeconomic projections. In the third chapter, policy measures, including increasing private sector participation, required to create an environment conducive to higher communal infra- structure investment are briefly discussed. 4 2. Environment for Communal Infrastructure Investment Major Changes Affecting Post-independence Communal Infrastructure Investment Before 1991, "socially-owned public enterprises were responsible for providing communal services, as well as for investing in communal infrastructure. In many respects, these enterprises had pat- terns similar to enterprises in any other segment of the Slovenian economy. Although prices of communal services were controlled by the state at that time, the sector had two stable sources for funding communal infrastructure investment-depreciation charges and transfers from a state fund established especially for this purpose (Kelviiar 1998, p. 69). The post-1991 period has witnessed dramatic changes in the legal environment and institutional framework in which local communities and their respective communal sector enterprises oper- ate. These changes can be classified into two main groups, both with unfavorable impacts on the level of communal infrastructure investment. Changes in the Relationship between Local Communities and Communal Sector Enterprises An important principle pursued by the legislator was to separate the management of enterprises providing communal services from the administration of local communities. Under the 1993 Law on Public Commercial Enterprises, ownership of communal infrastructure was transferred to local communities and they also became owners of the majority of other assets previously in the pos- session of communal sector enterprises. Through the 1993 law, as new owners of communal infra- structure, local communities have also taken over responsibility for investment required to main- tain and upgrade communal infrastructure. Although at the conceptual level the 1993 law clearly defines ownership rights of local com- munities regarding communal infrastructure, the related bylaws have not provided precise guide- 5 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies lines for the law's effective implementation. There are, for example, no clear accountancy instruc- tions for communal infrastructure depreciation. As a consequence, depreciation has often not been properly included in the financial statements of the new owners of infrastructure-the local com- munities. In assessing problems associated with communal infrastructure in Slovenia, one source concluded that "most of local communities are not aware that the ownership means right and also duties. Some assets have "de facto" no owner; formally no transfer of ownership has been performed even if legally speaking such transfer was not necessary, since it operated 'ipsojure' (Poland and Hungary Assistance for Economic Restructuring Programme (PHARE) 1998, p. 97). Changes in Local Communities' Legislation Another problem negatively influencing investment in communal infrastructure in Slovenia over recent years is local community reform. As an integral part of this process, local communities were given new responsibilities, but the funding has not been increased to account for these new duties. Furthermore, under the 1993 Law on Local Self-Government, the large majority of local com- munities have been divided into two or more local communities. Since the resulting local com- munities are very often small in terms of their population (more than a third of local communi- ties in Slovenia have a population below 5,000) and weak in terms of their economic base, many of them do not have sufficient financial resources to invest in communal infrastructure. The issue of infrastructure investment is further complicated by the fact that distribution of assets and lia- bilities of "old" local communities among the "new" ones has not yet been completed in all but a few cases. Communal sector enterprises and their performance have also been drastically affect- ed by changes in local community legislation in Slovenia. In contrast to the pre-transition peri- od, when each of these enterprises operated almost exclusively on the territory on their respec- tive local communities, enterprises are now faced with the situation where they operate in more than one local community. Operating in more than one local community exposes communal sec- tor enterprises to various problems, as they have to deal with more than one owner of communal infrastructure, and often with different legal regimes and tariff systems. Existing Legal and Institutional Environment for Communal Infrastructure Development In contrast to two other sectors of economic infrastructure, (the energy sector and the transport and communication sector), services related to water supply, wastewater treatment, and solid waste management are generally managed at the local community level. The core legal, regulatory, and institutional framework addressing the issue of communal services and communal service providers consists of the five following laws: the Environmental Protection Act (adopted in 1993), the Law on Public Commercial Services (adopted in 1993), the Law on Local Self-Government (adopted in 1993), the Law on Financing Municipalities (adopted in 1994), and the Law on Prices (adopt- ed in 1991). Some of the provisions contained in this package of legislation are addressed in the paragraphs below. 6 Environment for Communal Infrastructure Investment Determination of "Public Commercial Services" Although the Law on Public Commercial Services does not give a specific definition of "public commercial services," it nevertheless provides guidance in this respect by describing them as ser- vices intended to provide products and services in the public interest. These services, to be pro- vided by entities that are directly or indirectly controlled by the state or by local communities, can be either obligatory or optional. All obligatory "public commercial services" have to be defined by sectoral law. For communal services, obligatory "public commercial services" are spelt out in the Environmental Protection Act. It defines the following obligatory "local public commercial ser- vices": (1) the supply of drinking water; (2) disposal and purification of municipal waste and pre- cipitation water; (3) handling of municipal waste; (4) dumping of the remains of municipal waste; (5) public hygiene and cleaning of public areas; and (6) maintenance of public ways and green areas as well as regular control and cleaning of heating places. Local communities have discre- tion to define certain other communal services as obligatory. All "local public commercial services" have to be provided independently, directly, and com- pulsorily by the relevant local community. The only exception is where these services are provid- ed by a wider local authority or by several local communities together. Provision of "local public commercial services" may be delegated to private entities at the local level, but in order to con- trol the quality of services and the prices charged. The local community is responsible for super- vision of service providers. Ownership Transfer of Communal Sector Enterprises Ownership transfer has been guided by the Law on Public Commercial Services and by a decree that established the criteria for determining the share of "socially-owned capital" in the overall capital of communal sector enterprises. Based on these legal provisions (affecting 76 communal sector enterprises), ownership of both communal infrastructure and "socially-owned capital" (all those assets used for carrying out services that are in the "special public interest") was transferred into the hands of local communities. Once the process was completed, local communities became exclusive owners in 43 percent of all communal sector enterprises. They also acquired majority ownership shares in another 32 percent of enterprises and became minority equity holders in the remaining 25 percent of enterprises. Legal Forms of Carrying Out Communal Services According to the Law on Public Commercial Services and the Law on Local Self-Government, "com- mercial public services," and therefore "local public commercial services," can be provided by one of the five following legal forms (based on PIARE, 1998, 90-93): 1. Administrative enterprise. This is a unique entity without a legal identity that can be established within a state administration-for instance, within a ministry or as part of a local authority. 7 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies It is a nonprofit entity and usually established where other legal forms would prove to be inadequate and irrational. 2. Public economic institution. As an institution with its own legal identity, a public economic insti- tution must be under the control of either the state or the local community. State or local communities should hold an ownership participation of at least 51 percent while other legal and natural persons may own up to 49 percent of the institution. The state or local admin- istration must manage public economic institutions. 3. Public enterprise. Provisions for this legal form are spelt out in the Companies Act adopted in 1993. The act stipulates that, like with a public economic institution, a public enterprise has its own legal identity. The enterprise can be established either by the state or the local com- munity with the aim of performing public commercial activities. 4. Concession. This legal form implies a contractual relationship between the state or local author- ities and private owners. State or local authorities can authorize private entities to perform activities that satisfy public needs. Concessions may be issued both for the management of public services and for the exploitation of natural resources. 5. Joint venture with public capital. This legal form is also based on a contractual relationship. It involves a contractually determined transfer of public funds to a private owner who is oblig- ed to use these funds to provide publicly needed goods or services. The crucial difference between a concession and ajoint venture with public capital is that in the first case the pri- vate sector itself provides funding, while in thejoint venture funding is provided by the pub- lic sector. In practice, the most frequently applied legal form of providing communal services is public enterprises. At a time when there were 65 local communities in Slovenia, in around 80 percent of them communal services were provided through public enterprises, in another 13 percent through concessions, and in the remaining 7 percent of local communities throughjoint ventures with public capital. The other two legal forms had not been applied at that time (Svetovalni Center 1997, p. 29). Financing of Local Communities There are four main sources of budget financing for local communities: 1. The local community's own revenues. Local communities are entitled to raise their own revenues to finance public expenditure. The most important sources of revenue include taxes on assets (such as revenue from leases and rent for land and buildings owned by the local commu- nity), income from capital investments, and certain other income forms. Among other income forms are inheritance and gift taxes, and other taxes provided by law. 2. Revenues shared between the state and local community. Income tax and taxes on real estate trad- ing provide income that is distributed among the state and the local communities. 8 Environment for Communal Infrastructure Investment 3. Borrowing. Local communities are allowed to incur short-term debt to covering current expenditure, while long-term debts can only be incurred to finance infrastructure financ- ing. Note, however, that debt levels have to be kept within limits strictly determined by the central government. This limit is currently set at 10 percent of a local community's budget revenues. 4. Transfers from the state budget. A brief overview of the above three funding sources for local communities reveals that the state has retained strong control over local revenues. The state is not only the legislator, but it also determines the framework for incurring debt for financ- ing and continues to control the prices of many communal services. At present, local com- munities can obtain resources from the central budget through two major channels: (a) Financial "equalization. "According to the legislation, all local communities in Slovenia have to provide their populations with a similar level and quality of "public commer- cial services." When a local community does not have sufficient funding sources of its own to cover expenditure for these services (so-called "assured expenditures"), the state provides the difference in the form of so-called "financial equalization". In 1997, "assured expenditures" of local communities accounted for SIT92.6 billion. Of this total, their own revenues, including revenues shared with the state, amounted to SIT64.3 bil- lion. Consequently, "financial equalization" was in that year was close to SIT30 billion (from internal documents of the MoF). (b) Other transfers. These transfers are provided in several forms. These forms include transfers for demographically endangered regions, a water pollution tax (it can be retained in a local community if used for precisely determined investment purposes), and other special-purpose transfers. In volume terms, this channel of local communi- ty funding is much less important than "financial equalization." Price Setting for Public Services and Tariff Structures Until 1989, each municipality had a consumer-supplier council in which negotiations concern- ing the conditions of providing local public services took place. In principle, the consumer-sup- plier council set the prices for services but, in practice, the state had a great deal of formal and informal influence on price setting, endeavoring to keep public service prices down. One of the first steps taken by the newly independent Slovenia in 1991 was to pass the Law on Prices. Under this law, the government is allowed to transfer by decree public service price-set- ting authority to a local community. The government is at the same time entitled to limit price increases for a particular product or service, but only when it is necessary to avoid or prevent dis- turbances or interruptions in the supply of goods, or to avoid or prevent monopolistic formation of prices. To limit prices, the government must issue a decree for a maximum period of four months; the decree can be prolonged every four months. After passage of the Law on Prices, the government did in fact transfer authority for setting com- munal prices to local communities. This attempt to regulate prices at the local level, however, failed 9 Communal Infrastructure in Slovenia: Survey ofInvestment Needs and Policies within six months. Using the argument that local communities allowed high growth of commu- nal service prices, the central government reassumed price-setting responsibility for communal infrastructure services. Since early 1992, prices of communal services have continuously been under the control of the Ministry of Economic Relations and Development. Although various price adjustment procedures have been applied in recent years, their common feature has been to allow prices of public utili- ty services to rise at 80 percent of general price inflation (as determined by the retail price index or industrial producer prices). This price-setting policy has not allowed communal service providers to cover all their operating and capital costs. In most cases, tariffs have only been suffi- cient to cover current expenditures, but not to finance regular maintenance and rehabilitation, not to mention new investment. In order to improve their poor financial positions caused by strictly regulated prices, commu- nal service providers have intensified their efforts to tap new funding sources. One of the most commonly used methods over recent years has been the introduction of local environmental fees aimed at tackling specific pollution concerns of the local population. The legal basis for introducing these fees is the Environmental Protection Act together with the statutes of local communities. In addition to government control that sets the level of prices, there is another distinguishing feature of prices of communal services in Slovenia. As in many other transition economies, there are significant differences in the price levels for water supply, wastewater treatment, and waste dis- posal