83285 REPUBLIC OF BELARUS MUNICIPAL WATER SECTOR REVIEW June 2013 EUROPE AND CENTRAL ASIA Republic of Belarus Municipal Water Sector Review June 12, 2013 EUROPE AND CENTRAL ASIA Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete infor- mation to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750-4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@worldbank.org. Cover Art: Dmitriy Akhunbabayev “Tales from a Streambed” (2013) ii Contents Acknowledgements.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii Acronyms and Abbreviations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Executive Summary.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Part I: Sector Diagnostic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 1. Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.1 Administrative and political organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.2 Population . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 1.3 Socio-economic data. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 2. Sector Performance .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.1 Coverage and quality of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 2.2 Technical performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.3 Commercial performance and customer relationship. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 2.4 Utility staff productivity and internal capacity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.5 Business planning. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2.6 Financial performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2.7 Conclusion on sector performance .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3. Legal and Institutional Framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.1 Sector-related legislation and regulations.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 3.2 Technical standards and norms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 3.3 Sector strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.4 Sector stakeholders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3.5 Overview of sector functional organization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 3.6 Private sector participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.7 Conclusion on legal and institutional framework.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 4. Water and Wastewater Infrastructure—Status and Challenges. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.1 Water resources and demand .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 4.2 Water supply and wastewater infrastructure status and condition.. . . . . . . . . . . . . . . . . . . . . . . . . 30 4.3 Water and wastewater infrastructure management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.4 Infrastructure development programs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 4.5 Conclusion on water and wastewater infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 5. Conclusion of the Diagnostic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 iii Republic of Belarus Municipal Water Sector Review Part II: Recommendations .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 1. Developing a Policy and Legal Framework for the Sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 2. Increasing Operational Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.1 Regionalization of services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2.2 Stimulate utilities’ performance through yardstick competition and social accountability. . . . . 41 2.3 Increased capacity and efficiency through public–private partnerships. . . . . . . . . . . . . . . . . . . . . 42 2.4 Improving operation and maintenance performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 2.5 Modernizing commercial operations to improve their efficiency. . . . . . . . . . . . . . . . . . . . . . . . . . . 43 2.6 Optimizing organization and human resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 2.7 Improving utilities’ business planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 3. Increasing Efficiency of Infrastructure Development. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 4. Financing the Development of Services.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.1 Tariff regulation and allocation of operating subsidies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 4.2 Infrastructure development financing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 4.3 Sector financing policy discussion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 4.4 Impact on affordability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Annexes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Tables Table 1: Summary of recommendations proposed in this report .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv Table 2: Operating cost structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Table 3: Residential tariff—recent evolution (water/sanitation) in constant BYR/m3. . . . . . . . . . . . . . . . . 15 Table 4: Strengths and weaknesses of sector performance—level of service .. . . . . . . . . . . . . . . . . . . . . . . . . . 17 Table 5: Strengths and weaknesses of sector performance—operational performance. . . . . . . . . . . . . . . . . 17 Table 6: Strengths and weaknesses of sector performance—level of service .. . . . . . . . . . . . . . . . . . . . . . . . . . 18 Table 7: Strengths and weaknesses of sector performance—financial performance. . . . . . . . . . . . . . . . . . . . 18 Table 8: Strengths and weaknesses of the legal framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table 9: Strengths and weaknesses of the institutional framework. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Table 10: 2006–2010 Clean Water Program – Types and costs of investments.. . . . . . . . . . . . . . . . . . . . . . . . . . 32 Table 11: Strengths and weaknesses of water and wastewater infrastructure. . . . . . . . . . . . . . . . . . . . . . . . . . 32 Table 12: Tariff adjustment options to achieve the elimination of operating subsidies and cross-subsidization by 2015 .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Table 13: Tariff increase scenarios. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Table 14: Financial model scenarios: tariff assumptions and cost recovery analyses. . . . . . . . . . . . . . . . . . . . 53 Table 15: Population trends in rural and urban areas—2002/2012. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Table 16: Infrastructure leakage index (ILI). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Table 17: Belarus & international potable water quality standards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table 18: Belarus standards for effluent quality (average values) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table 19: Environmental tax rates for water abstraction (2013). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table 20: Environmental tax rates for untreated effluents discharge (2013). . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Table 21: Inventory of water and sewerage facilities at oblast level .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Table 22: Operational indicators of water and wastewater services at oblast level.. . . . . . . . . . . . . . . . . . . . . 63 Table 23: Economic and financial parameters at oblast level. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 iv  Table 24: Key financial ratios (2011). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Table 25: Selected utilities (and population). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Table 26: Feasibility studies reviewed for the diagnostic .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Table 27: Results from the utilities survey. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Table 28: Proposed Performance (PI) and Key Performance (KPI) indicators. . . . . . . . . . . . . . . . . . . . . . . . . . 76 Table 29: Assumptions used in the financial model for Scenario D— Consumption volumes and operating costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Table 30: Assumptions used in the financial model for Scenario D—Tariff policy and financing plan. . . 78 Table 31: Sector income statement and cash flow statement in Scenario D. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 Table 32: Sensitivity of sector financial projections to the evolution of per capita consumption (liters per capita per day) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Table 33: Sensitivity of sector financial projections to the evolution of industrial consumption. . . . . . . . . 80 Table 34: Sensitivity of sector financial projections to the evolution of non-revenue water (commercial losses). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 Table 35: Sensitivity of sector financial projections to the evolution of electricity costs. . . . . . . . . . . . . . . . . 81 Table 36: Sensitivity of sector financial projections to the evolution of utilities’ energy efficiency. . . . . . . 81 Figures Figure 1: Belarus Republic administrative organization—oblasts and raions. . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 2: GDP per capita (US$) in 2012— Belarus and neighboring countries. . . . . . . . . . . . . . . . . . . . . . . . . . 6 Figure 3: Water and wastewater service coverage 1997–2011. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 4: Comparison of urban access rates in Belarus and for IBNet utilities in regional neighbors. . . . 10 Figure 5: Non revenue water in Belarus, in IBNet utilities of regional neighbors and across other middle-and upper-income countries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Figure 6: Energy intensity of water billed for utilities in several countries .. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 7: Utilities staff productivity ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Figure 8: Operating costs in utilities of Minsk oblast . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 9: Cross-subsidization levels (average domestic tariff/average non-domestic tariff)— average in Belarus and for IBNet utilities in regional neighbors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Figure 10: Cost recovery levels for utilities in Minsk and Vitebsk Oblasts (2011). . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 11: Origin of public investment funds in the water and wastewater sector 2006–2010. . . . . . . . . . . . 24 Figure 12: Share of population served by private operators in 2004–2008 (%) .. . . . . . . . . . . . . . . . . . . . . . . . . . 26 Figure 13: Water intake for residential use (Mm3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Figure 14: Infrastructure utilization ratio.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Figure 15: Oblast urban & rural population in 2009. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Figure 16: Allocation of responsibilities under the regionalized sector set-up. . . . . . . . . . . . . . . . . . . . . . . . . . 40 Figure 17: Share of residential water bill within the disposable income for the lowest income group (hypotheses: 10% yearly tariff increase; consumption of 117 liters per capita per day). . . . . . . . 54 Figure 18: Distribution in percentage of the population by level of per capita disposable resources at national level was as follows for the second quarter of 2012... . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Figure 19: Flowchart on investment process.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Figure 20: Tariff setting and operational subsidies allocation process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Figure 21: Indicative flow of funds in the sector. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Figure 22: Utilities covered by the diagnostic, through the survey and through review of feasibility studies.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 v Annexes Annex I: Demographic Characteristics. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Annex II: Note on the Assessment of Non-revenue Water. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Annex III: Investment Planning and Tariff Setting Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Annex IV: Water/Wastewater Quality Standards and Environmental Tax Rates. . . . . . . . . . . . . . . . . . . . . . 61 Annex V: 2011 Statistics (oblasts and Minsk City). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Annex VI: Utilities Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 Annex VII: Performance and Key Performance Indicators.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Annex VIII: Financial Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 Acknowledgements This report was prepared by a team of water and Natural Resources and Environment, Minsk and wastewater specialists led by Stephane Dahan Vitebsk Oblast Executive Committees, and other and comprising Denis Robert (international con- authorities at the local level in helping to prepare sultant) and Vladimir Anufriev (local consultant). this report are gratefully acknowledged. The team Key contributions were made by Manual Marino is particularly grateful to Ms Raisa Kirpicheva (head (ECSUW), Alain Locussol (international consultant) technologist of the Ministry of Housing and Utilities) and Sana Agha Al Nimer (ECSUW). Elena Klochan for overall coordination from the government side (ECCBY) provided excellent support during its and for provision of timely inputs and feedback. preparation. The report was funded with the support of the The peer reviewers were Maria-Angelica Sotomayor Public-Private Infrastructure Advisory Facility (LCSSD) and Andreas Rohde (AFTU1). This report (PPIAF), a multi-donor technical assistance facility also benefited from comments from World Bank col- aimed at helping developing countries improve leagues made during internal discussions, including the quality of their infrastructure through private comments received at intermediary and decision sector involvement. review stages. The team benefited from the information and The team is grateful to the Ministry of Housing and data provided by IBNeT program of the Water Utilities for its continuous and extensive support and Sanitation Program (WSP), and is grateful to during the preparation of this report. The active Alexander Danilenko and Berta Macheve for their collaboration of the Ministry of Finance, the Ministry comments and contributions to the report. of Economy, the Ministry of Health, the Ministry of vii Acronyms and Abbreviations BOD5 biochemical oxygen demand BOT build operate transfer BYR Belarusian ruble (value as of March 26, 2013) BYR2006 Belarusian ruble (average value in 2006) BYR2011 Belarusian ruble (average value in 2011) CAPEX capital expenditures CIS Commonwealth of Independent States COD chemical oxygen demand CSO civil society organization DBO5 biological oxygen demand EBRD European Bank for Reconstruction and Development ECA Europe and Central Asia EU European Union GDP gross domestic product HBS household budget survey IBRD International Bank for Reconstruction and Development IBNet International Benchmarking Network IEC International Electrotechnical Commission IFI International Financial Institution IFRS International Financial Reporting Standards ILI infrastructure leakage index ISO International Organization for Standardization KPI key performance indicator LLI leakages loss index MAC Ministry of Architecture and Construction MHU Ministry of Housing and Utilities MNRE Ministry Natuarl Resources and Environment MOE Ministry of Economy MOF Ministry of Finance MOH Ministry of Health MU multi-service utility N nitrogen NIB Nordic Investment Bank NRW non-revenue water OALG Oblast Association of Local Governments OECD Organization for Economic Co-operation and Development OPEX operating expenditures ix Republic of Belarus Municipal Water Sector Review P phosphorus PI performance indicator PPP public-private partnership RWWU Regional Water and Wastewater Utility SS suspended solids UARL unavoidable real losses UNECE United Nations Economic Commission for Europe UNICEF United Nations Children’s Fund US$ United States dollars VAT value added tax WHO World Health Organization x Executive Summary This paper offers a diagnostic of the water and utilities’ performance. Collection rates are excellent wastewater sector, addressing the sector’s insti- at close to 100 percent. However, with an average tutional, organizational, technical, and economic of 7 staff per 1,000 customers, staff productivity is far aspects, with a specific focus on urban areas. It from recommended levels—a conclusion confirmed documents the achievements made so far, identi- through utilities visits and that stands even con- fies areas that need strengthening, and suggests sidering the near absence of outsourcing. Small- or policies to help guide the government as it seeks to medium-size utilities often have a suboptimal level increase the efficiency and sustainability of water of performance and capacity, perpetuated by the and wastewater services. absence of contractual performance requirements from local authorities and a lack of performance- 1. Sector diagnostic oriented culture. Over the last decade, significant national invest- The sector’s legal and institutional framework is, ment programs enabled Belarus to significantly overall, well-defined and functional, but an insuf- improve the quality of water and wastewater ficient operational regulation undermines the effi- services, but major challenges remain. The level of ciency of services. Sector responsibilities are clearly service in urban areas is very high: coverage is nearly assigned, and the main functions (policy formula- universal and water is supplied on a continuous tion, regulation, service provision) are unbundled, a basis in almost all utilities at acceptable potability key condition for good sector governance. However, standards. Despite these important achievements, the lack of performance requirements for service vast new investments are required. In particular, providers hinders sector efficiency. Also, the sector investments are needed to close coverage gaps in lacks a set of well-defined performance indicators to rural areas, expand wastewater treatment capac- accurately assess the internal performance of each ity and align it with European standards, and to utility, to define objectives and targets for its devel- address remaining water supply quality issues. opment and to perform sector-wide benchmarking. By regional standards, water utilities show an The water and wastewater sector in Belarus shows overall acceptable performance that could be a solid but ageing and oversized infrastructure, improved upon, especially in small towns. With which urgently requires modernization. Except for average non-revenue water levels of 20 to 35 percent, recently constructed facilities, the infrastructure is Belarus performs better than most regional peers and rather old and in dilapidated condition due to lack is comparable to many middle-income countries. of maintenance over the past two decades. The cur- Further reductions are possible, but may not be rent rate of replacement as the networks age does achievable in all utilities at an economically justi- not seem sufficient to reverse their overall deteriora- fied cost. Needs for improvement are most acute in tion. Water demand has almost halved since 1991, multi-utilities. In terms of energy efficiency special along with a decrease in industrial output and the energy audits would be necessary to assess the spread of water metering. As a result water and xi Republic of Belarus Municipal Water Sector Review wastewater systems are now greatly oversized, mechanisms guaranteeing sector sustainability, resulting in excessive maintenance costs and operat- while ensuring the affordability of services. ing difficulties. 2. Recommendations Investment planning is not geared towards the stimulation of efficiency. Existing infrastructure This review recommends that utilities be region- design and sizing norms often lead to excessive alized to generate economies of scale; pool the investment and operating costs. Investments are capacities, means, and resources; and facilitate often identified without any reference to a master access to funds. Under the proposed arrangement, plan and appraised without the clear and transpar- local governments maintain control over utility ent procedures required to guarantee the efficiency assets and form a regional association of local gov- of capital investments. Infrastructure renewal is ernments at oblast level. This entity would manage often planned without any updated assessment a regional operator on the basis of a performance- of current needs, perpetuating infrastructure based delegation contract. The proposed reforms overcapacity. would assist local governments, particularly smaller ones, by: (i) professionalizing water supply and The socially driven tariff policy leaves the sector wastewater service providers, (ii) accessing funds dependent upon recurrent budget support and a for the rehabilitation and development of their few large customers to generate revenue. The tariff infrastructure, and (iii) assuming legal responsi- for water and wastewater services reflects strong bility for providing water supply and wastewater social considerations for residential consumers and services (setting performance objectives, planning guarantees them access to services at an affordable and financing investments). It would also unleash cost. Cost recovery ratios are overall acceptable due the potential for achieving both investment and to significant cross-subsidization between customer operational economies of scale. categories. Yet, cross-subsidization represents a vulnerability for the entire sector since less than Utility regulation needs to be reinforced by the 2 percent of customers account for 30 percent of introduction of benchmarking or yardstick com- consumption and 77 percent of revenues. Even with petition, and by the set-up of performance-based cross-subsidization, about 25 percent of utilities have contracts with their asset-owners. It is essential for very low levels of cost recovery. Operational subsi- sector policy-makers to monitor the performance of dies are allocated on an recurrent basis to systemati- utilities, so that asset owners can set adequate per- cally cover losses incurred by the utilities, a practice formance objectives for their utilities and encourage that does not encourage operational efficiency. good management. Sector benchmarking requires utility performance indicators clearly defined and Financing sector development and modernization made available by the central government. A regula- will represent a major challenge in the context of tory framework can then be developed with a set of the national government’s intention to signifi- incentives and penalties to encourage performance cantly reduce its financial support. The 2011-2015 improvements. Social and Economic Development Program aims to eliminate both operational and cross-subsidies Key recommendations to improve the efficiency by 2015. This reform of sector financing policies is of utility operations include the development of further complicated by the continuing decrease in a performance-oriented management culture and residential consumption and the incapacity of local the involvement of the private sector. Efficiency markets to provide funding on terms consistent gains could be fostered at all levels by developing a with the economy of the sector. These daunting performance-oriented culture, including the recruit- challenges call for (i) sound sector policies conducive ment of managers on a competitive basis, the adop- to economically efficient investment programs and tion of attractive compensation policies, the devel- water and wastewater operations, and (ii) financing opment of business management competencies, xii Executive Summary and the discontinuation of the norm-based staffing in collaboration with their concessionaires in their approach. Competitive service contracts with clear respective regions. A detailed economic and financial performance objectives could provide a first step in model could be prepared to define and update the improving operational efficiency in areas where the tariff structure and levels as needed. utilities lack resources and experience. The government’s objective of eliminating oper- Several actions are proposed to maintain