between different groups of customers. Different prices are usually set for the four follow- ing groups of customers: households, business entities, non-business entities, and other users. Table 2.1 shows that in recent years prices for communal services have been by far lowest for households and highest for business entities (however, only in the case of waste disposal, the highest prices have been paid by the category called "other users"). Table 2.1 also shows that the ranges of prices paid by different categories of users have narrowed over time. Different prices for different groups of customers may sometimes bejustified by differences in the costs of providing services. However, the policy of subsidizing households seems to be a more important explanation of why the existing structure of tariffs weighs more heavily on enterprises than on households. Although the existing tariff structures are a legacy from pre-transition times and reflect the role of communal infrastructure in allocating benefits to the population (cross- subsidization), they have not been substantially changed over recent years due strong public resis- tance to rebalancing the tariff structures. There is no doubt that communal infrastructure services price and tariff increases will cause higher inflation, at least in the short term. This should, however, be judged against the effect of lower-priced services and the distorting consequences of these low prices on the economy as a whole. Not only do customers receive misleading signals as to the real value of communal infra- structure services, reducing that incentive for efficiency, but subsidization also results in the deferment of urgent investment in communal infrastructure. The existing tariff structures accompanied by changes in the structure of communal services' consumption have strongly influenced the financial performance of service providers. In the water supply segment, for example, total water consumption remained at the same level between 1980 10 Environment for Communal Infrastructure Investment Table .1 Average Prices of Communal Services, 1991-1996 Current Prices in Slovenian Tolars June End End End End End Aug. 1991 1991 1992 1993 1994 1995 1996 Water supply* Households 10.22 15.51 28.05 35.28 45.43 51.80 56.80 Business entities 20.91 31.37 55.63 69.20 85.81 98.58 106.38 Non-business entities 15.94 24.28 40.15 49.89 64.94 84.31 92.32 Other users 15.97 22.54 42.30 55.39 75.64 88.12 98.96 Wastewater treatment* Households 3.07 4.44 7.77 9.84 12.97 16.87 18.03 Business entities 6.22 9.17 15.17 19.47 25.92 31.91 33.56 Non-business entities 4.95 7.62 11.71 14.55 17.59 26.85 28.01 Other users 4.99 7.06 14.10 15.98 23.24 36.45 40.96 Waste disposal** Households 1.18 1.78 3.13 4.09 4.94 6.08 7.08 Business entities 2.89 4.31 7.28 9.58 11.92 13.81 15.23 Non-business entities 1.82 2.97 5.08 6.84 7.71 10.09 11.03 Other users 3.30 4.50 7.18 8.67 13. 76 16.57 17.61 * SIT/M3 ** SIT/m2 Source: Strategy of the Communal Sector Development in the Republic of Slovenia. Svetovalni Center (1997), pp. 47-51 (in the Slovenian language). and 1994. In the structure of consumption, however, the share of the enterprise sector was almost halved, from 62.5 percent to 35.9 percent. This reduction in enterprise share can be explained by the high increase in household sector consumption (increasing by more than 50 percent). However, it can also be explained by the decline of water consumption in the enterprise sector (in 1994, consumption was only 56 percent of that in 1980) due to drastic cutbacks in production (Svetovalni Center 1997, p. 48). Financial Performance of Communal Service Enterprises This sub-chapter, based on the Agency for Payments database, analyses 1995-1997 financial per- formance of those 19 communal sector enterprises (1,365 employees in 1997) that provide com- munal services for the 26 surveyed local communities covered in this study (hereafter called "sur- veyed communal service enterprises"-surveyed CSEs). Financial performance of these enterprises is compared, on the one hand, with the performance of all 78 communal sector enterprises in Slovenia (hereafter called "all communal service enterprises"-all CSEs; 6,224 employees in 1997) and, on the other hand, with the performance of the entire enterprise sector in the coun- try (hereafter called "all enterprises;" 36,717 enterprises with 460,376 employees in 1997.). 11 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table 2.2 presents some general information about the size of the 19 surveyed CSEs in relation to all enterprises in Slovenia and in relation to all CSEs (78 communal sector companies). Two main conclusions can be drawn on the basis of data presented in table 2.1. First, the sur- veyed CSEs represent a marginal fraction of the Slovenian economy. In all but one indicator, oper- ating loss, these companies contributed below 0.5 percent in 1997. Operating loss, however, was almost 2 percent of total operating loss in Slovenia. Second, the surveyed CSEs are a representa- tive sample of all CSEs, accounting for around one-fifth of total CSEs' employment, net sales, labor, and material costs and for between 10 to 15 percent of total CSE's assets, depreciation, and operating losses. The only two 1997 indicators where the surveyed CSEs differ significantly from the all CSEs are operating profit and equity. In 1997 the surveyed CSEs had practically no operating profit and a substantially lower equity base than CSEs in general. Table 2.3 shows the assets and liabilities account of the surveyed CSEs. Their total assets and liabilities amounted to SIT27.1 billion at the end of 1997. A distinguishing feature of surveyed CSE's assets structure is an extremely high proportion of fixed assets. Fixed assets accounted for as much as 88 percent of surveyed CSE's total assets, while for all enterprises in Slovenia this share was much lower- (66 percent). An important reason for the high fixed assets to total assets ratio of surveyed CSEs and all CSEs lies in the fact that many of these companies still keep communal infrastruc- ture in their financial statements. This has been the case because ownership over communal infra- structure has for various reasons (for example, incomplete procedures for allocation of assets of "old" local communities among new communities) not yet been transferred to respective local com- munities, as prescribed by the Law on Public Commercial Services. On the liabilities side, there are also significant differences between the surveyed CSEs and other enterprises in Slovenia. They can be summarized in two main points: Table 2.2 Relative importance of the Surveyed Communal Sector Enterprises Selected Indicators, 1997 (In Percent) Surveyed CSEs*/ Surveyed CSEs*/ All CSEs*/ all enterprises all CSE all enterprises Assets and capital account Total assets 0.4 13.6 2.7 Fixed assets 0.5 13.2 3.7 Equity 0.1 5.4 2.1 Profit and loss account Net sales 0.4 19.8 0.7 Costs of goods, materials, services 0.1 20.5 0.5 Labor costs 0.3 20.9 1.5 Depreciation 0.4 14.8 0.2 Operating profit 0.0 0.1 0.5 Operating loss 1.9 12.6 1.6 Average number of employees (based on hours worked) 0.3 21.9 1.4 * CSEs = communal service enterprises Source: Table A.1.1 and A.1.2 in Annex I. 12 Environment for Communal Infrastructure Investment Table 2.3 Structure of Assets and Uabilities Account of the Surveyed Communal Sector Enterprises, 1995-1997 (In Percent) All enterprises All CSEs* Surveyed CSEs* 1997 1997 1997 1996 1995 Total assets/liabilities (SIT billion) 7,381.0 199.4 27.1 22.0 17.3 Assets Fixed assets 66 90 88 87 87 Current assets 34 10 12 13 13 Liabilities Equity 52 40 16 20 27 Long-term provisions 3 6 2 2 3 Long-term liabilities 15 48 70 67 59 Short-term liabilities 29 6 10 10 10 Accruals and deferred payments 1 0 2 1 1 * CSEs = communal service enterprises. Source: Calculated from table A.1.1 in Annex I. 1. Low capitalization of the surveyed CSEs. Due to legal provisions discussed above, a large pro- portion of surveyed CSEs was transferred into hands of local communities. As a result, sur- veyed CSEs and all CSEs are today in a disadvantageous position in relation to other enter- prises with respect to the level of capitalization. Looking at the capitalization of surveyed CSEs from a dynamic perspective, it has deteriorated dramatically over the period 1995-1997. Equity as a proportion of total liabilities declined for these companies from 27 to 16 percent in this period. 2. High indebtedness of the surveyed CSEs. Long-term liabilities, consisting mainly of debts raised for infrastructure investment, accounted for almost 75 percent of surveyed CSEs' total lia- bilities at the end of 1997, while for economy as a whole this proportion was several times lower (only 15 percent). This difference can be explained by the above-mentioned low cap- italization of the surveyed CSEs. Over the 1995-1997 period, these companies became even more dependent on long-term debt financing than they were before. The main features of the profit and loss account of the surveyed CSEs are presented in table 2.4. On the revenues side, revenues from regular operation (sales of products and services) accounted for around 95 percent of the total while the other two sources, revenues from financ- ing (interest) and extraordinary revenues (mainly transfers received from municipalities and cen- tral government) contributed the remaining 5 percent of total revenues. The structure of expenditures among the two categories of enterprises contrast strongly with the revenues side, where structure is practically identical for both the surveyed CSEs and the Slovenian economy in general. The main differences are the following: 13 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table 2A Structure of Revenues and Expenditures of Surveyed Communal Service Enterprises, 1995-1997 (In Percent) All enterprises All CSEs* Surveyed CSEs* 1997 1997 1997 1996 1995 Total revenues (in SIT million) 6,526,446 47,543 9,101 8,467 6,897 Revenues from operation (Sales of goods and services) 93 94 95 96 96 Revenues from financing 4 3 2 2 2 Revenues from extraordinary revenues 3 3 3 2 2 Total expenditures (in SIT million) 6,508,589 47,856 9,105 8,370 6,789 Costs of operation; of which 93 96 98 97 97 Material costs (70) (45) (48) (50) (47) Labor costs (15) (31) (34) (32) (34) Depreciation (5) (17) (13) (13) (13) Other (3) (3) (5) (5) (6) Costs of financing 5 2 1 2 2 Extraordinary expenditures 2 2 1 1 1 Net overall profit (+)/loss (-) (in SIT million) 17,857 -313 -4 97 108 * CSEs = communal service enterprises. Source: Calculated from table A. 1.2 in Annex I. 1. For the surveyed CSEs, material costs represent close to one-half of total expenditures. In contrast to all enterprises where material costs accounted for 70 percent of total expenditures in 1997, in the surveyed CSEs, their share was 48 percent in the same year. 2. For the surveyed CSEs, labor costs are twice as important as for other all Slovenian enterprises. As ser- vice enterprises, the surveyed CSEs spend over 30 percent of their total expenditures for labor costs (mainly salaries), while for the economy as a whole this wages account for around 15 percent of expenditure. Average monthly salaries in the communal sector were SIT130.500 in 1997, which wasjust above the average for the economy as a whole (SIT128.900) (Agency for Payments data). 3. There was a high share of depreciation in the surveyed CSEs'expenditures. Although in the surveyed CSEs depreciation as a proportion of total expenditures was almost three times higher than in the economy as a whole (13 against 5 percent in 1997), these figures should bejudged in relation to the asset structure of the two groups of companies. As mentioned above, fixed assets accounted for 88 percent of total assets of surveyed CSEs while for all enterprises in Slovenia this proportion was 66 percent. The most important indicators of an enterprise's financial performance are profit (whether the enterprise generates more revenues than expenditures and therefore registers profit) and loss (the company's expenditures are above its revenues and therefore it runs a loss). For analytical rea- 14 Environment for Communal Infrastructure Investment sons, it is sensible to distinguish between different categories of financial results and conse- quently net profit/losses of different segments of enterprise performance. Table 2.5 shows the net profit/loss position of the surveyed CSEs. 1. Net overall profit/loss. Overall profit/loss incorporates net profit/loss from regular activity (point 2 in table 2.5) and net profit/loss from extraordinary revenues and expenditures (point 5 in table 2.5). The analytical value of the latter category is limited due to high amounts of net profit/loss from extraordinary revenues and expenses which are to a significant extent a consequence of two types of accounting operations: (1) high valuation of assets and gradual spending of accumulated provisions via extraordinary revenues; and (2) extraor- dinary expenses from write-offs (Simoneti, Rojec, and Rems 1998, p. 11). In contrast to all Slovenian enterprises that had net overall profit of SIT17.9 billion in 1997, the surveyed CSEs and all CSEs registered net overall loss in 1997 (SIT4 million and SIT314 million respectively). 2. Net profit/loss from regular activity. Profit/loss from regular activity includes net operating prof- it/loss (point 3 in table 2.5) and net profit/loss from financing (point 4 in table 2.5). There is a striking difference in this net profit/loss category between the surveyed CSEs and all CSEs on the one hand and all Slovenian enterprises on the other. Although both categories of enterprises registered net loss from regular activity in 1997, its origin was very different. In contrast to all Slovenian enterprises where the net loss was a combination of net operating profit (it reveals a real potential of a company for growth and development) and net loss from financing (it indicates that a company is to much burdened by the costs of financing), net loss from regular activity of surveyed and all CSEs was of completely different origin. It was a result of a net operating loss (this confirms the poor potential of these companies for growth and development) combined with a net profit from financing. Table 25 Net Profit/Loss of the Surveyed Communal Sector Enterprises,1995-1997 (in SIT Million) All enterprises All CSEs* Surveyed CSEs* 1997 1997 1997 1996 1995 1. Net overall profit (+)/loss (-) 17,859 -314 -4 97 104 2. Net profit (+)/loss (-) from regular activity -51,584 -1,215 -167 5 72 3. Net operating profit (+)/loss (-) 50,516 -1,378 -286 -56 45 4. Net profit (+) /loss (-) from financing -102,100 163 119 61 27 5. Net profit (+)/loss (-) from extraordinary revenues and expenditures 69443 901 163 92 32 * CSEs = communal service enterprises. Source: Calculated from table A.1.2 in Annex 1. 15 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies 3. Net operatingprofit/loss. As mentioned, operating profit/loss is the single most important net profit/loss category for measuring a company's potential for growth and development. In contrast to economy as a whole, which improved its financial performance over the recent years from a net loss of up to SIT2.5 billion a year in 1995 and 1996 to a net profit of SIT50.5 billion in 1997, the surveyed CSEs are takingjust the opposite trend. In 1995, surveyed CSEs still had a net operating profit of SIT45 million, but it turned into a net loss of SIT56 mil- lion in 1996. Next year, net operating losses increased further to SIT286 million. This neg- ative trend confirms that financial performance of CSEs has deteriorated over the recent years. Table 2.6, which shows major performance indicators for the surveyed CSEs, sheds some addi- tional light on the trends in financial performance of these enterprises and confirms the above findings. Measured by return (net operating profit/loss) on equity and sales, the surveyed CSEs performed much worse than all enterprises and comparison to all CSEs. Not only did the surveyed CSEs show a negative return on equity ratio and profit margin in 1997, but both indicators also have a strongly deteriorating trend over the last three years. A similarly negative trend has been registered in the total asset turnover ratio, where the surveyed CSEs reduced the amount of sales realized by given assets. High and growing assets-to-equity and debt-to-equity ratios confirm that this group of enterprises is undercapitalized and highly indebted. For 1997, both indicators are few times higher than the corresponding indicators for the whole enterprise sector in Slovenia. Table .6 Selected Performance Indicators for Surveyed Commercial Sector Enterprises, 1995-1997 (In Percent) All enterprises All CSEs' Surveyed CSEs' 1997 1977 1997 1996 1995 Return on equity* 1.3 -1.7 -6.5 -1.3 1.0 Profit margin** 0.8 -0.3 -3.3 -0.7 0.7 Total asset turnover*** 81 21 31 36 37 Asset to equity ratio 194 250 630 497 372 Long and short-term debt to equity ratio 85 134 501 380 253 1. CSEs = communal service enterprises. * Net operating profit/loss per equity. ** Net operating profit/loss to net sales. *** Net sales to assets ratio. Source: Calculated from tables A.1.1 and A.1.2 in Annex 1. 16 3. Communal Infrastructure Investment Needs and Funding Gap In this chapter, communal infrastructure investment in Slovenia is discussed from two perspec- tives: first, from a macro perspective that is based primarily on data provided at a national level by various ministries; and second, from a micro perspective that is based on replies to the ques- tionnaire received from a sample of 26 local communities in Slovenia. Each of the first two sub- chapters below starts with an overview of 1995-1997 investment trends and continues with a pre- sentation of communal infrastructure "investment needs" for the 1998-2002 period. The final sub- chapter focuses on the quantification of a "financial gap" between "investment needs" and fund- ing availability. Past Trends and Medium-Term Perspective on Communal Infrastructure Investment: Macro Perspective Trends in the 1995-1997 Period In contrast to transport and communications, which almost doubled investments in nominal terms, and the energy sector, where investments increased more than 50 percent between 1995 and 1997, investment in communal infrastructure nominally stagnated at the same period at around SIT12 billion. As a consequence, the sector deteriorated in its position compared with other infrastruc- ture areas. Its investments as a proportion of GDP declined from 0.5 to 0.4 percent between 1994 and 1997 (IMAD 1998, p. 113). Another contrasting feature of investments in the communal infrastructure sector is found in the structure of financing. In communal infrastructure, budget transfers represent by far the most prominent source of financing. In the period 1995-1997, budget resources supplied 66 percent of total communal sector investment in Slovenia (Ministry of Finance 1996 and Ministry of Finance 1998). This high proportion is not surprising taking into account that service providers, due to their weak financial situation, are practically without internal financial resources or good access to credit. Budgetary funding for investment in communal infrastructure is of two origins, from local communities' own financial sources and from the state budget. 17 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies "Investment Needs" in the 1998-2002 Period In order to get a rough quantification of communal infrastructure investment needs in the '998-2002 period (the "Investment Needs" scenario), two existing studies are being taken as a point of departure. The first study was prepared by Mrak and analyzes Slovenia's 1997-2000 investment needs for all sectors of the economic infrastructure, including the communal infrastructure (see Mrak 1997). By using the same MEPP source of data and also using the same methodology as that study (it assumes that investments will be implemented in equal annual portions throughout the whole 5- year period), the total volume of communal investment needs for the period 1998-2002 (in the further text the "Mrak Investment Needs" scenario) is estimated at SIT223.5 billion, or SIT44.7 billion a year (see table 3.1). By far the largest part all investments is planned to go for wastewater collection and treatment projects. In practically all Slovenian cities, sewerage urgently requires rehabilitation, partly to catch up with investment needs deferred over the recent years, in some cases, an expansion of the net- work is also needed. It is projected that around SIT85 billion would have to be invested in this area over the next 5-year period while another SIT40 billion is planned for the construction of wastewater treatment plants. In contrast to wastewater collection and treatment, which is under full responsibility of local communities, responsibility for solid waste management is shared between the central government and municipalities. For example, waste incinerator plants are the responsibility of the central gov- ernment. According to government plans, two incinerators are to be built in Slovenia over the next 10 years, each at the cost of between DM200 and DM300 million. All other segments of solid waste management are dealt with at the municipality level. For the construction of new and reconstruction of existing landfills, local communities are expected to spend some SIT6 billion a year over the next 10 years. Of this, close to half would be used for some 10 landfills in the vicinity of larger cities, each of them at an estimated cost of between DM20 and DM30 million (Mrak 1997, p. 27). Table 3.1 Annual Level of Communal Infrastructure Investment Under the "Mrak Investment Needs" Scenario, 1998-2002 In SIT Billion, Constant Prices 1998 1999 2000 2001 2002 Total 44.7 44.7 44.7 44.7 44.7 Water supply 5.7 5.7 5.7 5.7 5.7 Waste water, of which 25.0 25.0 25.0 25.0 25.0 Sewerage (17.0) (17.0) (17.0) (17.0) (17.0) Waste water treatment plants (8.0) (8.0) (8.0) (8.0) (8.0) Solid waste, of which 14.0 14.0 14.0 14.0 14.0 Incinerators (5.0) (5.0) (5.0) (5.0) (5.0) Landfills (6.0) (6.0) (6.0) (6.0) (6.0) Source: Own calculations on the basis of data from MEPP. 18 Communal Infrastructure Investment Needs and Funding Gap Another study on Slovenia's communal infrastructure investment needs is the PHARE study that assesses costs of the Slovenian environmental approximation to the EU. According to this study (covering the whole period between 1998 and the year 2020), investments associated with water quality and communal solid waste management (in the text below, the "PHARE Investment Needs" scenario) are estimated for the 1998-2002 period at around ECU1,024.5 million for the period 1998-2002 (see table 3.2). Again, the largest investment needs have been identified in solid waste management and wastewater collection and treatment The Mrak and PHARE studies came to surprisingly similar conclusions regarding the communal investment needs of Slovenia in the period 1998-2002. Although the "Investment Needs" scenario presented in the PHARE study is some 16 percent below the estimates in the Mrak study, the dif- ference can be explained by the fact that the PHARE document takes into account only projects that are required from the EU adjustment point of view. There are, however, other projects, espe- cially in the water supply and wastewater and treatment areas, that are planned by Slovenian local communities (these projects are included in the study prepared by Mrak), but these projects are not required by the EU accession process (and are therefore not included in the PHARE study). Furthermore, according to the PHARE document, major investments in the solid waste manage- ment area were projected to start only in year 1999, and especially in 2000. Questionnaire Findings on Communal Infrastructure Investment: Micro Perspective This sub-section analyzes responses on that part of the questionnaire that was focused on com- munal infrastructure investment trends and patterns in Slovenia Table 3.2 Annual Level of Communal Infrastructure Investment Under the Three "PHARE Investment Needs" Scenarios, 1998-2002 (In ECU Million) 1998 1999 2000 2001 2002 Total 88.8 159.0 258.9 258.9 258.9 Water quality-compliance with EU legislation 23.5 29.5 29.5 29.5 29.5 Wastewater treatment plants and sewage -compliance with EU legislation 59.3 59.3 59.3 59.3 59.3 Solid waste, of which 6.0 70.2 170.1 170.1 170.1 Closing present landfills (0.0) (64.2) (64.2) (64.2) (64.2) Technical systems to recycle and reuse solid waste (0.0) (0,0) (31.1) (31.1) (31.1) Two incinerators (0.0) (0.0) (68.8) (68.8) (68.8) Landfills (6.0) (6.0) (6.0) (6.0) (6.0) Source: Development of a Costing Assessment for the Slovenian Environmental Approximation Strategy. PHARE, February 1998. 19 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Main Conclusions on 1995-1997 Investment Trends Together with investment in roads, communal infrastructure was at the top of local communities' investment priorities. Within the structure of total investment financing in local communities over the last three years, investments in communal infrastructure have been given a high priority. This is not surprising taking into account that investment in communal infrastructure is almost entire- ly under local communities' responsibility. For water supply, sewage, wastewater treatment, solid waste management, and other communal services (such as distance heating and gas supply), sam- ple local communities have allocated 28 percent of their total investments, compared with 24 per- cent for road construction and modernization (see table A.2.2 in Annex II). What is, however, sur- prising is that in more than one-half of local communities investment in roads surpassed invest- ment in communal infrastructure (in 12 out 21 local communities in the sample for which data are available). In the medium-size local communities included in the sample, investments in roads were almost twice as high as investment in communal infrastructure. There are several explana- tions for why investments in roads have higher priority on the local community level than invest- ment in communal infrastructure. First, investments in communal infrastructure often provide direct benefits only to a limited number of the local community's population. Second, benefits from communal infrastructure investment can often not be measured directly, especially in the short run. Third, investments in roads are more "visible" than investments in communal infra- structure and are therefore politically more attractive. The total volume of communal infrastructure investment in the sample reflects the situation in Slovenia as a whole. Over the 1995-1997 period, total investment in communal infrastructure in the sample local communities amounted to an average annual of around SIT2 billion (see table A.2.3 in Annex II). Taking into account that the corresponding figure for the country as a whole is SIT11.7 billion (see IMAD 1998, p. 113), one can conclude that the sample results reflect the total volume of communal infrastructure in Slovenia. Communal infrastructure investments in the sample were roughly a sixth of total investment in communal infrastructure during 1995-1997. More than half of communal infrastructure investment was allocated for water supply and sewage. In recent years, the bulk of communal infrastructure investment was allocated for water supply and sewage purposes. Water supply expenditures accounted for more than a third of the total, and investment in sewage accounted for another fifth of total investment (see tableA.2.3 in Annex II). The remaining three communal services areas-wastewater treatment, solid waste man- agement, and other (which includes distance heating and gas supply)-were much less investment intensive in the 1995-1997 period. Each area accounted for less than 15 percent of total communal infrastructure investment. There are, however, some striking differences among the three local community subgroups cov- ered in the sample with respect to the structure of communal infrastructure investment. * The water supply is a much more important investment recipient for large and medium-size local communities (35 and even 45 percent of total investment, respectively) than for small local communities (11 percent). This might be explained by the fact that small local com- 20 Communal Infrastructure Investment Needs and Funding Gap munities meet more of their water demand from individually managed sources, which are not covered in the survey. * Investment in sewage accounted for almost half of total communal infrastructure investments in medium-size local communities. High priority given to sewage projects by this group of local communities reflects growing demand for these services, as well as the fact that the sewage network is in poor condition (it needs extension and reconstruction) in many local communities. * Investment in wastewater treatment, solid waste, and in distant heating and gas supply were concentrated in large local communities. This is common in other countries as well. What is surprising, however (though the situation varies), is that medium-size local communities have invested almost nothing in wastewater treatment and solid waste management. With one exception (the village of RadeEe), similar conclusions are found for small local com- munities. Over two-thirds of communal infrastructure investment is financed from budgetary sources. The survey confirmed the strong dependence of communal infrastructure investment on both local and state budgets. The most important sources of funds are local budgets. They accounted for over 50 percent of the overall financing of communal infrastructure in the sample local commu- nities (one of which, Novo Mesto, is excluded from this part of the analysis, as it presents incon- sistent data on this subject) (see table A.2.4 in Annex II). This figure is close to the MoF and IMAD data on communal infrastructure investment in Slovenia. According to these data, total commu- nal infrastructure investment in the country amounted to SIT13.1 billion in 1997 (IMAD 1998, p. 113), of which SIT8.4 billion (Government Finance Accounts) or 64 percent was financed from local budgetary sources (the definition of communal services in these sources is broader than in the survey). State budget contributions, either in the form of direct transfers or retained water pollution tax, were a less important budget source for communal infrastructure investment. The state bud- get nevertheless contributed another 18 percent of total funding for communal infrastructure investment. It is not surprising that this source of funding is much more important for smaller and typically less developed local communities (where the state budget share was close to 30 per- cent) than for other local communities in the sample. Participation of communal services providers in the overall structure of infrastructure financ- ing remained mostly below 15 percent mark (as mentioned above, Novo Mesto is an exception). This figure can be explained by the fact that service providers are typically not owners of the infra- structure and therefore do not have an incentive to invest. Besides, the relatively weak financial standing and poor investment capacity of service providers preclude their more active role in com- munal infrastructure investment. Two other funding sources should be mentioned, each for different reasons. The Eco Fund, as a relatively new source, is gaining importance although its share in overall investment financ- ing was still rather low-around 5 percent. Bank credits, along with other sources, contributed around 11 percent, confirming the poor access of investors to this source of financing. 