techni- ating subsidies and cross-subsidization by 2015 cal and commercial performance at the current appears ambitious and will require significant tar- level, if not to improve them. First, energy audits iff increases in the short-term. Based on preliminary could assess the full potential for energy efficiency financial modeling, residential tariffs would need to improvement. Second, in utilities with high or increase at least 78 percent per year to achieve such deteriorating non-water revenue, control teams an objective within two years. Alternatively, residen- specifically dedicated to the reduction and control tial tariffs could rise more gradually. For example, of losses could be set up and given performance annual 10 percent increases for five years would objectives and remuneration incentives. Third, with create sufficient sales revenue to cover operations the planned reform of residential tariffs and possibly and maintenance costs. After 10 years of increases, the rise of water theft, utilities’ capacity to monitor revenue could be sufficient to cover depreciation meter reading and manage customer relations will and financing costs. Under this scenario the cross- become increasingly important. subsidization ratio between legal entities and resi- dential tariffs would be 2 to 1. Entirely eliminating In addition, major improvements in the economic cross-subsidization over that period would require efficiency of capital investments can be achieved a steeper residential tariff increase, 13 percent per through a reform of project design and selection year until 2023. Another option is to first eliminate approaches. Design norms and criteria could be operating subsidies and then, when sales revenues extensively revised, with the objective of maximiz- are sufficient to cover operating costs, gradually ing economic and financial returns on investments. eliminate cross-subsidies. The submission of master plans containing clear, relevant prioritization criteria would be mandatory A capital financing strategy could balance contribu- for project funding requests. These plans could be tions from taxpayers and from service users, and be prepared at both local and regional levels, the latter informed by further analyses of: the social impact enabling managers to identify possible economies of tariffs and the fiscal burden of infrastructure of scale achievable by merging certain facilities. The financing. The optimal mix of financing sources allocation of public funds for infrastructure develop- between development grants, borrowing from local ment would be systematically based on the appraisal sources and cash generation depends upon factors of these master plans. such as the efficiency of the taxation system, cus- tomers’ capacity to pay and the availability of local Tariffs could be regulated by contract according to capital markets. Further analyses would be required key objectives, such as recovery of costs, increased to propose specific recommendations. In the mean- efficiency, equity between customers, and afford- time general recommendations include: (i) main- ability of services. The recovery of operating costs taining the allocation of capital development grants could ultimately extend to the long-run marginal for projects with a strong “public good” element cost of water, and sector economic regulation (e.g. wastewater treatment focused on low-income could continue to be performed by the Ministry households), and (ii) assisting asset owners, or their of Economy. Once regionalization is in place, the concessionaires, to progressively build their credit Ministry of Economy would remain responsible record by borrowing from the central government for the definition of tariff principles, structure and on terms close to those of the local market. setting methodology, while tariff levels would be set by the oblast associations of local governments xiii Republic of Belarus Municipal Water Sector Review The preparation of a national sector strategy docu- services end users; their ease of implementation; the ment would help foster understanding and support implementation time requirements; and the need for of the new sector policies from all stakeholders preliminary analytical design work. and development partners. Such a document would provide sector guidance for regional and local gov- Areas for further research include: (i) a sector review ernments, as well as water supply and wastewater focusing specifically on water and sanitation ser- operators. It would serve as a detailed road map for vices in rural areas; (ii) an assessment of costs and the development of the sector making the issues, potential benefits of the above recommendations, actions, and solutions understandable to the wid- in order to help the government better prioritize est possible group of stakeholders. This document them; and (iii) the development of a more detailed might also stimulate support for specific aspects of financial model of the sector to fine-tune the tariff the proposed reform from potential donors, such as policy analysis; (iv) an analysis of the fiscal burden international financial institutions. of infrastructure financing and of the social impacts of tariffs to identify the optimal cost-sharing arrange- The timeframe of each recommendation is sum- ment between taxpayers and service users; and marized in Table 1. A level of priority is proposed (v) a review of the current policy on homeowners’ for each recommendation, on the basis of criteria associations and its implications of the efficiency of such as: the expected benefits for the sector and communal services. xiv Executive Summary TABLE 1: SUMMARY OF RECOMMENDATIONS PROPOSED IN THIS REPORT Specific objectives Seesection Level of 0-2 3–5 5–10 Leading and challenges Policy/instrument (Part II) priority year years years agency OBJECTIVE 1— DEVELOP THE SECTOR POLICY AND LEGAL FRAMEWORK Foster consensus and Consolidated policy statement 1 High MHU support National sector strategy 1 High MHU Fill gaps in legislation Update legislation (sanitation, etc.) 1 Moderate MHU OBJECTIVE 2—INCREASE OPERATIONAL EFFICIENCY Improve overall Regionalization of services 2.1 Moderate MHU operational Benchmarking and yardstick competition 2.2 Highest MHU performance Improved social accountability 2.2 High MHU Private sector involvement 2.3 High MHU Improved business planning 2.7 Moderate MHU Financial reporting standards and auditing 2.7 Moderate MOF Improve operation Energy audits 2.4 High MHU and maintenance NRW management teams 2.4 Moderate MHU performance Improve commercial Block metering and metering oversight 2.5 Moderate MHU performance Bulk water billing to hot water utilities 2.5 Moderate MHU Improve staff Salaries and incentives management 2.6 High MHU productivity and Staffing rationalization 2.6 High MHU capacity Diversification of competencies and certification 2.6 Moderate MHU OBJECTIVE 3—INCREASE EFFICIENCY OF INVESTMENTS Rationalize Review design criteria 3 Highest MAC investments Projects appraisal and prioritization 3 High MHU Increased responsibility of asset owners in 3 Moderate MOF infrastructure financing Achieve economies Regionalization of services 3 High MHU of scale Regional master plans 3 Low MHU OBJECTIVE 4—FINANCE THE DEVELOPMENT OF SERVICES Tariff regulation and Tariff setting model 4.1 Highest MOE policy Target for recovery of operating costs 4.3 Potential target for recovery of operating and investment 4.3 financing costs Performance-based allocation of operating subsidies 4.1 High MOF Social impact - capacity to pay study 4.4 Highest MOE Social assistance mechanisms (review) 4.4 Moderate MOE Enable access to Development of asset owners/concessionaire’s 4.2 Low MOF private financing credit records Abbreviations: MHU: Ministry of Housing and Utilities / MAC: Ministry of Architecture and Construction / MOF: Ministry of Finance / MOE: Ministry of Economy xv Introduction Belarus’s water and wastewater sector has faced The topics covered in the review were identified significant financial and institutional challenges after close consultation with the Ministry of Housing since the collapse of the Soviet Union. Over the and Utilities. To fill in the knowledge gaps, a survey last decade, the government has conducted a series was conducted with 25 water and wastewater utili- of ambitious sector development programs, sup- ties. Their random selection was by criteria such as ported recently by several international develop- (i) their distribution across the six oblasts, (ii) the ment partners, especially the World Bank. Given representativeness of different types and sizes of such large-scale engagement, the accumulation of utilities found in the sector, and (iii) the absence of experience, the availability of new information, and other extensive sources of information (i.e. feasibility the emergence of new challenges, it is appropriate studies produced during the ongoing Water Supply to undertake a review where the sector stands and and Sanitation Project with World Bank financial explore options to move forward. support and under the Belarus Environmental Infrastructure Facility financed by the European At the request of the Government of the Republic of Bank for Reconstruction and Development project). Belarus, the Bank conducted a review focusing on the sector’s institutional, organizational, technical, The specific challenges and solutions relevant to the and economic aspects. This includes examining a rural context are not discussed in this review, which number of policy options for the future. The review focuses primarily on urban areas. In addition, the documents the achievements made so far, identifies situation in Minsk is not specifically addressed in areas that need strengthening, and suggests policies the review, since detailed information on the per- to help guide the government as it seeks to increase formance of its utility was not made available for the efficiency and sustainability of water and waste- the present review. water services. This review is organized in two parts. The first The review concludes that the coverage, quality, and describes the status of water and wastewater ser- reliability of services have improved steadily over vices, current performance, and modernization the last decade, reaching excellent levels of service needs. The second outlines recommendations to particularly in urban areas. Despite these successes foster the sector’s development and to improve its thus far, issues remain with access to services in efficiency and sustainability. The review does not rural areas and expansion of wastewater treatment aim to be an exhaustive study of the issues at hand services. Financing sector development presents a or provide answers to all the challenges that reform major challenge given the rapid reduction of oper- will present for these two sectors. Rather, it is a ating subsidies and cross-subsidization planned by strategic analysis meant to identify the main pillars the national government. These daunting challenges of reform that could be implemented based on the call for sound sector policies conducive to economi- results of this study. cally efficient investment programs and water and wastewater operations. 1 Part I Sector Diagnostic 1 Background The organization, constraints and challenges of the water and waste- water sector are closely linked to Belarus’s political, demographic, and socio-economic features, described in the following subsections. 1.1 Administrative and political organization Administratively, Belarus is based on a three-tier government model, with the capital city having a status of its own. At the top tier the Republic of Belarus is organized into six regions or oblasts: Brest, Gomel, Mogilev, Vitebsk, Grodno, and the city of Minsk. The capital city, Minsk, has special status. Each oblast is subdivided into districts or raions, 118 in all (as shown in Figure 1). The lowest tier of govern- ment is comprised of villages, rural settlements and towns of raion’s subordination. The most populous raions are administered from one of the six oblast capitals (including the city of Minsk); the mid-size raions, from one of the 12 cities subordinate to the oblast; and the small raions, from one of the 99 towns subordinate to the raions. At the regional and local levels, administrative bodies are composed of a council of deputies and an executive committee. Local councils of deputies are elected in each oblast, city, and raion, as well as in villages; these councils form the local legislative authority. Deputies are elected to a 4-year term to deal with local issues, such as health, education, social welfare, trade, and transportation. The executive power is wielded by the executive committee, which implements the decisions made by the council of deputies. In oblasts, the president of the executive committee is appointed by the president; the appointment of heads of executive committees of cities and districts is endorsed by the president. 1.2 Population Belarus’s population is increasingly urbanized and ageing. In the last decade, the rural population decreased by 21.5 percent thus rural areas 5 Republic of Belarus Municipal Water Sector Review Figure 1: Belarus Republic administrative organization—oblasts and raions VITEBSK Vitebsk MINSK Mogilev Grodno MINSK MOGILEV GRODNO B REST BREST Gomel' GOMEL Brest 0 25 50 Kilometers IBRD 40286 SEPTEMBER 2013 account for 24 percent of the total population; at the Figure 2: GDP per capita (US$) in 2012—Belarus same time the urban population has increased by and neighboring countries 10.9 percent in the capital city, Minsk, but generally stagnated in other urban areas. Overall, Belarus’s 16,000 total population has been steadily decreasing since 14,000 12,000 1990, primarily as a result of a dropping fertility 10,000 rate. For instance, the fertility rate was 1.4 children 8,000 per woman in 2010, one of the lowest rates in the 6,000 4,000 region and in the world. Details on the demographic 2,000 evolution by region are provided in Annex I. 0 ia a nd an ova enia ine rus aria ania uani Russ khst Pola Bela Ukra Mold Bulg 1.3 Socio-economic data Arm Rom Lith Kaza EU accession countries CIS countries Belarus Since 2008, following a decade of steady growth, Source: World Bank Development Indicators 2012 the national economy of Belarus has experienced a significant slow-down in growth. Between 2000 and 2008, GDP grew by an average of 8.1 percent significantly impacted by the global economic crisis, per year, driven by favorable external factors such and again in 2011 by a balance of payment crisis.This as underpriced energy from the Russian Federation resulted in the Belarusian ruble losing over 60% of and strong economic growth among Belarus’s main its value and the country’s inflation rate increas- trading partners. In 2008, the Belarus economy was ing to 109%. In 2012, the national economy began 6 Background recovering from these crises; GDP is estimated to With a Gini index of 27, Belarus has one of the have grown by 1.5 percent. Belarus remains the lowest levels of income inequality in the world. strongest economy (per capita) among countries in Poverty prevails mostly in rural areas. Each quarter, the Commonwealth of Independent States (CIS), the government sets the “minimum subsistence bud- outside of the main energy producers (such as Russia get” for four categories of citizens (adults, pension- and Kazakhstan), as illustrated in Figure 2. ers, infants, and children). In May 2013, the average minimum subsistence budget was BYR924,150 or Household revenues are slowly recovering after US$111 per month (between BYR763,800 for a pen- the 2011 macroeconomic crisis. Belarus’s popula- sioner and 1,014,200 for an adult). Budgets below the tion was severely affected by the balance of payment minimum subsistence budget define people as low- crisis, which led to an increase of consumer price income. In 2011, 7.3 percent of Belarus’s population index in by a factor of 2.5 between 2011 and 2012. (5.8 percent urban, 11.5 percent rural) was classified as low-income; in 2012, 6.7 percent. Details on popu- lation distribution by level of per capita disposable resources are provided in Annex I. 7 2 Sector Performance The review of sector performance in the following subsections focuses on the assessment of the current level of services and on the technical, commercial, and financial performance of utilities, as well as their internal capacity and productivity. In many cases, the analysis distinguishes between “vodokanals” and “multi-utilities”. Vodokanals are utilities operating mostly in large cities dedicated almost exclusively to water and wastewater services, while multi- utilities are responsible for a diverse range of communal services and usually operate at a raion level. A more detailed presentation of these two types of service providers is provided in paragraph 3.5.3. 2.1 Coverage and quality of services Water supply and wastewater coverage ratios are high by regional standards, and have shown steady improvement in the last 15 years. Water supply coverage in 2011 reached 86 percent and sewerage cov- erage 74 percent, due to massive investments since 2006. The histori- cal evolution of water and wastewater service coverage is described in Figure 3. Compared with regional peers, Belarus’s urban access rates stand out, as shown in Figure 4. In terms of water supply and wastewater coverage, as well as geographically, Belarus stands at the cross-roads between the EU accession countries and CIS countries. Figure 3: Water and wastewater service coverage 1997–2011 100 90 86 % coverage 80 77 79 74 70 65 60 50 1997 2002 2007 2012 Water supply Wastewater Sources: National Investment Programs (1997–2000, 2006–2010 and 2011–2015) 9 Republic of Belarus Municipal Water Sector Review Figure 4: Comparison of urban access rates in Belarus and for IBNet utilities in regional neighbors 100 100 Water Wastewater 90 90 80 80 70 % % 60 70 50 40 60 30 lic nd rus enia ova ania Kaza nia ia aria an Russ ova enia h Re d lic rus ania ia an ania aria pub khst Pola Bela ua n Mold Russ Bulg pub Arm Rom khst Pola Bela Mold Lith Bulg Arm Rom h Re u Lith K aza Czec Czec EU accession countries CIS countries Belarus Sources: Selection of IBNet utilities and questionnaires survey A review of service coverage shows strong con- Excessive iron content is the main water quality trasts between urban and rural areas. In urban issue in urban areas. Bacteriological tests reportedly areas served by the utilities surveyed, 95 to 100 fail to comply with national standards in 1 to 3 per- percent of the population is served by a centralized cent of cases, which could be further improved. The water distribution system and a marginal portion iron content is the utilities’ main concern although through public standpipes in the outskirts of large it is not considered a public health hazard at natu- and medium-size cities. This percentage is slightly ral content levels: about 1 in 5 citizens is currently lower (90 to 95 percent) for centralized sewerage. The supplied with water whose iron content exceeds rest of the population in the semi-urban outskirts national standards (0.3 mg/l). The utility survey relies on shallow wells and on-site sanitation. In confirmed that iron content is the main complaint rural areas 1 in 5 citizens lacks access to centralized of customers. water systems and 1 in 3 relies on individual sanita- tion facilities. Services are in general more developed In rural areas, individual water sources are fre- in “agri-towns”, while in villages and hamlets, the quently contaminated and inappropriate for population relies mostly on public or private shal- human consumption. High levels of nitrates are low wells and on-site sanitation (“improved” in 97 found in the water, especially in rural shallow wells, percent of cases, according to WHO/UNICEF Joint due to extensive use of fertilizers for agriculture; Monitoring Program classification). despite strict rules requiring the protection of the zones around water intakes. Overall, in rural areas, Belarus has achieved Western standards of reliabil- water from shallow wells is reportedly subject to ity and consumption. Water is reportedly supplied bacteriological and chemical contamination in 16 on a continuous basis in almost all water utilities, a percent and 40 percent of cases, respectively. major improvement compared to the 1998 situation when 44 percent of the urban population was subject Wastewater treatment seems satisfactory in terms to regular service interruptions. Residential water of organic pollution removal, but significant efforts use (117 liters per capita per day) is comparable to are needed to treat nutrient and industrial pollu- levels found in countries with the most progres- tion. The quality of treated effluents discharged sive policies regarding water consumption, such as to the environment generally appears to comply Germany. Both residential and non-residential water with regulatory standards, particularly in terms of consumption were halved between 2000 and 2011, a organic pollution: according to the United Nations consequence of the introduction of metering. Economic Commission for Europe (UNECE) report 10 Sector Performance on Compliance to the Protocol on Water and Health detailed investigations will be necessary to con- (2010), compliance rates for BOD5 were 94 percent firm that assessment. NRW reduction objectives in 2009. However, this figure does not seem fully should be designed by putting in perspective the consistent with the condition of ageing wastewater economic costs required to achieve such target and treatment infrastructure, as observed during the util- the potential benefits (reduction of operating costs, ities survey. Most municipal wastewater treatment increased revenues). plants were built in the 1970s and 1980s and were therefore not designed to remove nutrients, nitrogen, Unreliable operational records do not allow a and phosphorus. Only half of all industrial effluents precise assessment of the prevalence of pipeline are subject to pre-treatment before being discharged breakages and sewer blockages. Incomplete MHU into municipal sewerage systems. Overall, about 1 statistics for 2011 indicate a ratio of one repair for percent of wastewater is reportedly discharged in every 20 km of water pipes per year and one block- the environment without sufficient treatment. age for 35 km of sewers per year. These blockage rates are rather low for aged systems. On the other 2.2 Technical performance hand, the utility survey shows a more realistic ratio of 0.5 to 1 repair per kilometer per year (and 0.1 to Belarus shows lower levels of non-revenue water 10 blockages per km per year). This discrepancy (NRW) than most regional peers. NRW levels com- may reflect that wastewater pipeline blockage repair monly range between 20 and 35 percent. Based on works and interventions are not always properly such figures, Belarus performs relatively well com- monitored and recorded by the utilities. pared with its regional neighbors, as shown in Figure 5. This may be due to factors such as the absence of Due to structural factors inherent in local geog- service interruption and network depressurization, raphy and hydrogeology, the operation of water networks’ overcapacity enabling moderate service and wastewater services requires very high energy pressures, and very low residential tariffs that do not inputs. With the exception of the Minsk Vodokanal, encourage water theft. A more detailed assessment all water utilities use groundwater for their urban of non-revenue water levels is provided in Annex II. and rural water supply through well fields of deep boreholes. In terms of investment cost optimization The cost necessary to significantly reduce water and operational simplicity, this approach makes losses might exceed the potential benefits, but sense. Its main drawback is that it requires very high Figure 5: Non revenue water in Belarus, in IBNet utilities of regional neighbors and across other middle-and upper-income countries 100 90 80 70 60 50 % 40 30 20 10 0 ania ova an rus a ia enia aria lic nd ico il rica Chile Italy ce a s s any n k Wale tate mar uani Chin Braz Japa Russ Fran pub khst Pola Mex Bela Mold h Af Germ Bulg Arm Rom ed S Den Lith and- h Re Kaza Sout Unit Czec Engl EU accession countries CIS countries Belarus Other middle-income countries OECD countries Source: IBNet 11 Republic of Belarus Municipal Water Sector Review and there are few disputes, which may also stem Figure 6: Energy intensity of water billed for from the very low residential tariffs. utilities in several countries 2.50 The absence of bulk water metering can be detri- mental to the utilities’ commercial performance in certain circumstances (supply to residential build- Electricity use per volume of water billed (kWh/m3) 2.00 ing or to hot water systems). Water is systematically billed on the basis of individual water meters, includ- 1.50 ing when they are installed inside private properties. Egypt In the case of residential buildings, water services Brazil providers are therefore de facto responsible for the 1.00 Russia common internal piping until “condominiums”1 India China become fully operational. Note that the volume of 2.50 Belarus hot water delivered to the customers is billed by the water utility, while the energy cost is billed by the heating and hot water company. The volumes - - 100,000 200,000 300,000 400,000 of water delivered to the heating points, however, Utility size indicated by water billed (m3/day) are not metered. Therefore, the water utility cannot >?