21 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies The implementation of 1995-1997 communal infrastructure investment plans varies widely across individual local communities. The survey has shown that local communities performed very differently in terms of investment plan implementation. There are no grounds for a general con- clusion that one sub-group of local communities was more successful in investment plan imple- mentation than another (see table A.2.5 in Annex II). There are excellent performers among small local communities (Odranci, for example), medium-size local communities (Beltinci, for exam- ple), and large local communities (Murska Sobota, for example), and there are also weak per- formers in all the three groups. Investment plan implementation results are also rather similar across infrastructure sectors. In water supply, sewage, and wastewater treatment sectors, for exam- ple, investment plans were more than 75 percent complete in around half of all local communi- ties that provided data on this question (22, 23, and 14 out of 26, respectively). However, around a fifth of the local communities in the case of sewage, and a third in the case of wastewater treat- ment, had implementation ratios below 25 percent. Where the communal infrastructure investment implementation ratio was poor, financial problems were identified as the main reason. When local communities with relatively poor results in implementing 1995-1997 infrastructure investment plans were asked about the reasons for this unfavorable development (only those local communities with an implementation ratio below 75 percent in three or in all four communal services sectors were asked this question), their response has been almost unanimous. The respondents identified two financial reasons, the low prices of communal services and the debt-raising constraints of local communities, as the most important impediments for communal infrastructure financing in the past (see table A.2.6 in Annex II). High on the list of communal investment obstacles was also the fact that higher investment priority was given to other areas, especially to the road construction and modernization. It is interesting to note that some of the more "local" reasons, like overambitious investment plans and ill-prepared project documentation, were not considered by the respondents to contribute significantly to invest- ment delays. This is hardly surprising, taking into account that respondents were local commu- nity officials; their bias with respect to specific questions in this area can not be discounted. Investment Plans for the 1998-2002 Period Over the next medium-term period (1998-2000), communal infrastructure investments are planned to be on average 3 times higher than achieved in recent years. Over the next medium term period, local communities plan to significantly increase the total level of their investment in communal infrastructure. In contrast to the period 1995-1997 when communal infrastructure investments were at an average annual level of SIT2 billion, the 1998-2000 investments are expect- ed to increase to an average level of around SIT5.3 billion (see table A.2.7 in Annex II). Based on this figure, and assuming that the sample local communities cover about one-sixth of total local communities in Slovenia, we estimate the total communal infrastructure investment needs for the 1998-2002 period at a about SIT160 billion. This figure does not take into account some com- munal investments that go well beyond local communities' responsibilities. One obvious exemp- tion is waste incinerators (two units will be built by the year 2003). These additional projects will add another SIT40 billion (ECU 220 million) to total investment needs of the country, increas- 22 Communal Infrastructure Investment Needs and Funding Gap ing the total investment estimate to about SIT200 billion for the next five-year period (referred to below as the "Survey Investment Needs" scenario). Medium-size local communities have far more ambitious communal infrastructure investment plans than the other two subgroups of local communities. Although all three subgroups of local communities plan a significant increase in their communal infrastructure investment in the 1998-2002 period, there is one astonishing difference among them. In contrast to small and large local communities that project to increase their average annual level of communal infrastructure investment by 150 percent and 100 percent respectively (measured against the average annual level of investment reached in the 1995-1997 period), medium-size local communities project an overall increase of more than 400 percent, from an average annual level of SIT330 million between 1995 and 1997 to SITI,800 million between 1998 and 2002 (see tables A.2.3 and A.2.7 in Annex II). The reason for this drastic increase seems to be recognition that the deferment of investment into wastewater treatment and solid waste management in recent years has to be redressed with more investment in the future. Medium-size local communities allocated less than 3 percent of their total communal infrastructure investment over the 1995-1997 period in waste- water and solid waste; a corresponding figure for large communities was 33 percent. Higher priority will be given to investment into sewage, wastewater treatment, and solid waste management. High growth of communal infrastructure investment over the next medium-term period will probably be accompanied by significant changes in the sectoral structure of these invest- ments. Water supply projects, the top priority in the 1995-1997 period, are expected to lose ground against investments in the other three sectors, namely sewage, wastewater treatment, and solid waste management over the next five-year period. (see table A.2.7 in Annex II). All three sectors are expected to increase their share in the 1998-2002 communal investment pie; sewage from 24 to 28 percent, wastewater treatment from 15 to 21 percent, and solid waste management from 14 to 18 percent. The most striking development seems be in wastewater treatment. While in the 1995-1997 period almost two-thirds of local communities included in the sample had no investment in this area, all local communities plan investment in wastewater treatment in the next five years. Significant changes in the sectoral structure of communal investment can be observed for each of the three subgroups of local communities, if the 1995-1997 and 1998-2002 periods are compared. * In small local communities, a significantly larger proportion of investment is planned for water supply projects (26 percent compared with 11 percent in the 1995-1997 period). This increase seems to indicate a much more normal share of water supply investments. In the 1995-1997 period, water supply investment was strongly depressed by two large sewage and wastewater treatment investments. *Medium-size local communities have taken a completely new approach toward wastewater tre ment and solid waste management, and therefore plan drastic increases of investments in these two sectors. * In contrast to the 1995-1997 period when water supply projects had absolute priority (they accounted for 35 percent of total investment), in the 1998-2002 period investments in large 23 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies local communities are planned to be practically equally distributed among the four com- munal service sectors, each receiving around 20 percent of total investment. This change in the structure of investments seems to indicate two things. First, water supply needs are sat- isfied to a much larger extent that needs in other communal sectors. Second, local com- munities expect an improved economic environment that will create favorable conditions for larger investments. Available data on individual communal infrastructure projects to be implemented in Slovenia in the 1998-2002 period (a sample of over 700 projects) indicate that projects in wastewater treatment and solid waste management are on average several times larger than water supply projects. The suggested dynamics of communal infrastructure investment raises some doubts. The sur- vey shows that the total volume of communal infrastructure investment for 1998 is planned at a level of SIT3 billion, close to level achieved in the previous year. In 1999, however, investment is planned to double to SIT6.1 billion, and investments are expected to remain close to this level till the year 2002 (see table A.2.8 in Annex II). What are the reasons for the increase, and why are local communities planning their investment this way? One explanation is the following. For the year 1998, investment plans were made on the basis of hard facts, including existing limitations, while plans for the following years are based on expected adjustments in the macroeconomic envi- ronment. This environment is expected to provide far better conditions for communal infra- structure financing. Growing demand for communal services and adjustment to the EU norms are the driving forces behind communal infrastructure investment plans. When asked to grade the importance of indi- vidual reasons driving local communities toward ambitious communal infrastructure investment plans, respondents grouped reasons for investment into three priorities. In all the three subgroups of local communities, top priority was given to the same two reasons, namely the growing demand for services and adjustment to EU norms (see table A.2.9 in Annex II). Better access to financial sources and deferment of investment in the past are two more explanations for the expected increase of communal infrastructure investment in the 1998-2002 period; these reasons have slight- ly lower priority. The lowest priority is assigned to several other reasons, two of which deserve spe- cial mention. First, respondents consider expected private sector participation in providing com- munal services and in financing communal infrastructure as a reason of low or practically no impor- tance. This clearly indicates that local officials do not see the role the private sector might play in financing communal infrastructure projects in their respective local communities over the next few years. Second, respondents do not consider improvements with respect to project documen- tation as being of any importance for intensified investment activity in the future. Although this statement might be understood from the respondents' point of view, some incomplete data, as well as other replies to the questionnaire, indicate that inadequately prepared project documen- tation is often an important reason for delayed infrastructure investments. Lack of financial resources is viewed as the most important reason for possible delays in invest- ment plan implementation. Respondents were unanimous in their assessment that lack of finan- cial resources is the major threat to the full implementation of the 1998-2002 investment plan. When asked to enumerate three most important reasons (not by priority) that might delay 24 Communal Infrastructure Investment Needs and Funding Gap investment plan implementation, all the 25 respondents that responded to this question put "lack of financing" at the top (see table A.2.10 in Annex II). Other reasons that were more frequently mentioned include the following: project documentation not ready (10 times), ownership prob- lems (9 times), and inadequate relationship between the state and local community (6 times). More funding for communal infrastructure investment is expected from the state budget and commercial banks, and less from local community budgets. The structure of communal infra- structure financing as envisaged by the respondents for the 1998-2002 period is dramatically dif- ferent from 1995-1997. What are the changes and to what is this new funding structure attributed? Budget Financing Overall budget financing of communal infrastructure investments, including funding from both local and the state budgets, is planned to be reduced in importance compared with other fund- ing sources, mainly against credits (see table A.2.11 in Annex II). In contrast to the 1995-1997 period when these sources contributed 68 percent of total funding, for the next five-year period their share is expected to shrink to 53 percent. This might reflect a realistic assessment that bud- gets will not increase at the same rate as communal infrastructure investments are planned to grow, and that consequently budget financing will not be able to keep its high share in the funding struc- ture for this segment of investment. What is, however, more difficult to understand is how respondents to the questionnaire explain the drastic shift in the structure of budgetary financing they are suggesting. In contrast to recent years when local budgets had a dominant share of total budget financing of communal infra- structure investment (in 1995-1997 period, they contributed as much as 50 percent and the state budget only 18 percent), for the next medium-term period the state budget's participation is expect- ed to take the leading position as budget contributor. Its share in total communal infrastructure investment is expected to increase to 27 percent while at the same time contribution of local bud- gets is expected to decline to not more than 26 percent. This projected shift in the structure of bud- get financing clearly indicates local communities' expectation that the state budget will be one of the main funding sources available for meeting ambitious communal infrastructure investment plans. Taking into account the existing fiscal position of the country, this view seems to be unrealistic. Local community officials have provided a very different view of the state budget's role in com- munal infrastructure financing over the next five-year period. They expect substantially more money from the state budget than in the past. This has been confirmed both implicitly through the question on the projected funding structure for communal infrastructure investment (see above) and explicitly through a question on what officials expect from the state budget. All but one local community responded that they do plan to receive transfers from the state budget for communal infrastructure. Out of 25 local communities, 19 expect these transfers to be over 20 percent higher than in the past and another 4 percent are aiming at transfers up to 20 percent higher than in the 1995-1997 period (see table A.2.14 in Annex II). However, local community officials seem to be well aware of the state budget problems and there- fore of risks associated with projected transfers from the state budget. This conclusion is drawn from replies on the question about which financial sources of the 1998-2002 communal infra- structure investment funding plan are considered least reliable. More than three-quarters of 25 Communal Infrastructure in Slovenia: Survey ofInvestment Needs and Policies respondents mentioned transfers from the state budget in whatever form (direct transfers, financial equalization, or transfers for demographically endangered regions) (see table A.2.12 in Annex II). Communal Service Providers In the next five-year period, communal service providers are expected to only marginally increase their share in the overall structure of communal infrastructure financing, from 13 percent in the 1995-1997 period to 15 percent in 1998-2002 period (see tables A.2.4 and A.2.11 in Annex II). This continued trend of low service providers' financial participation to a certain extent con- tradicts the response to the question about whether service providers are expected to increase their share in the overall funding structure of communal infrastructure investment. Almost two-thirds of local communities covered in the sample (15 out of 24) gave a positive answer to this question, including all but one of the large local communities and all but two medium-size local commu- nities. In contrast, small local communities are mostly of the opinion that service providers will not assume a more prominent role in the overall structure of communal infrastructure financing (see table A.2.13 in Annex II). Local communities that expect service providers to become significantly more important as a funding source for communal infrastructure financing were asked (1) to identify policy changes required to improve financial viability of service providers, and (2) to assess the relative impor- tance of each change. Changes are scaled from 1-not important to 5-very important. Expected price liberalization is considered the single most important factor for improving the financial sta- tus of service providers (average grade 4.5), followed by expected improvement in operational efficiency of service providers (average grade 3.9) and expected increase in the volume of services (average grade 3.1) (see table A.2.13 in Annex II). It is interesting to note that in contrast, all sizes of local communities expect price liberalization and do not see much room for improving the finan- cial viability of their service providers through increased volume of services or more efficient oper- ation. Eco Fund Although its share in total communal infrastructure financing is not expected to increase from 5 percent over the 1998-2002 period, Eco Fund has been continuously strengthening its role in financing communal infrastructure investment. This applies both to its role as provider of finan- cial resources and as project adviser and developer. In the 1995-1997 period, Eco Fund contributed to the financing of communal infrastructure projects in less than half of the local communities covered in the sample. In the next five years, this proportion is expected to increase to over two thirds. Eco Fund was also put at the top of the list when local communities were asked which finan- cial institutions they would prefer to work with, assuming they would all provide financing at equal cost (see table A.2.17 in Annex II). Bank Credits In contrast to the past, bank credits are expected to become an important source of communal infrastructure funding. Bank participation in the overall funding structure is expected to reach 26 Communal Infrastructure Investment Needs and Funding Gap 13 percent level in the 1998-2002 period, while in the 1995-1997 this source of financing was prac- tically not used at all in the sample countries (see tables A.2.4 and A.2.11 in Annex II). This pro- jection is at least implicitly based on the following two assumptions: (1) the existing limit on local communities' borrowing will be either eliminated or at least substantially relaxed; and (2) following gradual liberalization of prices, communal service providers are expected to improve their finan- cial viability. In the answers to questions on debt financing, the following common features can be observed. * Local communities show high preference for long- and medium-term credit over short-term loans (85 to 15 percent), and also for loans with fixed interest rates over loans with variable interest rates (90 to 10 percent) (see table A.2.15 in Annex II). This can be explained by the very nature of infrastructure investments. For local communities, especially for smaller ones with relatively poor creditworthiness status, raising long-term credit continues to be an obstacle for communal infrastructure investment. * All but two local communities in the sample-more than 90 percent-prefer local curren- cy-denominated credits over credit in foreign currency (see table A.2.15 in Annex II). There is one crucial reason for this preference. Loans raised in SIT eliminate the foreign exchange risk, as revenues from communal services are exclusively in domestic currency. * When asked about the importance of different factors for choosing a creditor, interest rates and the creditor's reliability are considered the most important factors by the all three groups of local communities (see table A.2.16 in Annex II). On the scale between 1-not impor- tant to 5-very important, these factors were assigned the highest average grades (interest rates 4.8 and reliability of creditor 4.5 percent). With a significant gap, other factors follow in the following order: creditor's efficiency (average grade 4.1), accessibility of a creditor (average grade 4.0), type of financial instruments a creditor offers (average grade 4.0), and other services offered by a creditor (average grade 3.8). * In order to identify their attitude toward different groups of creditors, local communities were asked which creditor they would prefer to cooperate with if all of them provided cred- it at equal cost. On a scale of 1-least preferred to 5-most preferred, by far the highest rat- ing was, as mentioned above, assigned to the Eco Fund (average grade 4.5). Taking into account the explicit condition stated in the question, that all creditor provide resources at equal cost, it is not clear why local communities prefer cooperation with this institution. One explanation might be Eco Fund's specialization and therefore its better understanding of environmental problems associated with practically all communal infrastructure projects. The next most preferred creditors are domestic commercial banks (average grade 3.9), fol- lowed by international financial institutions (average grade 3.0), foreign commercial banks in Slovenia (average grade 2.6), and foreign commercial banks with headquarters abroad (average grade 1.3). This order clearly indicates a strong preference for local community cooperation with domestic financial institutions and at the same time local communities' reluctance to work with foreign financial institutions, especially foreign commercial banks. 27 Communal Infrastructure in Slovenia: Suruey of Investment Needs and Policies Private investors There is only one local community (Murska Sobota) that has explicitly mentioned concessions as a funding source for its communal infrastructure investments (see table A.2.11 in Annex II). Although this indicates that for the time being private investors are not considered by local com- munities as a serious alternative for communal infrastructure financing, this conclusion should be weighed against another showing a growing general interest for this form of financing. When answering a specific question about their interest in private sector participation on communal infra- structure investment, more that three-quarters of surveyed local communities (16 out of 26) gave a positive answer. The main reasons for their interest are given as lack of traditional funding sources (16 out of 26) and expected better quality of services (see table A.2.18 in Annex 11). There are several obstacles that can explain the gap between the generally positive attitude of local communities toward this form of financing and the lack of actual projects being financed this way. In the 26 surveyed local communities, the most frequently stated obstacles for more intense private sector participation are the following: ownership problems (22 times), inadequate legis- lation (18 times), poor understanding of the concept (14 times), and lack of business interest (11 times) (see table A.2.18 in Annex II). This list clearly indicates that there is a lot to be done in order to create a friendlier environment for this form of financing. It is of utmost importance that ownership problems between local communities and service providers, as well as between different local communities, are resolved without further delays. It is equally important to introduce legislation that will provide clear rules of the game for conces- sions and other forms of private sector participation in the communal infrastructure area. Another significant changes are needed in the macroeconomic environment, including changes in the price- setting mechanism and better competition rules. Finally, there is obviously a need for intensified education of local community officials and service providers on main features of this form of infra- structure financing. The Funding Gap In order to get a meaningful quantification of the gap between Slovenia's communal infrastruc- ture investment needs and available financial resources for these purposes, the "Investment Needs" scenario (see above) must match the "Actual Level" scenario (which reflects the country's macroeconomic limitations. According to the "Actual Level" scenario, Slovenia will continue to invest the same proportion of GDP in communal infrastructure-0.4 percent--over the 1998-2002 period as in the period 1995-1997. Table 3.3 presents the projected communal infrastructure investment under all four scenar- ios. According to the three "Investment Needs" scenarios, Slovenia will invest between SIT189.5 and SIT223.5 billion in communal infrastructure over the period 1998-2002, equivalent to 1.1 to 1.4 percent of its GDP. In contrast, the "Actual Level" scenario put the level of communal infra- structure at a drastically lower level, only SIT69.5 billion or 0.4 percent of GDP. The four scenarios clearly indicate a large gap between the identified needs for communal infra- structure investment (the three "Investment Needs" scenarios) and investment in communal infra- 28 Communal Infrastructure Investment Needs and Funding Gap Table 3.3 Cumulative Investment Under the Three "Investment Needs" Scenarios, 1998-2002 In SIT Billion; Constant Prices "Mrak Investment "PHARE Investment "Survey Investment "Actual Level" Needs" scenario Needs" scenario Needs" scenario scenario % of % of % of % of Volume GDP Volume GDP Volume GDP Volume GDP 'Total 223.5 1.4 189.5* 1.1 200.5** 1.2 65.9*** 0.4 Budget financing**** 147.5 0.9 125.1 0.8 62.9 0.4 43.5 0.3 Memorandum items 1998 1999 2000 2001 2002 Total GDP growth (%) 4.0 4.0 4.75 4.75 4.75 - GDP (in SIT billion;1997 prices) 3,022 3,143 3,292 3,441 3,595 16,493 - Not applicable. * Exchange rate I ECU = 185 SIT (September 1998). ** Volume is calculated under the assumption that the 1998-2002 communal infrastructure investment needs of local communities covered in the sample represent one-sixth of total communal infrastructure needs in Slovenia in this peri- od. Volume also includes projected investments for two waste incinerators (projected amount SIT40.7 billion). * Calculated as 0.4 percent of GDP projected for the 1998-2002 period. **** For the "Mrak Investment Needs", "PHARE Investment Needs", and "Actual Level" scenarios, estimations are made on the basis of a projection that budget resources (local communities and the state) will contribute 66 percent to communal infrastructure investment (the same average proportion as the period 1995-1997). For the "Survey Investment Needs" scenario, volume is calculated under the assumption that the 1998-2002 budget financing projec- tion for local communities covered in the sample represent one-sixth of total local community needs in Slovenia for communal infrastructure investment in this period. Volume also includes SIT26.9 billion for financing two waste incin- erators (equivalent to 66 percent of total project costs for these projects). Source: For "Total," tables 3.1, 3.2, and table 7 in Annex 2. For "Budget Financing," calculations based on budget resources for communal infrastructure investment in the period 1995-1997. Data is from Governmental Accounts, Ministry of Finance. structure foreseen in the context of consistent and sustainable macroeconomic projections ("Actual Level" scenario). As shown in table 3.4, the gap is estimated at between SIT123.6 and SIT157.6 billion for the period 1998-2002, equivalent to between 0.7 and 1.0 percentof Slovenia's projected GDP. This gap means that investment needs are estimated to be more than two times higher than investments foreseen in the country's macroeconomic projection embodied in the "Actual Level" scenario. Table 3.4 Cumulative Funding Gap, Based on the Three "Investment Needs" Scenarios, 1998-2002 Funding gap based Funding gap based Funding gap based on "Mrak Investment on "PHARE Investment on "Survey Investment Needs" scenario Needs" scenario Needs" scenario Volume % of GDP Volume % of GDP Volume % of GDP Total 157.6 1.0 123.6 0.7 134.4 0.8 Budget financing 104.0 0.6 81.6 0.5 19.4 0.1 Source: Calculated from table 3.3. 29 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies The funding gap reflects both significant underinvestment in communal infrastructure over recent years (below 0.5 percent of GDP between 1995 and 1997), and large investment needs (between 1.2 and 1.4 percent of GDP) resulting from the need for timely adjustment to contin- ually tightening environmental protection standards. The gap between communal infrastructure investment needs and funding availability over the 1997-2000 period raises at least two questions. First, to what extent is the funding gap to be financed from budgetary sources, and second, are these projections for budgetary transfers consistent with current and prospective macroeconomic and budgetary developments. Table 3.3 presents projected budget financing of communal infrastructure projects under all four scenarios and explains on what basis these projections are made. There is a big discrepancy among the three "Investment Needs" scenarios with respect to pro- jected budget financing for communal infrastructure financing. According to the "Mrak Investment Needs" and "PLARE Investment Needs" scenarios, it is predicted that budget transfers will amount to between SITI 25.1 and SIT147.5billion in the period 1998-2002, equivalent to between 0.8 and 0.9 percent of GDP. Under these two scenarios, budget transfers are therefore around three times as high as the level of budget financing projected in the "Actual Level" scenario (0.8 or 0.9 percent compared to 0.3 percent of GDP). This gap of 0.5 to 0.6 percent of GDP clearly indicates that budget transfers foreseen in both "Investment Needs" scenarios are completely unsustainable given Slovenia's macroeconomic and budget proportions. The third However, the "Survey Investment Needs" scenario predicts budget flows for communal infrastructure financing at a much lower level, SIT62.9 billion, in the period 1998-2002, also implying much a smaller budget financ- ing gap. Under this scenario, the gap is estimated at SIT19.4 billion, equivalent to 0.1 percent of the combined 1998-2002 GDP. Why is the budget financing gap under the "Survey Investment Needs" scenario significantly lower than under the other two "Investment Needs" scenarios? The main reason seems to be the methodology under which the budget financing projections are made in the three scenarios. In the "Mrak Investment Needs" and "PHARE Investment Needs" scenarios, it is assumed that bud- get financing will cover the same proportion of communal infrastructure investment, 66 percent, as its average funding contribution in the 1995-1997 period. This assumption is based on two grounds; first, it is consistent with the overall philosophy of the two scenarios (that is, quantifica- tion of investment "needs"), and second, the existing funding pattern of communal infrastruc- ture investment (that is, strong dependence on budget financing) will remain unchanged over the 1998-2002 period. In contrast to the "Mrak Investment Needs" and "PHARE Investment Needs" scenarios, where projected budget transfers are calculated on the basis of macroeconomic assumptions, the "Survey Investment Needs" scenario budget transfer projection for the 1998-2002 period is calculated on the basis of the questionnaire replies received from local communities included in the sample. These replies clearly indicate that local communities are aware that the existing macroeconom- ic and budgetary situation in Slovenia gives little room for a substantial increase of budget funds for communal infrastructure investment. This also explains why the budget financing gap in the "Survey Investment Needs" scenario is much lower than that in the other two "Investment Needs" 30 Communal Infrastructure Investment Needs and Funding Gap scenarios. However, the "Survey Investment Needs" scenario projects that nonbudgetary sources, especially bank credits, will become in 1998-2002 a much more important source of funding than in the past. This conflicts with the existing limit for local community borrowing of 10 percent of budget revenues. 31 4. Policy Measures Conducive to a Higher Level of Communal Infrastructure Investment In order to close or at least significantly reduce the identified gap between communal infrastructure investment needs and available public funds, Slovenia must design and implement a whole range of coordinated economic policy measures. All these measures have one common denominator- a more commercial approach to communal infrastructure sector development. The commer- cialization of infrastructure services refers to all reforms that stimulate a business approach to these activities. Pricing of Communal Infrastructure Services Core elements of the market-oriented transformation of public utilities in Slovenia is the intro- duction of cost-consciousness and demand-oriented production, and more careful pricing of ser- vices. The price reform and effective collection of tariffs are also crucial in balancing supply and demand for communal infrastructure services and achieving financial viability and accountabili- ty for infrastructure service providers. In the past, the overall level of prices and tariffs for services provided by public utilities has tended to be lower than costs. As a result of the government's gen- eral policy for containing inflation, this is still the case with end-user prices of many services pro- vided by utilities, including communal services. Tariff reform not only involves a general increase of prices and tariffs, but also their internal transformation. At present, the structure of tariffs in some communal infrastructure segments, like water supply, wastewater collection and treatment, and solid waste management, weights more heavily on enterprises than on households. This reflects the role of communal infrastructure in allocating benefits and resources in the pre-transition period and also public resistance to rebal- ancing tariff structures due to their negative social implications. There is no doubt that a communal infrastructure service price and tariff increase would cause higher inflation in Slovenia, at least in the short term. This should, however, be compared with present low prices and their distorting consequences on the economy as a whole. Not only do cus- tomers get misleading signals as to the real value of infrastructure services, but one incentive for communal service efficiency is reduced, and this policy has also resulted in the deferment of urgent investments in communal infrastructure. 