/@A%B2/@1%C455@;%D2-%:?/%4:;4E2/@%B2/@1%;@54F@1@;%%;7@%/?%4:E?D.5@/@% Source: utilities survey for Belarus and IBNet (other countries) control leakage in the hot water system between the heating point and the customer meters. Such losses are therefore borne by the water company. energy inputs of between 0.8 and 1.8kWh per m3 of billed water (depending on the depth of the bore- Customer relations are still emerging in most utili- hole) just for water abstraction. Compared to several ties, although progress was observed. The utility other countries, this range is above the average has little or no contact with residential customers expenditure by utilities for their full cycle of water because they read their own meters. The culture at and wastewater services, as illustrated in Figure 6. most utilities is essentially a technical one, but some steps toward a more customer-oriented culture have 2.3 Commercial performance been taken. A complaint book is available in each and customer relationship utility and almost all utilities or local executive com- mittees have a website offering general information Collection rates are very high, but are likely to on the services, in compliance with the law “On deteriorate if tariffs increase significantly and Consumer Rights Protection in Utility Services” meter reading is not performed by the utilities. of 2009. According to the survey conducted by the Currently, residential customers read their meters Centre of System Business Technologies (SATIO) in themselves monthly and send their payment to the 2013, customers are increasingly dissatisfied with bank or to “accounts clearance centers” that inform several aspects of communal services, such as (i) the utility of payment. Utilities reportedly check cus- delays in reaction to complaints; (ii) the low quality tomer meters once a year. Other customers, such as of works and the lack of information on their justi- industrial enterprises, provide the utility with their fication and planning; and (iii) the lack of transpar- monthly meter readings, then the utility issues a bill ency with regards to the structure of utility bills, and to be paid by within one month. This self-reporting utilities’ budgets and expenditures. practice as part of the payment procedure (shared with other communal services) is particularly effec- tive in terms of money collection, as long as customer satisfaction is high and residential tariffs are very low. As revealed by the utility survey, the collection 1 Condominiums were established under the Law on Owners’ rate within the prescribed time is nearly 100 percent Association, revised in 2009. 12 Sector Performance 2.4 Utility staff productivity and are rare and generally not linked to the achieve- internal capacity ment of objectives and targets. In some utilities, the contract between the director and the executive Utilities’ staff productivity is most often very low, committee specifies incentives to be attached to the far from the levels found in well-operated utilities attainment of indicator targets. — a situation particularly critical in multi-utilities. The ratio of employee2 per 1000 customers is 7, far Utilities focus almost exclusively on technical from the ratio of 1 to 3 for well-operating utilities activities, as illustrated by their organizational (e.g., efficiently organized, properly automated) structure, staff composition, and career develop- in other countries. Observations made during ment policies. The organizational structures of utilities’ site visits confirmed that there is a room for utilities are generally characterized by (i) an almost improvement in that perspective. The ratio-based exclusively technical orientation, with the large comparison must be moderated to some extent by majority of the staff (up to 90 percent) under the the fact that in Belarus all activities are performed chief engineer3; and (ii) the marginalization of key in-house, with practically no outsourcing, and that functions, such as customer management or human the automation of facilities is still limited. As shown resources management. Training is mostly technical in Figure 7, this ratio varies considerably between and engineering oriented, and between 20 and 30 utilities. Less than 20 percent of utilities have a staff- percent of the staff reportedly benefit from training ing ratio in the optimum range. Overall, vodokanals each year. A professional certification system is in have slightly higher ratios than multi-utilities. place at the national level, but it focuses on special- ized types of activities, particularly technical ones. Human resources policies are clearly not geared towards the stimulation of efficiency and perfor- 2.5 Business planning mance. This overstaffing stems essentially from the application of the Norm on Staffing of Water and In their current format and content, the business Sewerage Utilities of 2010. These staffing norms set plans prepared on a regular basis by utilities lack the amount of manpower required for any task and many of the key characteristics required for such are still in use in all utilities, even if most of them do types of instruments. Business plans are prepared not fully reach the normative level. Similarly, salaries annually by the utility in accordance with the are normalized based on a national public salary provisions of MOE Ordinance 186 of October 2007 scale. Incentives, essentially non-monetary bonuses, and relevant guidelines from the MHU. The busi- ness plan is not a long- or even medium-term plan4 ; it provides forecasts for the year to come, based Figure 7: Utilities staff productivity ratio on the analysis of the current and previous years. Reduction of costs is clearly addressed in the busi- 20 ness plan, but it is focused on electricity consump- Vodokanals tion, not on the organization of operations or on Sta per 1000 customers 15 human resources. The plans reviewed for this study Multi-utilities 10 3 For example, in the Sianno multi-utility (Vitebsk Oblast), the chief 5 engineer is responsible for all activities (heating & hot water, water and sanitation, saunas, hotel, transportation, etc.). His 0 department includes 505 persons, out of a total of 543. Utilities 4 Ordinance 186 from the MOE also provides detailed contents Source: IBNet and utilities survey) and structure for the 5-year “forecast” plan, which is more prospective than the business plan. In 2012, this 5-year forecast plan became a 3-year “modernization plan.” Such medium-term 2 Women generally account for 30 percent to 40 percent of plans, addressing all aspects of utility development (investments, the overall staff, an acceptable gender balance that could be management, human resources, etc.) have been prepared by each improved on. utility for the period 2013-2015. 13 Republic of Belarus Municipal Water Sector Review do not specify how the utility can meet the targets Figure 8: Operating costs in utilities of Minsk set for the year to come. oblast The sector lacks a set of well-defined performance 1.8 indicators; including key indicators essential to 1.6 Vodokanais accurately assess the internal performance of each 1.4 Multi-utilities Cost recovery level 1.2 utility and define objectives and targets for its 1 business development plan. Reports from utilities, 0.8 business plans, and modernization plans, as well 0.6 as consolidated reports from oblasts and the MHU, 0.4 include a great number of indicators, but little of this 0.2 information is translated into indicators that would 0 allow managers to assess the level of performance in Utilities the sector (benchmarking) and to monitor progress Source: Minsk Oblast statistics 2011) toward objectives and targets. A list of recommended performance indicators is provided in Annex VII. TABLE 2: OPERATING COST STRUCTURE Type of cost % 2.6 Financial performance Material 16.0% Energy 28.4% The review of sector financial performance puts Labor + social charges 28.8% into perspective the costs of services, the revenues Depreciation 12.0% generated by the sale of services, and the need for Others 14.8% their subsidization. A full presentation of sector Source: MHU annual statistics 2011 financial indicators, key ratios and flow of funds for 2011 is provided in Annex V. Certain key operating cost items are too aggregated to allow an appropriate monitoring and control 2.6.1 Costs of service of utility costs. In accordance with the Ministry of Housing and Utility (MHU) rule of June 2011, The average operating cost countrywide is US$0.75/ the costs are divided into four groups: (i) materi- m3 but costs vary significantly across individual als (including electricity costs), (ii) personnel and utilities. Based on 2011 statistics, the average cost associated charges, (iii) depreciation, and (iv) oth- of services is about BYR 6,000/m3 (equivalent to ers. “Materials” (without electricity) and “others” US$0.75), or about five times the lowest residential include a large variety of costs, but no details are tariff block in 2011 (BYR890); these averages include provided in reports sent to the oblasts and the MHU, operational costs and depreciation but not repay- and cost control over these items, which account ment of investment loans. As illustrated in Figure for about 30 percent of the total costs, is almost 8, vodokanals in Minsk oblast have lower operating impossible. costs than average multi-utilities, a likely reflection of their respective operating efficiencies. Environmental taxes collected by national and regional authorities represent a significant part of Energy and labor costs generally represent the operating costs. The cost category “others” includes main operating cost items. On average across the environmental taxes, imposed for water abstraction sector, energy and labor charges account for more and discharge of effluents. Taxes for the discharge of than half of operating costs, as shown in Table 2. effluents represent between 16.5 percent (BYR470/ Cost structures vary greatly among utilities. For m3) and 22.1 percent (BYR630/m3) of the average example, personnel costs can represent up to 50 operating costs of wastewater services. The water percent and electricity costs up to 35 percent of total abstraction tax represents about 1.4 percent (BYR50/ operating costs. m3) of the average operating cost for water services. 14 Sector Performance Further details on applicable tax rates are provided Ministers defines the maximum percentage of the in Annex IV. total costs of communal services that should be cov- ered by the population. This percentage is currently No clear information could be collected on the 60 percent. The corresponding costs are updated accounts receivables and payables of utilities. every year, taking into consideration projected Available statistics for 2011 do not provide informa- income increases. In 2012, for water and sanitation tion on the level of receivables and payables. Very services, residential customers contributed below 10 limited financial statements5 (balance sheets and percent of actual costs. The tariff-setting procedure profit and loss statements) were made available is described in Annex III. during the survey. Based on the financial statements received, receivables account for an average of 2.1 The current residential tariff levels guarantee months of sales and the payables 1.3 months, both access to services at an affordable cost, despite of which are reasonable. recent increases. At current levels, services are largely affordable even to low-income households: in 2.6.2 Utility revenues June 2012, an average monthly household consump- tion of 3.5 m3 would lead to a water and wastewater The utilities’ revenues originate predominantly bill of BYR5,100, which represents less than 1.2 per- from urban areas and non-residential customers. cent of the monthly disposable resources for more Urban areas contributed 95 percent of the revenue than 99.8 percent of the population. In addition, low- in 2011. Residential customers accounted for 22.7 income households may request financial assistance percent of revenue, whereas they accounted for 70 from the local executive committee to settle their percent of the total consumption and more than 98 housing and utility bills. Table 3 demonstrates that percent of connections. This discrepancy is due to the residential tariff has rapidly evolved over the last the heavy cross-subsidization between residential two years. The tariff adjusted to a change in tariff and non-residential customers. Of the total revenues structure in January 2011 (see the following para- for 2011, 53.9 percent came from water services and graph) and to a major devaluation of the Belarusian 46.1 percent from sewerage services. ruble that same year. Despite these changes, services remain affordable even to low-income households. The tariff for water and wastewater services reflects strong social considerations for residential The residential tariff structure ensures equity consumers. The Social and Economic Development among customers. The residential tariff has Program issued every five years by the Council of two parts: the base tariff for a maximum daily TABLE 3: RESIDENTIAL TARIFF—RECENT EVOLUTION (WATER/SANITATION) IN CONSTANT BYR/M3 Evolution Service Tariff January 2010 January 2011 January 2013 2010–2013 Water Average 1,164 1,767 1,447 +24% Base 1,350 900 Additional 4,150 3,750 Wastewater Average 732 1,071 970 +32% Base 700 550 Additional 3190 2800 5 Financial statements are prepared according to the Belarus accounting system. IFRS is expected to be introduced progressively. 15 Republic of Belarus Municipal Water Sector Review a cross-subsidization level considerably higher than Figure 9: Cross-subsidization levels (average in any neighboring country, as illustrated in Figure domestic tariff/average non-domestic tariff) 9. The highest non-residential tariff is more than —average in Belarus and for IBNet utilities in 20 times the base residential tariff, according to the regional neighbors utility survey. As a result, large industrial enterprises 10 may have strong incentives to develop their own 8 water supply, thus making the sector’s financial 6 situation vulnerable. 4 2 The prospective cancellation of cross-subsidization 0 among customer categories will entail major chal- lenges for the sector. As planned by the Ministry of aria lic ia enia ania nd an a ova rus uani Russ pub khst Pola Bela Economy, all cross-subsidization will be eliminated Mold Bulg Arm Rom Lith h Re Kaza by 2015, consistent with the Decree of the Council Czec of Ministers of the Republic of Belarus N 97, “On EU accession countries CIS countries Belarus the Concept of Housing and Communal Services Source: MHU 2011 for Belarus; IBNet utilities for all other countries) Development to 2015” (February 08, 2003). To main- tain the current level of revenue, an elimination of consumption of 140 liters per person and, an addi- cross-subsidies would require a multiplication of the tional tariff for consumption exceeding 140 liters current average residential tariff by 2.6. Achieving per person6. The application of this residential tariff this objective by 2015 may represent a major social based on consumption per person, rather than per and political challenge, and a postponement of this household, implies that the number of persons in the milestone might be prudent to consider household is known and updated, which is currently the case in Belarus. As such, a high level of equity 2.6.3 Utilities subsidization among residential customers is ensured. Subsidies allocated on an ad-hoc basis by the The residential tariff structure does not encourage central government to cover operational losses demand management, but this is no longer a prior- represent a major source of funding for water utili- ity in Belarus. The very low tariff levels and the 140 ties. On average in 2011, operational costs for both liters per person per day threshold are inadequate water and sanitation services were BYR5749/m3 and to encourage conservative consumption habits from BYR6530/m3, with and without operational subsi- residential customers. That is, the current average dies, respectively. With revenue per cubic meter of daily consumption is 117 liters per person per day. BYR6279/m3, the cost coverage ratio was close to 1 As a result, only 15 percent of the total volume (i.e., 1.08 with subsidies and 0.96 without subsidies), consumed by residential customers is billed at the due to the very high cross-subsidization. Subsidies higher tariff rate. Given the existing level of residen- represented in 2011 BYR215 million, an average 10.6 tial consumption and tariff structure, the scope for percent of utilities’ total revenues, with a range of 4 further decrease seems very limited. to 26 percent. In comparison, heating services were subsidized at 44.5 percent and solid waste services The current cross-subsidization between customer at 3.0 percent. categories is extremely high by international stan- dards—a clear source of financial vulnerability for Cost recovery levels appear insufficient in about the entire sector. At the country level, non-residen- 25 percent of utilities in the Minsk and Vitebsk tial tariffs are on average 8 times residential tariffs, Oblasts. Even with operational subsidies, cost recov- ery levels vary significantly between utilities. Figure 6 The additional tariff was introduced in 2011 and was designated 10 illustrates that in Minsk and Vitebsk Oblast 25 as a “tariff allowing for a full recovery of economically justified costs”. percent of utilities remain far from recovering their 16 Sector Performance forecast, or commitment to improve performance. As Figure 10: Cost recovery levels for utilities in such, it does not encourage utilities’ efficiency, and Minsk and Vitebsk Oblasts (2011) perpetuates their dependence on budget support. 1.4 The planned cancellation of operational subsidies Vodokanais 1.2 Multi-utilities will require major residential tariff increases and 1.0 impact the affordability of services for low-income 0.8 populations. Like cross-subsidization, operational subsidies should be phased out in 2015, according 0.6 to the Decree of the Council of Ministers of the 0.4 Republic of Belarus “On the Concept of Housing 0.2 and Communal Services Development to 2015.” 0.0 The present level of cross-subsidization is not sus- Sources: Minsk Oblast statistics (2011) and Vitebsk Oblast statistics (2012) tainable, especially if, as planned by the Ministry of Economy, operational subsidies are phased out in 2015. Full cost recovery will require an increase in costs despite very high cross-subsidization among the residential tariff by a factor of about 3.1, which customer categories. is beyond the affordability limits of the poorest seg- ment of the population. Subsidy allocation procedure does not encourage operational efficiency. Operational subsidies are 2.7 Conclusion on sector allocated on the basis of short-term needs to cover performance losses incurred by the utilities. Subsidy calculation is not based on utilities’ medium-term financial In summary the water and wastewater sector in Belarus shows: 1. A reasonable and steadily improving level of service. Sector strengths and weaknesses in that respect are shown in Table 4. TABLE 4: STRENGTHS AND WEAKNESSES OF SECTOR PERFORMANCE—LEVEL OF SERVICE Strengths Weaknesses Water services ++ Urban coverage almost universal -- Water quality issues: excessive iron content for 20 percent of ++ Continuous and reliable (24/7) supply practically everywhere country population & frequent contaminations in shallow wells ++ Conservative consumption levels in rural areas. ++ High level of affordability, including for low-income households -- Rural coverage (80 percent) still insufficient (but improving) Wastewater/sanitation services ++ Major increase of urban coverage (but still 25 percent gap) -- Lack of nutrients treatment capacity (but improving) ++ High compliance in terms of treatment of organic pollution -- Few industrial pre-treatment facilities ++ Most individual sanitation facilities are improved 2. Overall operational performance is acceptable, by regional standards, but there is room for improvement. Sector strengths and weaknesses in that respect are shown in Table 5. TABLE 5: STRENGTHS AND WEAKNESSES OF SECTOR PERFORMANCE—OPERATIONAL PERFORMANCE Strengths Weaknesses ++ Overall acceptable levels of NRW (especially in vodokanals) -- Overall poorer performance in multi-utilities ++ Metering almost universal -- Limited meter-reading oversight ++ High collection rate -- Limited customer relationship culture -- High staffing ratio 17 Republic of Belarus Municipal Water Sector Review 3. Operational capacity is focused on engineering and overall potential is underexploited. Potential capac- ity is limited by the lack of performance incentives and the diversification of activities in multi-utilities. Sector strengths and weaknesses in that respect are shown in Table 6. TABLE 6: STRENGTHS AND WEAKNESSES OF SECTOR PERFORMANCE—LEVEL OF SERVICE Strengths Weaknesses ++ Strong technical expertise (in particular in vodokanals) -- Lack of generalized performance-oriented culture and ++ Training opportunities in vocational education instruments ++ Reasonable gender balance -- Commercial, human resources functions marginalized -- Norm-based approach of staffing -- Normalized salary scales insufficient to retain qualified staff -- In multi-utilities: lower level of sector expertise, professionalism and equipment 4. Financial performance is mediocre, characterized by a strong dependence on budget support and by mas- sive cross-subsidization between customer categories. Sector strengths and weaknesses in that respect are shown in Table 7. TABLE 7: STRENGTHS AND WEAKNESSES OF SECTOR PERFORMANCE—FINANCIAL PERFORMANCE Strengths Weaknesses ++ Residential tariffs affordable and equitable -- High dependence on subsidies (investment and operational) ++ A number of (large) utilities achieve cost recovery (on operations) -- Extreme cross-subsidization between categories of customers -- Lack of transparency in financial management of water services in multi-utilities -- A significant proportion of utilities with very low cost recovery levels (on operations). 18 3 Legal and Institutional Framework The assessment of the sector legal and regulatory framework focuses essentially on three key aspects discussed in the following sub-sections: (i) the relevance and comprehensiveness of sector-related legislation, (ii) the clear formulation of sector policy and strategy, and (iii) the functional allocation of responsibilities between sector stakeholders. 