32 Policy Measures Conducive to a Higher Level of Communal Infrastructure Investment An increase of prices for communal infrastructure services must be accompanied by policy mea- sures that address the negative effects of price and tariff increases on vulnerable segments of the population. The traditional system of indirect subsidy support through low tariffs must be replaced with a system whereby subsidies will come directly from the budget social safety net. These subsidies should be given to beneficiaries on the basis of clearly defined guidelines. Competition, Including Restructuring of Service Providers and Private Sector Involvement Tariff reform will not be successful if not accompanied by increased scope for competition. An extremely important policy for cost-effective provision of communal infrastructure services is the introduction of competition wherever possible. This private-sector entry into various communal infrastructure sectors and subsectors will take two forms, each applied depending on the specif- ic characteristics of individual modes of infrastructure. * "Competition within the market. ""Competition within the market" typically refers to firms com- peting for the same service, like transportation service between two points. This form of com- petition is typically more feasible and desirable for the supply of infrastructure services than of infrastructure itself, and has rather limited prospects in the area of communal services. * "Competition for the market. ""Competition for the market" refers to firms competing for the right to provide service for a given period of time under concession or lease contract. This form of competition can bring efficiency gains in many areas of infrastructure provision man- agement, particularly in small countries like Slovenia. Concessions and leases should become an important instrument of competition in all segments of communal infrastructure. Introduction of competition in infrastructure sectors has typically been accompanied by con- tinuous and more or less drastic restructuring of infrastructure service providers. They must adapt to new circumstances, including the requirements of the EU single market in these areas. Closely associated with restructuring of communal infrastructure service providers are issues related to the involvement of the private sector in the financing, construction, and operation of new infra- structure projects. Legal and Regulatory Framework Another important condition for improving the financial viability of communal infrastructure ser- vice providers is appropriate legislation that establishes a legal environment conducive to oper- ational independence of enterprises. Although incorporation of enterprises in communal infra- structure has been formally completed in Slovenia, the process of actual separation of ownership, regulatory, and management functions is not complete. Therefore, further adjustments of the legal framework are needed to make operational the responsibilities and systems of accountability for 33 Communal Infrastructure in Slovenia: Surey of Investment Needs and Policies both managers and those within the government who have an ownership role. It is also necessary that rules of the game apply to all participants, which means that state-owned enterprises are sub- ject to the same discipline of commercial law and bankruptcy as any private sector enterprise. Infrastructure service providers must be properly supervised, particularly in situations where a monopoly or exclusive rights exist. Rules for evaluating performance and setting tariffs must be clear and workable for both the investors' and the public's interests. At present, Slovenia pur- sues a policy of informal supervision by the line ministries, with authority stemming from the state's part ownership in most service providers. This will not be sufficient where private companies enter the market. Independent but accountable institutions in practically all infrastructure sectors are needed to oversee competition. The nature of the necessary regulation depends largely on the nature of the prevailing and potential competition. In the case of "competition in the market," regulation should be less concerned with the price control, but more with the issues related to safety, envi- ronmental, and technical standards. If conditions for granting licenses to operators are reason- ably clear and nondiscriminatory, and an appropriate safety regime is enforced, regulation of these services can left to competition agencies. When there is a "competition for the market", some amount of regulation is absolutely necessary to monitor compliance with the concession agree- ments signed between public authorities and private concessionaires. 34 5. Conclusions The Current Situation in the Communal Sector In the post-independence period, the legal and institutional framework in which Slovenian local communities and their respective communal sector enterprises operate has dramatically changed. Under these changes, ownership of communal infrastructure has been transferred to local com- munities that have also become responsible for investment. Communal investments have further been affected by the fragmentation of local communities. Communal sector enterprises that have previously operated on the "one local community, one communal service provider" principle are now faced with a situation where they have to operate with more than one local community, and often with more than one legal regime and tariff system. Since early 1992, prices of communal services have been under continuous government con- trol and the existing tariff structure weights more heavily on enterprises than on households. These two factors, accompanied by dramatic changes in the structure of communal service consump- tion, have strongly influenced financial performance of communal service providers. Analysis of financial statements for the 19 surveyed communal sector enterprises has confirmed that finan- cial health of enterprises in this segment of the economy is worrying and well below the financial performance of the economy in general. Furthermore the surveyed communal sector enterpris- es had a negative return on equity and profit margin in 1997 (these two indicators were positive for Slovenian economy as a whole), and the trend is highly negative. Similarly negative trends have been registered in the sales realized by given assets. Finally, high and growing assets-to-equity and debt-to-equity ratios confirm that the surveyed communal sector enterprises are undercapitalized and highly indebted. Communal Infrastructure Investment Needs and the Funding Gap At present, Slovenia faces pressing needs for additional investments in communal infrastructure. To improve the quality of people's lives, increase environmental protection standards, and facil- itate the country's accession to the European Union, investments are needed in practically all seg- ments of communal infrastructure in order to improve and expand the provision of services. 35 Communal Infrastructure in Slovenia: Survey ofInvestment Needs and Policies Two empirical studies made from the macroeconomic perspective and the survey based on a sample of 26 local communities indicate that the traditional path of public sector financing of com- munal infrastructure projects will not provide all the required investments. In fact, estimates regard- ing communal sector investment needs and public funds available reveal a gap in financing of between SIT123.6 and SIT157.6 billion for the period 1998-2002, equivalent to between 0.7 and 1.0 percent of Slovenia's projected GDP. This funding gap actually means that communal invest- ment needs are estimated to be more than two times higher than investments foreseen for this sector in the country's macroeconomic projection. Low levels of communal investment in the past seem to be directly linked to ambitious investment plans for the next 5-year period aimed at reduc- ing the growing gap between the needs for communal services and their actual availability. Budget financing has traditionally been the single most important source of communal infra- structure investment. In spite of the differences in estimating the level of the budget funding gap for communal infrastructure projects, all three of the investment needs scenarios discussed in the study point to the same general conclusion. Under the existing funding patterns, characterized by low levels of internal financing and no access to borrowing, ambitious communal infrastruc- ture investment plans can be financed only through strong budget participation. As this is not con- sistent with the country's macroeconomic and budgetary projections, the overall structure of invest- ment funding has to be drastically changed. Without an increase of nonbudgetary sources of financ- ing, requiring significant economic policy adjustment, investment in communal infrastructure will continue to be depressed. Policy Measures Conducive to Higher Levels of Communal Infrastructure Investment Given the gap between communal infrastructure investment needs and available public funds, Slovenia has two main alternatives for dealing with this problem. The first one, called "status quo alternative, "implies that no major changes will be made in the conditions under which local communities and communal infrastructure service providers oper- ate. If Slovenia opts for this alternative, either actively or byjust doing nothing, two consequences can be expected. First, the volume of communal infrastructure financing will continue to be depressed. Second, the funding structure of investments will retain its traditional strong reliance on budget financing. Because ofmacroeconomic limitations, this alternative is not consistent with higher investment in communal infrastructure, and its implementation would therefore not con- tribute toward reducing the gap between communal infrastructure investment needs and fund- ing availability. Another and according to this author more appropriate alternative for communal infrastruc- ture development and financing is the "market-oriented alternative. "This alternative argues for the establishment of a business environment conducive to commercially viable operation of infra- structure sectors. The government will have to design and put into operation a well-coordinated mix of policy measures aimed at (1) easing price controls on communal services and redefining 36 Conclusions their tariff setting, (2) strengthening competition among communal service providers, (3) cre- ating a legal framework conducive to private investors, and (4) establishing an appropriate reg- ulatory system with a clear and coherent allocation of powers and responsibilities. Only if these measures are introduced and put into operation, is it realistic to expect the improved financial standing of local communities and communal infrastructure service providers. This would not only strengthen their capacities to generate internal resources required for investment funding, but would also improve their creditworthiness and consequently their access to bank financing. Commercial viability of the communal infrastructure sector, accompanied by a stable legal and regulatory environment, would also increase the business attractiveness of the sector for new pri- vate entrants. All this bodes well for a higher level of communal infrastructure investments and therefore for a smaller funding gap in this area. 37 Annex I Table A.1.1 Asset and Liabilities Account of the Surveyed Communal Sector Enterprises, 1995-1997 (In SIT) Items All code enterprises All communal sector enterpises, Surveyed communal sector enterprises ASSETS AND CA PITAL ACCOUAT 1997 1995 1996 1997 1995 1996 1997 A. FIXED ASSETS (002+003+006+007) 001 4,836,966,600 120042907 135834539 179455374 15074428 19089237 23755219 1. Intangible fixed assets 002 75563500 911939 890951 1165751 152586,9 170829 205808 II. Tangible fixed assets (004+005) 003 4025874500 117447658 133207119 176007630 14770444 18747219 23107153 I.Land and buildings 004 2899104500 103747848 117007034 157449304 13507781 16270272 19927698 2. Equipment and other tangible assets 005 1126770000 13742690 16200085 18558326 1305544 2476947 3179455 1II. Long-term financial investment 006 713658300 1685945 1736469 2237955 154234,9 171189 442258 IV. Capital adjustment 007 21870300 0 0 44038 6999 0 0 B. CURRENT ASSETS (009+014+...+018) 008 2544056400 16827291 18287988 19933057 2388088 2912059 3361589 l. Inventories (010+...+013) 009 681175300 1956803 1809611 1813717 279567,8 273659 283997 1. Inventories of material 010 196868000 1851716 1672847 1667011 273584,9 266080 274659 2. Work in progress 011 117918000 0 28029 25771 0 0 0 3. Products 012 112054000 0 6854 2915 0 0 0 4. Inventories of goods 013 254335000 0 101881 118020 9275 7579 9338 II. Long-term operating receivables 014 109385200 1253971 1091672 1140648 5726 5565 5133 III. Short-term receivables 015 1189742800 9042507 9727737 10525524 1716485 1954998 2310865 IV. Short-term investments 016 420505900 0 4328349 4779659 187979 404366 501223 V. Cash 017 117653000 1098924 1189099 1533809 173946,1 216165 196239 VI. Prepayments and accrued revenues 018 25594000 95559 141520 139700 17461,09 57306 64132 C. ASSETS (001+008) 019 7381023000 136734083 154122527 199388431 17326401 22001296 27116808 D. OFF-BALANCE SHEET ASSETS 020 731771000 0 29861635 8215698 2415602 2195814 2257846 i. EQUITY (022+...+025+027+028-026-029) 021 3810494300 70095970 75169742 79883095 4654921 4430272 4350202 1. Subscribed capital 022 2051685900 45456444 45522382 45148153 3119199 2692657 2449185 2. Paid-in capital surplus 023 54342400 0 0 0 0 0 0 3. Reserves 024 380164700 0 970899 1615128 124443 156608 172348 4. Transferred net profit from previous year 025 200412800 0 1044262 1151915 44385 67980 114188 5. Transferred net loss from previous year 026 460184100 0 1562632 2695432 26782 33727 63725 6. Capital revaluation adjusunent 027 1590722500 23735727 29255905 35036012 1294971 1473908 1685723 7. Undistributed net profit of business year 028 174440900 555512 1113680 1101654 68322 108400 32756 Item's All enterprmses code economy All communal sector enterprises Surveyed communal sector enterprises 1997 1995 1996 1997 1995 1996 1997 8. Net Loss of Business Year 029 181090800 958609 1174754 1474335 7589 35554 40273 ii. LONG-TERM PROVISIONS 030 223386900 0 9757896 11685174 454499 434734 516792 iii. LONG-TERM LIABILITIES 031 1112881800 48351112 57633565 94821068 10057037 14584255 19161420 iv SHORT-TERM LIABILITIES (033+034) 032 2132184000 9615915 10854760 12104696 1719321 2268563 2611682 1. Short-term operating liabilities 033 1498605800 8202112 9570845 10387547 1427896 2013611 2346581 2. Short-term financial liabilities 034 633578200 1405790 1283915 1717149 283412 254952 265101 E. ACCRUALS AND DEFERRED PAYMENTS 035 102076000 0 706564 894398 116564 283472 476712 F. TOTAL EQUTIY AND LIABILITIES (021+030+031+032+035) 036 7381023000 136734083 154122527 199388431 17326401 22001296 27116808 G. OFF-BALANCE SHEET LIABILITIES 037 731771000 0 29861635 8215698 2415602 2195814 2257846 Source. Agency of Payments database. 38 Annex 1 Table A.1.2 Profit and Loss Account of the Surveyed Communal Sector Enterprises, 1995-1997 (In SIT) Items All All communal Surveyed communal code enterprises sector enterprises sector enter"poses 1997 1995 1996 1997 1995 1996 1997 A. NET SALES (051+...+054) 050 5983235000 35633044 39731541 42712231 6401960 7875229 8486555 I. Revenues from sales of products and services on domestic market 051 2395150000 33934336 38995784 40845754 6055424 7829951 8434810 II. Revenues from sales of products and services on foreign market 052 1356962000 0 151816 467476 0 0 39423 111. Revenues from sales of goods and materials on domestic market 053 2038257000 1249521 574865 1399001 167986 45278 12322 IV Revenues from sales of goods and materials on foreign market 054 192864000 0 9076 0 0 0 0 B. INCREASE IN INVENTORIES OF GOODS AND WORK-IN-PROGRESS 055 37900000 0 25141 5226 0 0 0 C. DECREASE IN INVENTORIES OF GOODS AND IN WORK-IN-PROGRESS 056 27168000 0 5027 4313 0 0 0 D. USE OF PRODUCTS AND SERVICES, GOODS AND MATERIALS FOR OWN NEEDS 057 38282000 0 1227405 1242476 214189 207308 143597 E. REVENUES FROM SALES-MISCELLANEOUS 058 48221000 0 479208 609357 10147 17653 16597 F. GROSS REVENUE (050+055-056+057+058) 059 6080470000 36794790 41458268 44564977 6609892 8100190 8646749 G. COSTS OF COMMERCIAL GOODS, MATERIALS, SERVICES (061+062+063) 060 4560282000 17720897 20163868 21419773 3208272 4178493 4392513 1. Purchase value of goods and services 061 1892964000 0 702209 1069190 22271 178846 165701 II. Costs of material 062 1630534000 9534896 10782429 11013851 1436077 1849917 2065363 Ill. Costs of services 063 1036783000 7728580 8679230 9336732 1689598 2149730 2161449 H. LABOR COSTS (065+066+067) 064 1002793000 12514763 13722475 14817921 2287419 2690351 3091416 1. Salaries 065 712350000 8884442 9835850 10602035 1605418 1882860 2137844 II. Social security payments 066 125876000 1968978 1824019 1873196 349691 346634 377308 III. Other labor costs 067 164566000 1662106 2062606 2342690 333074 460857 576264 1. DEPRECIATION 068 330089000 5851793 6756165 8125524 899685 1067456 1207671 J.VALUEADJUSTMENT OF CURRENT ASSETS 069 61741000 0 531121 820732 54161 90084 92487 K. LONG TERM PROVISIONS 070 30137000 0 744713 148506 20886 25798 29689 L. OTHER COSTS 071 44909000 465763 534733 610178 89413 103722 119077 M. OPERATING PROFIT (059-060-064-068-...