3.1 Sector-related legislation and regulations The water and sanitation sector is governed by two key legislative documents defining the main components of its institutional and regulatory framework: the Water Code and the Law on Potable Water. The Water Code of 1998 establishes the legal framework on protection and use of water resources. It defines the responsibilities of central and local authorities, the rights and obligations of water users, and the role of citizens and public associations, and it sets the rules regulating the intake of water and discharge of pollution. The new version, which is under review by the parliament and should be approved and implemented in 2013, is expected to introduce the con- cept of river basin management, based on the prevailing EU model. The Law “On Consumer Rights Protection in Utility Services” of 2008 (and the related Resolution of the Council of Ministers of 2009) enlists the rights of citizens with regards to public utilities. The Law on Potable Water of 1999 (amended in 2009) specifies the respective roles and responsibilities of the central, regional, and local councils, the rights and obligations of the drinking-water providers, the protection of potable water sources, the information to be provided to customers, etc. The law has been supplemented by the Resolution of the Council of Ministers “On State Control and Supervision in the Field of Potable Water Supply” (1999). This legal framework is complemented by a number of laws, decrees, orders, and rules. These include: • The Law on Sanitary and Epidemiological Welfare (2012), which addresses the monitoring of potable water quality; 19 Republic of Belarus Municipal Water Sector Review • The Law on Environmental Protection, which technical, environmental, and managerial options and focuses on the discharge of effluents in the constraints; and the obligations of both the service pro- environment; viders and the customers (residential and industrial). • The Law on Local Self-Governance (2010), which 3.2 Technical standards and norms addresses the responsibility of the local authori- ties in organizing public services; Technical standards are being continuously updated, with the objective of harmonizing • The Housing Code (2012), which governs the them with international, particularly Russian, relations between the residents and the entities standards. Technical regulation, standardization, providing housing and utilities services; metrology, and certification are to a large extent under the responsibility of the State Committee for • The Law on Owners’ Associations (revised 2009), Standardization. Technical normative acts include which provides guidance for the relationship technical regulations, technical codes of good between the owners’ associations and the service practices, and government standards (GOST). The providers; government’s policy is to harmonize the standards in Belarus with international standards and with the • The Presidential Decree (last amended standards of the Custom’s Union (Belarus, Russia November 2011) “On Measures to Improve and Kazakhstan). The harmonization with interna- the Efficiency of the Housing and Communal tional standards has been 60 percent achieved. Services”; Infrastructure design and sizing norms appear • The Presidential Decree (April 2006) “On the very conservative, a partial reason for the frequent State Program on Water and Sanitation, ’Clean overcapacity of existing infrastructure. The very Water,’ for the Years 2006–2010,” which details low rate of usage of production and treatment facili- the investment program for 2006–2010, includ- ties (as illustrated in section 4) suggests that design ing the funding sources; standards may be particularly conservative. Two examples clearly confirm this assessment: • The Resolution of the Council of Ministers (September 2011) “On the State Program on • To size water and sewerage facilities in Belarus, Water and Sanitation, ’Clean Water,’ for the Years design institutes use water consumption norms 2011–2015,” which details the oblast investment of 180 to 210 liters per day (a yearly average), program for 2011–2015; well above the consumption of 105 to 110 liters per capita per day recorded during the util- • Rules prepared by the MHU (April 1994) on the ity survey. As an alternative, the norm allows operation and maintenance of water and sanita- designers of water and wastewater systems tion systems; and to use the consumption statistics for the past three years, but this practice is reportedly rare. • Standard regulations for utilities, such as the Network or treatment plant design based on utility charter and the service contract with the actual needs instead of such consumption norms utility’s customers. could enable savings of up to 30%. The sector’s legal framework is consistent and • A large safety margin must be taken into account comprehensive over all, but some aspects could be in designing water infrastructure: water systems further elaborated. Aside from effluent discharge should be designed in such a way that they can standards, there is no specific legislation on sanita- handle all major supply incidents, for example, tion (such as there is for water supply) defining the incidents requiring a doubling of transmission role of the state, regional, and local authorities; the lines in large towns and cities or the systematic 20 Legal and Institutional Framework creation of supply loops on all distribution plans represent about US$60 million (2006–2010) antennas. and US$40 million (on-going plan) per year. • The universalization of metering in the late 2000s Belarus has issued standards for potable water and as a strong tool for demand management and for wastewater treatment that are close to those of control of water losses. the European Union. The main potable water qual- ity standards (presented in Annex IV) are largely • The reduction of electricity expenses, a major aligned with WHO recommendations and with EU component of the utility costs, through the standards. With regard to treated effluent quality national Energy Saving Program. standards, the new maximum concentration require- • A socially driven residential tariff policy framed ments are comparable to those of the European by the Social and Economic Development Union (outside of environmentally sensitive areas). Programs. These standards do not depend on the quality of the water being treated, and are defined for the entire There is no stated organizational strategy even country or territory. though the decentralization of services (from national to regional/local authorities) seems to be Technical standards do not include many alterna- emerging. This trend is particularly visible with tives in terms of technology and level of services regard to the definition and financing of investment in rural areas. Technical standards are mostly dedi- programs. Reportedly, in the early 90s, legislation cated to the provision of services through centralized on local governments vested the local councils with wastewater systems. In rural areas, such systems are full responsibility for the public water supply and often very suboptimal, both in terms of investments sanitation services. The difficulties that many local and operation costs. governments faced in providing these services— due to limited capacity and resources—have led to 3.3 Sector strategy a strengthening of the oblasts’ role in supervising and advising the local utilities and coordinating The government’s current policy orientation in the their work. water and wastewater sector is clearly identified, 3.4 Sector stakeholders but they are not specifically framed in a national strategy document. Sector policy orientation The water supply sector in Belarus is strictly regu- includes (i) full coverage of services, including in lated and vertically integrated from local councils rural areas; (ii) continuous provision of safe potable to the central government. The central government water; (iii) affordable services for all segments of develops sector policy and strategy and controls population; (iv) improvement of systems’ opera- their implementation. tional efficiency (with reduction of water losses and increased energy efficiency); and (iv) protection of At the national level, the Ministry of Housing and the environment. These orientations are reflected in Utility (MHU) is the sector line ministry, coordi- the following measures: nating management of the sector with four other national authorities. The MHU is the pivotal actor • Two 5-year “clean water” national investment coordinating the sector for the government. MHU programs (2006–2010 and 2011–2015), which implements the state water policy, monitors and set clear nation-wide baselines and targets for supervises water provider operations, provides mana- indicators such as coverage of services and the gerial guidance and training to the operators, and quality of potable water and treated wastewater. compiles sectoral data. Other key stakeholders include These programs reflect a strong political will and (i) the Ministry of Natural Resources and Environment the government’s determination to improve the (MNRE), which manages water resources and controls sector by developing and modernizing infra- their quality; (ii) the Ministry of Health (MOH), which structure. Average investments within these monitors and supervises potable water quality and 21 Republic of Belarus Municipal Water Sector Review environmental health; (iii) the Ministry of Finance standards, institutional arrangements, financing, (MOF), which allocates funds for investments in, and and cost recovery mechanisms. The Presidential subsidies to, the sector; and (iv) the Ministry of the Administration defines the main sector policy orien- Economy (MOE), which reviews and approves the tations, and their implementation lies primarily with tariff for water and wastewater services. the Ministry of Housing and Utilities (MHU), as well as the Ministry of Health (MOH) and the Ministry Regional administrations are closely involved in of Natural Resources and Environment (MNRE). sector coordination, while local authorities and their service providers are responsible for service 3.5.2 Assets ownership and infrastructure provision. At the oblast level, the key sector stake- planning holders are: the oblast council of deputies and the oblast executive committee—the latter being the Water and wastewater infrastructure is owned by coordinator of the sector activities in the oblast. In local councils. According to the Civil Code (Art. Minsk City, this role is played by the city council of 215), state property can be either property of the deputies and the city executive committee. At the Republic of Belarus or communal property, which district (raion) and city level, the local council of is property of administrative territorial units (oblast, deputies and the executive committee are ultimately raion, city, etc.). All water and wastewater infra- responsible for water and wastewater services. These structure, including land, is city/district property. services are provided in major towns by utilities Initially republican property, it has become munici- specialized in the provision of water and wastewa- pal property, e.g., belonging to the local council of ter services, vodokanals. Elsewhere multi-utilities deputies, and cannot be leased or sold without the provide services across several sectors. council’s formal consent. Assets are “transferred” to the utility for “economic management,” but owner- Civil society organizations (CSOs) are marginally ship remains with the local council. involved in the sector. Potential sector stakeholders could include the few CSOs or non-governmental Infrastructure planning is a cumbersome process organizations (NGOs) that currently focus on envi- that involves a wide range of stakeholders at all ronmental protection (especially river basin pollu- levels of government. Investment proposals are for- tion) at the central level, as well as those in local malized by local councils based on utilities’ recom- communities affected by pollution issues. Their mendations and often with the technical assistance involvement in the water and wastewater services of oblast agencies. Projects are subject to the oblasts’ sector (e.g., participation in revising the Water Code, appraisal and selection. In addition, the MHU must monitoring of water quality, public education in verify their consistency with sector strategy and rural areas) remains very limited. policies before it endorses their integration into the national Clean Water Program. Until the 2002-2005 3.5 Overview of sector functional Clean Water Program, the MHU played a stronger organization role in the projects’ identification process, but the government’s current policy clearly encourages a The following sub-sections describe the roles and decentralization of such responsibilities to local and responsibilities attached to key sector functions: regional authorities. policy formulation, asset ownership and develop- ment, financing, regulation, and service provision. The identification and appraisal of investments are often conducted without the clear and transparent 3.5.1 