-071) 072 193263000 646305 732026 901377 102728 106345 534 N. OPERATING LOSS (060+064+068+...+071-059) 073 142747000 1652744 1726833 2279034 58316 162059 286638 Item's All All communal Surveyed communal code enterprises sector enterprises sector entprises 1997 1995 1996 1997 1995 1996 1997 0. FINANCIAL REVENUES (075+076) 074 235545000 1533772 1048473 1331007 154654 191745 216462 1. Business shares in profit of other enterprises 075 22017000 14635 23540 47344 5938 7660 3619 II. Other financial revenues 076 231528000 1519529 1024933 1283663 149108 184085 212843 P. WRITE OFFS OF LONG & SHORT TERM FINANCIAL INVESTMENTS 077 75460000 173496 210454 30058 6245 6958 903 Q. FINANCIAL EXPENSES 078 262185000 1079797 1189767 1138425 122221 124619 96338 R. PROFIT BEFORE TAXATION (072+074-073-077-078) 079 169292000 669554 851950 1112264 85746 98661 13582 S. LOSS BEFORE TAXATION (073+077+078-072-074) 080 220875000 1417269 2198505 2327397 36899 94207 180465 T.EXTRAORDINARYREVENUES(082+083) 081 210431000 1040461 1888921 1647777 131579 174829 238796 Items All All ommunal Surveyed communal code entepses sector enterprises sector enterpnses 1997 1995 1996 1997 1995 1996 1997 I. Extraordinary revenues from eliminated provisions 082 37288000 0 582930 606024 23073 16001 48552 II. Other extraordinary revenues 083 173144000 966688 1305991 1041753 108506 158828 190244 U. EXTRAORDINARY EXPENSES (085+086) 084 140988000 561177 495320 746390 100238 83061 76111 I. Extraordinary expenses from covering loss from previous year 085 12167000 0 22590 77926 7873 0 0 II. Other extraordinary expenses 086 128821000 449327 472730 668464 91779 83061 76111 V TOTAL PROFIT (079+081-080-084) 087 198855000 684137 1221800 1160589 81737 131776 36075 W. TOTAL LOSS (080+084-079-081) 088 180995000 958608 1174754 1474335 7589 35554 40273 X. ALLOCATION OF PROFIT FOR TAXES, CONTRIBUTIONS 089 21729000 0 36813 28489 4719 6517 2460 Y. NET PROFIT OF BUSINESS YEAR (087-089) 090 177258000 669872 1184987 1132100 77018 125259 33615 Z. NET LOSS OF BUSINESSYEAR (089-087) 091 181126000 958608 1174754 1474335 7589 35554 40273 Average number of employed (based on hours worked) 092 460376 6503 6467 6224 1298 1368 1365 Source: Agency of Payments database. 39 Communal Infrastructure in Slovenia: Survey ofInvestment Needs and Policies Table A.1.3 Performance Indicators for the Surveyed Commercial Sector Enterprises, 1995-1997 All enterprises All communal sector enterprises Surveyed communal sedor enterpres 1997 1995 1996 1997 1995 1996 1997 Total sales (in SIT thousands) 6515714000 38207278 44375548 47542848 6912530 8466764 9102007 Operating profit / equity 0.05 0.01 0.01 0.01 0.02 002 0.00 Operating profit / employee (in000SIT) 420 99 113 145 79 78 0 Operating loss / equity 0.04 0.02 0.02 0.03 0.01 0.04 0.07 Operating loss / employee (in 000 SIT) 310 254 267 366 45 118 210 Total profit / equity 0.05 0.01 0.02 0.01 0.02 0.03 0.01 Total loss / equity 0.05 0.01 0.02 0.02 0.00 0.01 0(01 Operating profit/ total profit 0.97 0.94 0.60 0.78 1.26 081 001 Operating loss / total loss 0.79 1.72 1.47 1.55 768 4.56 7.12 Fixed assets / assets 0.66 0.88 0.88 0.90 0.87 0.87 0.88 Intangible fixed assets / assets 0.01 0.01 0.01 0.01 0.01 0.01 0 01 Tangible fixed assets / assets 0.03 0.00 0.00 0.00 0.00 0.00 000 Current assets / assets 0.34 0.12 0.12 0.10 0.14 0.13 0.12 Income / gross revenues 0.20 0.36 0.37 0.36 0.36 0.35 0.36 Income / employee (in 000 SIT) 2,663 2,024 2,350 2,549 1,857 2,063 2,287 Costs of commercial goods, materials & services /gross revenue 0.75 0.48 0.49 0.48 0.49 0.52 0.51 Labor costs /net sales 0.17 0.35 0.35 0.35 0.36 0.34 0.36 Labor costs /employee ( in 000 SIT) 2,178 1,924 2,122 2,381 1,762 1.967 2,265 Salaries / employee (in 000 SIT) 1,547 1,366 1,521 1,703 1,236 1,376 1,566 Subscribed capital / equity 0.54 0.65 0.61 0.57 0.67 0.61 0.56 Long- and short-term liabilities / equity 0.85 0.83 0.91 1.34 2.53 3.80 5(01 Equity / total equity and liabilities 0.52 0.51 0.49 0.40 0.27 020 0 16 Equity, long-term provisions & liabilities / total equity & liabilities 0.70 0.87 0.92 0.93 0.88 0.88 0.89 Long-term provisions / total equity & liabilities 0.03 0.00 0.06 0.06 0.03 0.02 0.02 Short-term liabilities / total equity& liabilities 0.29 0.07 0.07 0.06 0.10 0.10 0.10 Long-term liabilities / total equity & liabilities 0.15 0.35 0.37 0.48 0.58 0.66 0.71 Financial revenues / financial expenses 0.90 1.42 0.88 1.17 1.27 1.54 225 Equity, long-term provisions & liabilities / fixed assets 1.06 0.99 1.05 1.04 1.01 1.02 101 Short-term receivables, investment, cash / short-term liabilities 0.81 1.05 1.40 1.39 1.21 114 1.10 Source: Agency for Payments database. 40 Annex 2 Table A.L.1 Local Communities Covered in the Sample No. Local community Population (end 1997) A SLC - small local communities Population less than 5,000 1 Gornji Grad 2,670 2 Kobilje 639 3 Loki Potok 2,092 4 Nazarje 2,526 5 Odranci 1,735 6 Rade e 4,613 7 Skocjan 2,979 8 Vitanje 2,428 Total A 19,682 B MLC - medium sized local communities Population between 5,000-15,000 9 Beltinci 8,476 10 Crengovci 6,036 11 Grosuplje 14,788 12 Lendava 13,355 13 Logatec 10,583 14 Mozirje 6,284 15 Radlje ob Dravi 6,235 16 Ribnica 11,261 17 Sentjernej 6,542 18 Vojnik 9,767 Total B 93,327 C LLC - large local communities Population above 15,000 19 Jesenice 26,158 20 Kr9ko 27,973 21 Ljutomer 18,574 22 Murska Sobota 20,670 23 Novo Mesto 51,608 24 Slovenj Gradec 16,764 25 Trebnje 18,104 26 Trit 15,046 Total C 194,879 Total A + B + C 307,906 Source: Agency for Payments database. 41 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table A.2.2 Volume and Structure of Investment, 1995-1997 (in SIT Million) Communal Local Communal infrastructure as No. community infrastructure Roads Other Total a percent of total A SLC 1 Gornji Grad 75.1 95.2 33.0 203.3 36.9 2 Kobilje 31.8 11.7 56.3 99.8 31.9 3 Lo9ki Potok 44.6 175.0 20.2 239.8 18.6 4 Nazarje 44.5 37.5 73.6 155.6 28.6 5 Odranci 146.0 46.0 37.0 229.0 63.8 6 Rade e 190.0 67,5 127.5 385.0 49.4 7 Skocjan 44.9 ... ... ... ... 8 Vitanje 6.0 60.0 30.0 96.0 6.3 Total A 538.0* 492.9 377.6 1,408.5 38.2 B MLC 9 Beltinci 121.0 42.0 116.0 279.0 43.4 10 Crengovci 50.5 52.1 268.2 370.8 13.6 11 Grosuplje 199.9 266.4 637.3 1,103.6 18.1 12 Lendava 108.0 ... ... ... ... 13 Logatec 180.0 180.0 216.0 576.0 31.2 14 Mozirje 32.0 143.0 63.0 238.0 13.4 15 Radlje ob Dravi 15.8 86.7 142.9 245.4 6.4 16 Ribnica 66.1 245.6 859.9 1,171.6 5.6 17 Sentjernej 97.0 ... ... ... ... 18 Vojnik 121.7 129.0 195.5 356.2 34.2 Total B 787.0* 1,144.8 2,408.8 4,340.6 18.1 C LLC 19 Jesenice 780.0 99.0 706.0 1,585.0 49.2 20 Krko 421.4 529.0 1,113.5 2,063.9 20.4 21 Ljutomer 142.0 111.8 344.7 598.5 23.7 22 Murska Sobota 666.0 285.0 741.0 1,692.0 39.4 23 Novo Mesto 1,644.4 ... ... ... ... 24 Slovenj Gradec 266.0 346.0 703.9 1,315.9 20.2 25 Trebnje 209.9 338.0 224.0 852.9 34.1 26 TriiE 127.0 ... ... ... ... Total C 2,566.3* 1,708.8 3,833.1 8,108.2 31.7 Total A + B + C 3,891.3* 3,346.5 6,619.5 13,857.3 28.1 .. Negli&ible. _ Data for Skocjan, Sentjernej and Novo Mesto are excluded. Source: Agency for Payments database. 42 Annex 2 Table A.2.3 Structure of Communal Infrastructure Investment, 1995-1997 (in SIT Million) Local Water Waste-water Solid waste No. community supply Sewage treatment management Other Total A SLC 1 Gornji Grad 1.7 38.2 2.7 27.1 5.4 75.1 2 Kobilje 0.0 31.8 0.0 0.0 0.0 31.8 3 Lo9ki Potok 6.1 1.0 0.0 1.0 36.5 44.6 4 Nazarje 10.0 29.5 0.7 3.8 0.5 44.5 5 Odranci 1.0 105.0 40.0 0.0 0.0 146.0 6 RadeEe 0.0 0.0 140.0 50.0 0.0 190.0 7 Skocjan 39.1 1.9 2.0 1.9 0.0 44.9 8 Vitanje 4.0 1.0 0.0 1.0 0.0 6.0 Total A 61.9 208.4 185.4 84.8 42.4 582.9 B MLC 9 Beltinci 96.0 25.0 0.0 0.0 0.0 121.0 10 Crengovci 4.9 45.6 0.0 0.0 0.0 50.5 11 Grosuplje 40.0 124.4 0.0 16.0 19.5 199.9 12 Lendava 22.0 86.0 0.0 0.0 0.0 108.0 13 Logatec 90.0 90.0 0.0 0.0 0.0 180.0 14 Mozirje 4.0 18.0 0.0 10.0 0.0 32.0 15 Radlje ob Dravi 14.3 1.5 0.0 0.0 0.0 15.8 16 Ribnica 17.7 48.4 0.0 0.0 0.0 66.1 17 Sentjernej 91.9 3.2 0.2 1.7 0.0 97.0 18 Vojnik 64.2 8.4 0.0 0.0 49.1 121.7 Total B 445.0 450.5 0.2 27.7 68.6 992.0 C LLC 19 Jesenice 21.0 53.0 33.0 333.0 340.0 780.0 20 Kr9ko 346.5 56.5 0.0 18.4 0.0 421.4 21 Ljutomer 65.8 40.1 33.2 2.9 0.0 142.0 22 Murska Sobota 70.0 174.0 292.0 80.0 50.0 666.0 23 Novo Mesto 726.0 318.9 319,0 82.1 198.4 1,644.4 24 Slovenj Gradec 85.0 38.0 0.0 103.0 40.0 266.0 25 Trebnje 162.0 16.9 10.3 101.7 0.0 290.9 26 Trhii 37.0 72.0 1.0 17.0 0.0 127.0 Total C 1,513.3 769.4 688.5 738.1 628.4 4,337.7 Total A + B + C 2,020.2 1,428.3 874.1 850.6 739.4 5,912.6 Source: Agency for Payments database. 43 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table A.2A Sources of Funds for Communal Infrastructure Investment, 1995-1997 (in SIT Million) Community Local Water members Local Providerof community pollution State financial No. community services budget tax budget participation Eco Fund Other Total A SLC 1 Gornj Grad ... ... ... ... ... ... ... ... 2 Kobilje 0.0 0.0 0.0 12.0 4.8 15.0 0.0 31.8 3 Loski Potok 4.2 19.4 0.0 21.0 0.0 0.0 0.0 44.6 4 Nazarje 0.0 29.2 5.2 7.6 0.0 0.0 2.5 44.5 5 Odranci 0.0 41.0 0.0 55.0 16.0 0.0 34.0 146.0 6 Rade& 0.0 105.3 7.7 54.2 0.0 22.8 0.0 190.0 7 Skocjan 44.9 0.0 0.0 0.0 0.0 0.0 0.0 44.9 8 Vitanje 0.0 6.0 0.0 0.0 0.0 0.0 0.0 6.0 Total A 49.1 200.9 12.9 149.8 20.8 37.8 36.5 507.8* B MLC 9 Beltinci 0.0 103.0 0.0 0.0 9.0 0.0 9.0 121.0 10 Crengovci 0.0 42.5 0.0 8.0 0.0 0.0 0.0 50.5 11 Grosuplje 0.0 113.5 21.3 20.6 0.0 29.1 15.4 199.9 12 Lendava 20.0 0.0 24.0 0.0 8.0 34.0 22.0 108.0 13 Logatec 44.0 122.0 5.0 9.0 0.0 0.0 0.0 180.0 14 Mozirje 0.0 32.0 0.0 0.0 0.0 0.0 0.0 32.0 15 Radlje ob Dravi 0.0 4.8 1.5 0.0 0.0 9.5 0.0 15.8 16 Ribnica 0.0 53.8 12.3 0.0 0.0 0.0 0.0 66.1 17 Sentjernej 84.3 0.7 0.0 0.0 0.0 12.0 0.0 97.0 18 Vojnik 0.0 103.2 0.0 6.5 7.3 4.7 0.0 121.7 Total B 148.3 575.5 64.1 44.1 24.3 89.3 46.6 992.0 C LLC 19 Jesenice 170.0 283.0 19.0 76.0 0.0 53.0 179.0 780.0 20 Kr9ko 0.0 352.4 0.0 69.0 0.0 0.0 0.0 421.4 21 Ljutomer ... ... ... ... ... ... ... 142.0** 22 Murska Sobota 94.0 294.0 27.0 107.0 57.0 0.0 87.0 666.0 23 Novo Mesto 1,128.4 121.8 77.0 91.1 0.0 125.8 100.3 1,644.4 24 Slovenj Gradec 0.0 165.0 35.0 0.0 0.0 0.0 66.0 266.0 25 Trebnje 75.2 89.1 0.0 89.3 0.0 37.3 0.0 290.9 26 Trii 0.0 88.0 26.0 0.0 0.0 0.0 13.0 127.0 Total C 1,467.6 1,393.3 184.0 432.4 57.0 216.1 445.3 4,195.7 Total A + B + C 1,665.0 2,169.7 261.0 626.3 102.1 343.2 528.2 5,695.5 ... Negligible. * Data for Gornji Grad excluded. ** Data for Ljutomer excluded. Source: Agency for Payments database. 44 Annex 2 Table A.S5 Level of Communal Infrastructure investment Plan Implementation, 1995-1997 (In Percent) Wastewater Solid waste No. Local community Water supply Sewage treatment management A SLC 1 Gornji Grad n.a. n.a. n.a. n.a. 2 Kobilje * D * * 3 Lo9ki Potok C * * B 4 Nazarje D D B B 5 Odranci D D D D 6 Radefe * * A A 7 Skocjan B C C C 8 Vitanje D A A B B MLC 9 Beltinci D D * * 10 Crengovci D A A * 11 Grosuplje C D * B 12 Lendava B C * A 13 Logatec C D * C 14 Mozirje B B D D 15 Radlje ob Dravi B * * D 16 Ribnica B C * * 17 Sentjernej C C A D 18 Vojnik C B * * C LLC 19 Jesenice D D D B 20 Kr9ko D D D D 21 Ljutorner B A A A 22 Murska Sobota D D D D 23 Novo Mesto B D D C 24 Slovenj Gradec D D * D 25 Trebnje A A B C 26 Trii D D * B n.a. Not available. A - below 25 percent. B - between 26 percent and 50 percent. C - between 51 percent and 75 percent. D - above 75 percent. * No investment planned. Source: Agency for Payments database. 45 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table A..6 Reasons for Poor Implementation of 1995-1997 Communal Infrastructure Investment Plan From 1-not important to 5-very important Higher Poor Over- priority of Low Debt raising financial ambitious investments Project pces of constraint of status of Local investment in other documentation communal local service No. community plans areas not ready services communities providers A SLC 1 Skocjan 3 5 ... 5 5 1 2 Vitanje 2 3 4 1 5 ... Average A 2.5 4.0 4.0 3.0 5.0 1.0 B MLC 3 Crengovci ... 4 4 ... ... ... 4 Grosuplje 3 5 2 2 1 1 5 Lendava 1 5 2 5 5 5 6 Mozirje 3 3 4 5 4 5 7 Radlje ob Dravi 1 5 1 5 5 5 8 Ribnica 2 3 3 5 1 5 9 Sentjernej 3 5 ... 5 5 1 10 Vojnik 3 3 3 ... 5 4 Average B 2.3 4.1 2.7 4.5 3.7 3.7 C LLC 11 Jesenice 3 1 2 5 5 5 12 Ljutomer 4 4 3 5 5 3 13 Murska Sobota ... ... ... ... ... ... 14 Novo Mesto 3 5 ... 5 5 1 15 Trebnje 1 5 5 5 3 4 16 Trii 1 3 3 5 ... 3 Average C 2.4 3.6 3.3 5.0 4.3 3.2 Average total A + B + C 2.4 3.9 3.0 4.5 4.2 3.3 ... Negligible. Note: Only those local communities with had implementation ratio below 75 percent in 3 out of 4 areas in table 5 were asked to respond to this question. Source: Agency for Payments database. 46 Annex 2 Table A.2.7 Volume and Structure of Communal Infrastructure Investment Plans, 1998-2002 (In SIT Million) Local Water Waste-water Solid waste No. community supply Sewage treatment management Other Total A SLC 1 Gornji Grad 13.2 11.1 51.1 78.7 192.6 346.7 2 Kobilje 100.0 30.0 51.0 0.0 50.0 231.0 3 Lo9ki Potok 240.0 95.0 52.0 100.0 0.0 487.0 4 Nazarje 15.0 22.3 7.9 27.8 20.0 93.0 5 Odranci 0.0 10.0 45.0 0.0 0.0 55.0 6 Rade e 0.0 0.0 110.0 150.0 0.0 260.0 7 Skocjan 243.9 62.0 76.0 0.0 0.0 381.9 8 Vitanje 30.0 171.0 170.0 14.0 223.0 608.0 Total A 642.1 401.4 563.0 370.5 485.6 2,462.6 B MLC 9 Beltinci 240.0 915.0 310.0 10.0 154.0 1,629.0 10 Crengovci 0.0 1,005.0 156.0 0.0 0.0 1,161.0 11 Grosuplje 361.9 306.9 25.0 319.5 125.8 1,139.1 12 Lendava 104.0 860.0 430.0 70.0 0.0 1,464.0 13 Logatec 134.0 91.0 283.0 51.0 0.0 559.0 14 Mozirje 71.0 107.0 22.0 12.0 5.0 217.0 15 Radlje ob Dravi 75.0 335.0 150.0 94.0 0.0 654.0 16 Ribnica 165.0 150.0 200.0 130.0 55.0 700.0 17 Sentjernej 288.6 112.5 160.0 0.0 0.0 561.1 18 Vojnik 447.0 304.4 180.0 0.0 0.0 931.4 Total B 1,886.5 4,186.8 1,916.0 686.5 339.8 9,015.6 C LLC 19 Jesenice 92.0 232.0 106.0 213.0 460.7 1,103.7 20 Krko ... ... ... 21 Ljutomer 384.0 480.0 420.0 250.0 490.0 2,024.0 22 Murska Sobota 315.0 867.0 800.0 1,100.0 55.0 3,137.0 23 Novo Mesto 1,869.4 626.6 350.5 1,100.0 219.5 4,166.0 24 Slovenj Gradec 300.0 115.0 1,075.0 200.0 554.0 2,244.0 25 Trebnje 337.0 369.0 200.0 900.0 0.0 1,806.0 26 Tri 251.0 352.0 95.0 90.0 0.0 788.0 Total C 3,548.4 3,041.6 3,046.5 3,853.0 1,779.2 15,268.7 Total A + B + C 6,077.0 7,629.8 5,525.5 4,910.0 2,604.6 26,746.9 ... Negligible. Source: Agency for Payments database. 47 Communal Infrastructure in Slovenia: Survey ofInvestment Needs and Policies Tablk A.2.8 Annual Level of Communal Infrastructure Investment Plans, 1998-2002 (In SIT Million) No. Local community 1998 1999 2000 2001 2002 Total A SLC 1 Gornji Grad 138.2 173.6 25.1 6.7 3.1 346.7 2 Kobilje 30.0 51.0 30.0 70.0 50.0 231.0 3 LoAki Potok 11.0 53.0 122.0 150.0 151.0 487.0 4 Nazarje 29.8 49.3 10.4 2.5 1.0 93.0 5 Odranci 30.0 25.0 0.0 0.0 0.0 55.0 6 RadeEe 120.0 80.0 60.0 0.0 0.0 260.0 7 Skocjan 17.0 24.2 59.6 88.9 192.2 381.9 8 Vitanje 10.0 137.0 187.0 137.0 137.0 608.0 Total A 386.0 593.1 494.1 455.1 534.3 2,462.6 B MLC 9 Beltinci 52.0 97.0 540.0 490.0 450.0 1,629.0 10 Crengovci 195.0 210.0 232.0 254.0 270.0 1,161.0 11 Grosuplje 182.7 241.2 218.7 268.0 228.5 1,139.1 12 Lendava 128.0 418.0 418.0 230.0 270.0 1,464.0 13 Logatec 74.0 59.0 162.0 142.0 122.0 559.0 14 Mozirje 18.0 94.0 38.0 46.0 21.0 217.0 15 Radlje ob Dravi 39.0 78.0 159.0 190.0 188.0 654.0 16 Ribnica 100.0 130.0 170.0 150.0 150.0 700.0 17 Sentjernej 81.2 130.5 181.6 78.0 89.8 561.1 18 Vojnik 61.0 129.0 231.0 235.0 275.4 931.4 Total B 930.9 1,586.7 2,350.0 2,083.0 2,064.7 9,015.6 C LLC 19 Jesenice 137.6 278.1 246.0 235.0 207.0 1,103.7 20 Kr9ko 273.5 ... ... ... ... ... 21 Ljutomer 184.0 330.0 530.0 540.0 440.0 2,024.0 22 Murska Sobota 197.0 1,120.0 665.0 590.0 565.0 3,137.0 23 Novo Mesto 759.5 1,064.5 455.7 941.0 945.3 4,166.0 24 Slovenj Gradec 162.0 316.0 556.0 651.0 559.0 2,244.0 25 Trebnje 75.0 658.0 500.0 384.0 189.0 1,806.0 26 Trbi 105.0 125.0 158.0 185.0 215.0 788.0 Total C 1,620.1 3,891.6 3,110.7 3,526.0 3,120.3 15,268.7 Total A+ B + C 2,937.0 6,071.4 5,955.1 6,064.1 5,719.3 26,746.9 Source: Agency for Payments database. 48 Annex 2 Table A..9 Reasons for High 1998-2002 Communal Infrastructure Investment Plans From 1-not important to 5-very important Expected Introduction Expected improvements Better Expected or private sector Growing in access to improvement continuation participation demand Deferment financial credits/ with respect of community in financing for of status other Adjustment to project members and/or Local communal investment ofservice financial to documen- financial providing No. community services in the past providers sources EUnorms ration participation services A SLC 1 Gornj Grad ... 4 3 2 4 4 ... 2 2 Kobilje 5 3 1 5 5 2 5 1 3 Lo9ki Potok 2 5 3 2 4 4 3 3 4 Nazarje 3 4 2 4 4 2 1 2 5 O dranci ... ... ... ... ... ... ... ... 6 RadeEe 5 5 5 5 5 5 1 1 7 Skocjan 5 2 2 4 5 1 2 1 8 Vitanje 4 5 4 4 4 3 3 4 Average A 4.0 4.0 2.9 3.7 4.4 3.0 2,5 2.0 B MLC 9 Beltinci 5 3 ... 4 4 2 5 4 10 Crengovci 5 4 4 4 4 2 1 2 11 Grosuplje 5 4 4 5 5 4 3 4 12 Lendava 5 5 5 4 4 4 5 4 13 Logatec 4 5 2 3 3 2 1 ... 14 Mozire 4 4 5 5 4 1 1 2 15 Radlje ob Dravi 5 4 5 5 5 5 3 ... 16 Ribnica 5 4 3 5 3 2 1 3 17 Sentjernej 5 2 2 4 5 1 2 1 18 Vojnik 4 4 3 4 5 4 3 1 Average B 4.7 3.9 3.7 4.3 4.2 2.7 2.5 2.6 C LLC 19 Jesenice 3 4 4 3 5 4 1 2 20 Kr9ko 5 2 3 3 3 3 1 3 21 Ljutomer 4 4 3 4 3 3 4 1 22 Murska Sobota 5 5 1 3 3 1 3 4 23 Novo Mesto 5 2 2 4 5 1 2 1 24 Slovenj Gradec 5 4 1 5 4 1 3 3 25 Trebnje 4 4 3 3 4 5 4 2 26 TriiE 2 4 2 3 4 4 1 1 Average C 4.1 3.6 2.4 3.5 3.9 2.8 2.4 2.1 Average Total A + B + C 4.3 3.8 3.0 3.9 4.2 2.8 2.5 2.3 ... Negligible. Source: Agency for Payments database. 49 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table A.2.10 Most Important Reasons for Possible Delays in the Implementation of 1998-2002 Communal Infrastructure Investment Plans No Local community Reason no. 1 Reason no. 2 Reason no. 3 A SLC 1 Gornji Grad A E G 2 Kobilje A 3 LoAki Potok A B D 4 Nazarje A D 5 Odranci 6 Radee A 7 Skocjan A D B 8 Vitanje A B MLC 9 Beltinci A 10 Crengovci A 11 Grosuplje A B 12 Lendava A B C 13 Logatec A H B 14 Mozirje A 15 Radlje ob Dravi A D C 16 Ribnica A D C 17 Sentjernej A C B 18 Vojnik A E C C LLC 19 Jesenice A D B 20 Kr9ko A D C 21 Ljutomer A I J 22 Murska Sobota A B D 23 Novo Mesto A C B 24 Slovenj Gradec A 25 Trebnje A D B 26 Trii A B I A - lack of financial resources B - project documentation not ready C - inadequate state-local community relationship (legislation) D - infrastructure ownership problems E - allocation of assets and liabilities among local communities not completed F - restitution problems C - lack of co-financing from other local communities H - lack of political will I- priority to other investments J - inadequate cooperation with individual consumers of communal infrastructure services Source: Agency for Payments database. 50 Annex 2 Table A.2.Il Communal Infrastructure Investment Plans for 1998-2002: Sources of Funds Community members Provider Local Water financial Domestic Foign Local of community pollution State partict- commercial commercial No. community services budget tax budget pation Eco Fund credits credits Other Total A SLC 1 Gornji Grad 3.2 12.5 12.7 63.0 0.0 34.7 0.0 100.0 120.6 346.7 2 Kobije 0.0 11.0 4.0 116.0 15.0 10.0 0.0 75.0 0.0 231.0 3 Lolki Potok 15.5 141.5 8.0 322.0 0.0 0.0 0.0 0.0 0.0 487.0 4 Nazaije 1.5 43.4 11.0 34.0 0.0 1.6 0.0 0.0 1.5 93.0 5 Odranci 3.0 11.0 0.0 34.0 7.0 0.0 0.0 0.0 0.0 55.0 6 Radete 0.0 131.0 9.0 120.0 0.0 0.0 0.0 0.0 0.0 260.0 7 Skocjan 51.0 70.9 3.0 28.0 26.0 20.0 0.0 183.0 0.0 381.9 8 Vitanje 0.0 50.0 140.0 230.0 0.0 0.0 0.0 130.0 158.0 608.0 Total A 74.2 471.3 187.7 947.0 48.0 66.3 0.0 488.0 180.1 2,462.6 B MLC 9 Beltinci 35.0 406.0 0.0 457.0 30.0 146.0 190.0 0.0 365.0 1,629.0 10 Crenlovci 0.0 382.0 0.0 218.0 382.0 179.0 0.0 0.0 0.0 1,161.0 11 Grosuplje 437.0 273,0 143.5 161.0 0.0 47.7 3.6 0.0 73.3 1,139.1 12 Lendava 5.0 450.0 75.0 150.0 29.0 10.0 648.0 0.0 97.0 1,464.0 13 Logatec 30.0 286.0 50.0 102.0 0.0 50.0 0.0 0.0 41.0 559.0 14 Mozirje 9.0 95.0 39.0 44.0 0.0 10.0 0.0 0.0 20.0 217.0 15 Rad1je ob Dravi 65.0 248.0 0.0 341.0 0.0 0.0 0.0 0.0 0.0 654.0 16 Ribnica 84.0 284.0 82.0 250.0 0.0 0.0 0.0 0.0 0.0 700.0 17 Senternej 138.1 218.0 0.0 27.5 11.0 81.0 85.5 0.0 0.0 561.1 18 Vojnik 0.0 278.8 159.5 270.1 117.5 0.0 0.0 0.0 105.5 931.4 Total B 803.1 2,920.8 549.0 2,020.6 569.5 523.7 927.1 0.0 701.8 9,015.6 C LLC 19 Jesenice 50515 135.0 0.0 102.8 0.0 90.0 0.0 0.0 270.4 1,103.7 20 Krike ... ... ... ... ... ... ... ... ... ... 21 Lutomer 322.0 700.0 75.0 667.0 100.0 160.0 0.0 0.0 0.0 2,024.0 22 Murska Sobo;a 300.0 259.0 225.0 155.0 178.0 80.0 120.0 0.0 1,820.0 3,137.0 23 Novo Mcsto 1,153.1 680.9 0.0 554.0 0.0 340.7 0.0 1,318.3 119.0 4,166.0 24 Slovenj Gradec 180.0 849.0 200.0 460.0 0.0 0.0 0.0 555.0 0.0 2,244.0 25 Trebnje 44.1 541.8 0.0 903.0 15.5 142.3 132.2 0.0 27.1 1,806.0 26 Trit 60.0 334.0 178.0 75.0 0.0 75.0 0.0 66.0 0.0 788.0 Total C 2,564.7 3,499.7 678.0 2,916.8 293.5 888.0 252.2 1,939.2 2,236.5 15,268.7 Total A + B + C 3,442.0 6,891.8 1,414.7 5,884.4 911.0 1,478.0 1,179.3 2,427.3 3,118.4 26,746.9 ... Negligible Source:Agency for Payments database. 51 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table A.2.1i Communal Infrastructure Investment Plans for 1998-2002: Which of the Financial Sources is Considered Least Reliable No Local community Which of the financial sources is considered as least reliable A SLC I Gornji Grad 2 Kobilje 3 LoAki Potok A 4 Nazarje A 5 Odranci A 6 Radee A 7 Skocjan C 8 Vitanje B MLC 9 Beltinci 10 Crengovci A 11 Grosuplje A 12 Lendava A. E 13 Logatec A 14 Mozirje A 15 Radlje ob Dravi A 16 Ribnica A 17 Sentjernej C 18 Vojnik A C LLC 19 Jesenice D. A 20 Kriko B 21 Ljutomer 22 Murska Sobota A 23 Novo Mesto C 24 Slovenj Gradec A 25 Trebnje A. D. E 26 Trim A A - transfers from the budget B - credits from Eco - fund C - credits from international financial institutions D - retained earnings (amortization) E - community members financial participation Source: Agency for Payments database. 52 Annex 2 Table A2.13 Communal Service Providers and their Expected Role in Financing 1998-2002 Communal Infrastructure Plans From 1-not important to 5-very important Does service provider plan to invest more No. Local community than in recent years? If yes, why? Expected Expected Expected increase in the improvement price volume of in operational Yes No liberalization services efficiency A SLC 1 Gornji Grad X 3 5 4 2 Kobilje X 3 Lo9ki Potok X 4 Nazarje X 5 Odranci X 6 Radee X 7 Skocjan X 5 2 5 8 Vitanje Average A 4.0 3.5 4.5 B MLC 9 Beltinci X 10 Creniovci 11 Grosuplje X 3 4 4 12 Lendava X 5 5 5 13 Logatec X 5 5 4 14 Mozirje X 5 4 4 15 Radlje ob Dravi X 16 Ribnica X 17 Sentjernej X 5 2 5 18 Vojnik X 4 5 4 Average B 4.5 4.2 4.3 C LLC 19 Jesenice X 5 2 3 20 Kr9ko X 5 3 3 21 Ljutomer X 22 Murska Sobota X 5 1 3 23 Novo Mesto X 5 2 5 24 Slovenj Gradec X 5 3 3 25 Trebnje X 2 2 3 26 Triii X 5 1 3 Average C 4.6 2.0 3.3 Average Total A+ B + C 4.5 3.1 3.9 Source: Agency for Payments database. 53 Communal Infrastructure in Slovenia: Survey of Investment Needs and lblicies Table A..14 State Budget and its Expected Role in Financing 1998-2002 Communal Investment Plans Do you plan to receive transfers In comparison to recent years, No. Local community from state budget? these transfers are expected to be up to More than At the 20percent 20 percent Yes No Lower same level higher higher A SLC 1 Gornji Grad X X 2 Kobilje X X 3 Logki Potok X X 4 Nazarje X X 5 Odranci X X 6 Rade e X X 7 Skocjan X X 8 Vitanje X X B MLC 9 Beltinci X X 10 Crengovci X X 11 Grosuplje X X 12 Lendava X ... ... ... ... 13 Logatec X X 14 Mozirje X X 15 Radlje ob Dravi X X 16 Ribnica X X 17 Sentjernej X X 18 Vojnik X X C LLC 19 Jesenice X X 20 Kr9ko X X 21 Ljutomer X X 22 Murska Sobota X X 23 Novo Mesto X X 24 Slovenj Gradec X X 25 Trebnje X X 26 Trhii X .. Negligible. Source: Agency for Payments database. 54 Annex 2 Table A.S15 Main Patterns of Credits to be Raised for Financing 1998-2002 Communal Investment Plans No. Local community Preferred type of credits Preferred currency Preferred interest rate Long- Medium- Short- term term term SIT Foreign Fixed Variable A SLC 1 Gornji Grad X X X 2 Kobilje X X X 3 Lo9ki Potok X X X 4 Nazarje X X X 5 Odranci X X X 6 Radete X X X 7 Skocjan X X X 8 Vitanje X X X B MLC 9 Beltinci X X X 10 Crengoyci X X ... ... 11 Grosuplje X X X 12 Lendava X X X 13 Logatec X X X 14 Mozirje X X X 15 Radlje ob Dravi X X X 16 Ribnica X X X 17 Sentjernej X X X 18 Vojnik X X X C LLC 19 Jesenice X X X 20 KrAko X X X 21 Ljutomer X X X 22 Murska Sobota X X X 23 Novo Mesto X X X 24 Slovenj Gradec X X X 25 Trebnje X X X 26 Trhi X X X ... Negligible. Source: Agency for Payments database. 55 Communal Infrastructure in Slovenia: Survey of Investment Needs and Policies Table A.16 Importance of Individual Factors in Picking Up a Creditor for Communal Investment From 1-not important to 5-very important Type of financial Other Creditor's Reliability investments services Interest Accessibility efficiency of a a creditor offered by No. Local community rate of credit at work creditor provides a creditor A SLC 1 Gornji Grad 5 4 5 5 5 5 2 Kobilje 5 4 5 5 4 4 3 Lo9ki Potok 5 3 4 5 3 4 4 Nazarje 5 2 2 4 4 4 5 Odranci 5 ... 3 ... 3 5 6 RadeEe 5 5 5 5 5 5 7 Skocjan 5 5 4 5 5 4 8 Vitanje 5 4 5 5 5 5 Average A 5.0 3.9 4.1 4.9 4.3 4.5 B MLC 9 Beltinci 5 3 3 3 4 4 10 Crengovci 5 4 ... 5 4 3 11 Grosuplje 5 4 5 5 3 2 12 Lendava 5 5 4 5 4 4 13 Logatec 5 4 3 5 3 3 14 Mozirje 5 4 4 3 ... ... 15 Radje ob Dravi 5 5 5 5 5 5 16 Ribnica 5 5 5 5 5 5 17 Sentjernej 5 5 4 5 5 4 18 Vojnik 4 5 4 5 4 4 Average B 4.9 4.4 4.1 4.6 4.1 3.8 C LLC 19 Jesenice 5 3 3 1 1 1 20 Kriko 2 4 5 5 3 2 21 Ljutomer 5 3 5 3 3 1 22 Murska Sobota 4 5 5 4 4 4 23 Novo Mesto 5 5 4 5 5 4 24 Slovenj Gradec 5 5 5 5 5 5 25 Trebnje 5 4 4 4 4 3 26 Tr2iE 5 1 2 5 3 2 Average C 4.5 3.8 4.1 4.0 3.5 2.8 Average total A + B + C 4.8 4.0 4.1 4.5 4.0 3.8 ... Negligible. Source: Agency for Payments database. 56 Annex 2 Table A..17 Which Creditor Would You Prefer at Equal Cost of Financing From 1 -least preferred to 5-most preferred Foreign Foreign commercial Local commercial International banks with commercial banks in financial headquarters No. Local community Eco Fund banks Slovenia institutions abroad A SLC 1 Gornji Grad 5 1 3 4 2 2 Kobilje 5 3 2 4 1 3 Loki Potok 2 5 4 1 3 4 Nazarje 5 3 2 4 1 5 Odranci 5 3 4 2 1 6 RadeEe 5 4 ... ... ... 7 Skocjan 5 4 2 3 1 8 Vitanje 5 3 3 5 3 Average A 4.6 3.3 2.9 3.3 1.7 B MLC 9 Beltinci 4 3 3 3 2 10 Crengovci ... ... ... ... ... 11 Grosuplje 5 4 3 2 1 12 Lendava 4 5 3 2 1 13 Logatec 5 4 2 3 1 14 Mozirje 5 4 3 2 1 15 Radlje ob Dravi 5 3 2 4 1 16 Ribnica ... ... ... ... ... 17 Sentjernej 5 4 2 3 1 18 Vojnik 4 5 2 3 1 Average B 4.6 4.0 2.5 2.8 1.1 C LLC 19 Jesenice 4 5 3 2 1 20 Kr9ko 4 5 2 3 1 21 Ljutorner 4 5 2 3 1 22 Murska Sobota 4 5 2 3 1 23 Novo Mesto 5 4 2 3 1 24 Slovenj Gradec 5 4 3 1 2 25 Trebnje 4 3 2 5 1 26 Trfi 5 4 3 2 1 Average C 4.4 4.4 2.4 2.8 1.1 Average total A + B + C 4.5 3.9 2.6 3.0 1.3 ... Negligible. Source: Agency for Payments database. 57 Communal Infrastructure in Slovenia: Survey ofInvestment Needs and Policies Table A..1 8 Private Investors and their Expected Role in Financing 1998-2002 Communal Investment Plans Are you interested in this form No. Local community offinancing? If yes, why? Main obstacles for this form offinancing Poor Better under- Lack of quality Lack of standing financial of business ofthe Inadequate Oonership Yes No resources services Other interest concept legislation problems A SLC 1 Gornji Grad X X X X X X 2 Kobilje X X X X X 3 Lo9ki Potok X X X 4 Nazarje X X X X 5 Odranci X X X X X 6 RadeEe X X X X 7 Skocjan X X X X 8 Vitanje X X X X X B MLC 9 Beltinci X X X X 10 Crengovci X X X 11 Grosuplje X X X X 12 Lendava X X X X X 13 Logatec X X X X X X 14 Mozirje X X X 15 Radlje ob Dravi X X 16 Ribnica X X X X 17 Sentjernej X X X X X 18 Vojnik X X X X X X X C LLC 19 Jesenice X X X 20 KrAko X X X X X X 21 Ljutomer X X X X 22 Murska Sobota X X X X X 23 Novo Mesto X X X X 24 Slovenj Gradec X X X X 25 Trebnje X X X X X X X 26 Tri X X X X Source: Agency for Payments database. 58 Bibliography and Sources Ministry of Finance. Various years. Governmental Accounts. Ljubljana, Slovenia (various numbers). 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Washington, D.C. 59  PEH fifl Igla-U 20,1 CM -. g Eli~ .2 2 -ä f 8r tå ttl~ i 10-4 -fl 3n. -~ f llÖ fl- r, ~ 10 el0~ ff; -lf a _ 9 Ei : &51 a 1 s-_g - a- M Ij - f- . ¥ -I ig 4E , 1 i S3 u101 rc 0 in l~l'I4 -. in -l l W.-4o an-l4. i i440 a -nl 5E c-2 -.--ai 44n --l4 4 - 9 r,V _-N- --- ii-iA Om må9 I ;: i g E2Sth - st 31 l fi TCUIa TfffiU fR, 9 4-HP -l 1 00- j 9~ 5  Recent World Bank Technical Papers (continued) No. 445 Ian Hill, Forest Management in Nepal: Economics of Ecology No. 446 Gordon Hughes and Magda Lovei, Economic Reform and Environmental Performance in Transition Economies No. 447 R. Maria Saleth and Ariel Dinar, Evaluating Water Institutions and Water Sector Performance No. 449 Keith Oblitas and J. Raymond Peter in association with Gautam Pingle, Halla M. Qaddumi, and Jayantha Perera, Transferring Irrigation Management to Farmers in Andhra Pradesh, India No. 450 Andres Rigo Sureda and Waleed Haider Malik, eds., Judicial Challenges in the New Millennium: Proceedings of the Second Summit of the Ibero-American Supreme Courts No. 451 World Bank, Privatization of the Power and Natural Gas Industries in Hungary and Kazakhstan No. 452 Lev Freinkman, Daniel Treisman, and Stephen Titov, Subnational Budgeting in Russia: Preempting a Potential Crisis No. 453 Bartlomiej Kaminski and Michelle Riboud, Foreign Investment and Restructuring: The Evidence from Hungary No. 454 Gordon Hughes and Julia Bucknall, Poland: Complying with EU Environmental Legislature No. 455 Dale F. Gray, Assessment of Corporate Sector Value and Vulnerability: Links to Exchange Rate and Financial Crises No. 456 Salman M.A. Salman, ed., Groundwater: Legal and Policy Perspectives: Proceedings of a World Bank Seminar No. 457 Mary Canning, Peter Moock, and Timothy Heleniak, Reforming Education in the Regions of Russia No. 458 John Gray, Kazakhstan: A Review of Farm Restructuring No. 459 Zvi Lerman and Csaba Csaki, Ukraine: Review of Farm Restructuring Experiences No. 460 Gloria La Cava and Rafaella Y. Nanetti, Albania: Filling the Vulnerability Gap No. 461 Ayse Kudat, Stan Peabody, and Caglar Keyder, eds., Social Assessment and Agricultural Reform in Central Asia and Turkey No. 462 T. Rand, J. Haukohl, and U. 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Wodon with contributions from Robert Ayres, Matias Barenstein, Norman Hicks, Kihoon Lee, William Maloney, Pia Peeters, Corinne Siaens, and Shlomo Yitzhaki, Poverty and Policy in Latin America and the Caribbean No. 469 Laurian Unnevehr and Nancy Hirschhorn, Food Safety Issues in the Developing World No. 470 Alberto Vald6s, ed., Agricultural Support Policies in Transition Economies No. 471 Brian Pinto, Vladimir Drebentsov, and Alexander Morozov, Dismantling Russia's Nonpayments System: Creating Conditions for Growth No. 472 Jit B. S. Gill, A Diagnostic Framework for Revenue Administration No. 473 Esen Ulgenerk and Leila Zlaoui, From Transition to Accession: Developing Stable and Competitive Financial Markets in Bulgaria No. 474 loannis N. Kessides, ed., Hungary: A Regulatory and Structural Review of Selected Infrastructure Sectors No. 475 Csaba Csaki, Zvi Lerman, and Sergey Sotnikov, Farm Sector Restructuring in Belarus: Progress and Constraints No. 481 Csaba Csaki, John Nash, Achim Fock, and Holger Kray, Food and Agriculture in Bulgaria: The Challenge of Preparing for EU Accession No. 482 Peter Havlik, Trade and Cost Competitiveness in the Czech Republic, Hungary, Poland, and Slovenia No. 484 Csaba Csaki and Laura Tuck, Rural Development Strategy: Eastern Europe and Central Asia No. 488 Nina Bubnova, Governance Impact on Private Investment No. 489 Tim Schwarz and David Satola, Telecommunications Legislation in Transitional and Developing Economies No. 490 Jesko Hentschel and Radha Seshagiri, The City Poverty Assessment: A Primer No. 492 Tuntivate Voravate, Douglas F. Barnes, and V. 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