Policy formulation procedures required to guarantee the efficiency of capital investments. Priority investments are identi- Sector policy is defined at presidential level. fied by the utilities based on their perception of the The central government formulates water supply rehabilitation needed in their facilities, recommenda- and wastewater sector policies, such as service tions from the MNRE on environmental protection, 22 Legal and Institutional Framework complaints from users regarding water quality multi-service utilities (MUs) are responsible for and taste, and requests for extensions of water a diverse range of communal services across the and wastewater systems. Generally, these invest- raion.7 The water and wastewater sector comprises a ments are identified without reference to a water/ total of 25 vodokanals and 120 MUs, each type covers wastewater master plan. Except for large facilities, close to 50 percent of the total population.8 As “com- no economic and financial analyses (e.g., rate of mercial organizations,” the MUs (and to a limited return) are done. The lack of strict and transparent extent vodokanals) are often engaged in a variety project appraisal procedures necessary to keep an of other activities completely unrelated to their core arms-length relation between those who need public services, including hotel management, hairdressing, funds (the utilities) and those who provide them (so and funeral services. These side businesses are sup- far, mostly the central and oblast governments) is posed to contribute to the financial viability of the likely to undermine the efficiency of capital invest- multi-utility. The expansion of services is generally ments. The process of preparing, implementing, and encouraged by local governments. However, as supervising Clean Water Programs is presented in found during the utility survey, such diversification Annex III. of activities is often done at the expense water and wastewater services in terms of management focus 3.5.3 Service provision and staff professionalism. Services are operated by “unitary enterprises” Water and wastewater service providers often lack accountable to district or municipal authorities, clear performance objectives and obligations. The which are ultimately responsible for the provi- vodokanals and MUs, as unitary enterprises, are sion of water and wastewater services. Water and operated in relative autonomy from local authori- wastewater services are the responsibility of local ties. As unitary enterprise, they exercise economic authorities (city or district council of deputies), control over local governments’ assets. Their char- who have established the services as “unitary enter- ters lack clearly defined objectives and targets. The prises” accountable to the local executive committee chairman of the local executive committee appoints on the basis of a charter (Articles of Association). The directors of utilities with a 3 to 5 year contract. This charters specify that the service provider is a legal contract includes generic objectives but usually has entity and a state-owned enterprise, whose assets no specific targets. remain the property of the city or district. Only one vodokanal has a different status: the Slonim Currently, many customers operate their own Vodokanal is a joint stock company, the board of water and wastewater systems, a potential factor which currently includes oblast/raion officials, of vulnerability for the sector. Many industries vodokanal staff members, and private individuals. have developed their own water production and This peculiarity does not set it apart from the unitary sometimes wastewater treatment systems, as enterprises in terms of its supervision by the oblast a result of the very high water tariffs levels for and by the MHU. non-residential customers. In a country with wide- spread and abundant water resources, leaving the The service providers’ charter permits the provid- market of service provision open can be seen as ers to engage in virtually any public or private economically sound as it stimulates competition service (as long as it appears to be profitable), and and therefore efficiency among the existing and this has led to the development of two types of service providers, water and wastewater utilities 7 In a few cases two MUs operate in the same raion. and multi-service utilities. The vodokanals oper- 8 In addition, water and wastewater services are currently and ate mostly in large cities. In addition to water and marginally rendered (i) by “agro-towns” (a total of about 1,500), whose water and sanitation services are progressively transferred wastewater services, these organizations may have to the district multi-utilities; (ii) by some industries that have “water-related” activities, such as a bottled water developed their own systems and are providing wastewater services; and (iii) by the railway administration, which provides business and plumbing services, on the side. The water services to settlements along the railroad network. 23 Republic of Belarus Municipal Water Sector Review potential service providers. Figure 11: Origin of public investment funds in the water and wastewater On the other hand, the lack sector 2006–2010 of long-term visibility of their perimeter of services Resources of utilities, may significantly complicate City/raion budget, 3% infrastructure planning for Integrated to 19% public operators, and under- State budget, 20% national budget mine the efficiency of their (2012)* investments. 3.5.4 Sector financing Oblast budget, 13% Other national funds, 6% Capital investments are mostly financed through public grants, more than 75 percent of which should Integrated to Oblast budget State Environment now originate from local fund, 40% (2013)* or regional authorities. The development of water and * a marginal part is transferred to state budget sanitation service infrastruc- Source: “ Clean Water” Program 2006-2010 ture relies essentially on public grants from state, oblast, and city/raion budgets, and on grants and on information on cost and revenues reported by credits from international financial institutions utilities to city/raion executive committees, and (IFIs). For instance, as demonstrated in Figure 11 further consolidated at the oblast level. Subsidies two thirds of the 2006-2010 Clean Water Program earmarked for communal services are distributed in was financed from state budget and funds, while return by the MOF to oblast authorities and further the contribution from the utilities’ cash generation transferred to the city/raion level. The distribution was. In the 2011–2015 Clean Water Program, up to of operational subsidies to the different communal 70 percent of investments are to be financed from the services is then made at local authority’s discretion. budget, and 30 percent from an IBRD loan. This loan, The process of calculating and allocating operation denominated in US dollars, is 70 percent serviced by subsidies is presented in Annex III. the central government. The remaining 30 percent is on-lent in BYR to oblast authorities under condi- International financial institutions (IFIs) have tions of the parent loan. In the 2011-2015 program, greatly increased their support to sector develop- at least 75 percent of public resources allocated to ment, becoming a major source of funding for the program must originate from local or regional the sector in recent years. The current Clean Water budgets (the central government shares with local Program incorporates, and is complemented by, proj- governments the revenues from national taxes). This ects implemented with the financial support of IFIs, represents a major shift towards decentralization of notably IBRD, the European Bank for Reconstruction financial responsibilities compared to the previous and Development (EBRD) and the Nordic Investment program. Bank (NIB). With a loan of US$60 million approved in 2008, the IBRD-supported project focuses on the Financing of operations relies significantly on rehabilitation, modernization, and upgrading of subsidies allocated on a yearly basis by the central 10 water systems and 12 wastewater systems in all government and distributed through local authori- six oblasts of the country. The EBRD and NIB have ties. Subsidy needs are calculated at the national set up a Municipal Environmental Infrastructure level for all communal services by the MHU, based Framework Facility comprising a sovereign loan of 24 Legal and Institutional Framework up to EUR30 million to finance wastewater treat- supervise utility operations,10 with monthly and quar- ment, power production from biogas in wastewater terly reports. These reports lack relevant and action- treatment plants, and other municipal services. The able performance indicators. There is reportedly little NIB is co-financing the facility with a sovereign loan or no feedback on these reports from the oblast or of up to EUR25 million. In the framework of the new the MHU. To date, 21 utilities report on their annual projects supported by EBRD and by NIB, several performance to the MHU through the International large utilities are, for the first time, financing major Benchmarking Network (IBNet). However, these data investments on loan terms. are not currently integrated in the sector reporting and monitoring process conducted at the MHU and 3.5.5 Regulation oblast level. More generally, there is no systematic use of benchmarking methods to help utilities understand In the absence of an independent regulator, regu- their operational weaknesses and to positively impact lation is performed through various decisions, managerial decisions in future. rules, decrees, etc., from the responsible ministries and state organizations. How the sector is regulated Operational monitoring is also performed by the economically and technically is described below. MNRE, the MOH and by local authorities, but penalties for non-compliance are not systematic. Tariff regulation, performed by the MOE and by The MNRE allocates the rights for water abstraction oblast authorities, lacks transparent tariff adjust- and permits for the discharge of effluents and defines ment instruments, which would enable custom- wastewater treatment standards. The quality of ers to anticipate tariff changes. The residential discharged effluents, treated or untreated, is closely tariff applies nation-wide. It is recommended by monitored by MNRE’s local offices. Penalties for the Ministry of Economy and set by the Council of non-compliance are in general not applied to utilities Ministers. Its regulation is performed in compliance that demonstrate that they are proactively upgrading with socio-economic directives provided by the their treatment facilities. The recent Technical Code Presidential Administration through the Social and issued by the MNRE specifies the procedures for Economic Development Programs, and is based on setting the permissible levels of industrial effluents. sector financing needs identified by the MHU. Non- These levels are currently determined by the oblast residential tariffs, which are proposed by utilities authorities, in consultation with the industries. to cover their financing gap, are submitted to local Local authorities are often reluctant to penalize non- councils and then to oblast authorities for approval. compliant industries that contribute greatly to local There is, however, no transparent regulatory instru- economy. The MOH is responsible for setting potabil- ment or tariff adjustment mechanism enabling cus- ity standards. The quality of water supplied through tomers to anticipate tariff changes. centralized systems is tightly monitored by the utility laboratory and controlled by the MOH local entities. Operational information is by oblast authorities and consolidated by the MHU, but there is no 3.6 Private sector participation monitoring of performance data that would enable benchmarking or yardstick competition. The MHU Although still in its first stage of development, prescribes the “rules” and “norms” relative to all the private sector is Belarus is growing steadily. aspects of utility management.9 Oblast authorities According to the National Bureau of Statistics, the number of small private enterprises jumped from 10 Except in two oblasts (Vitebsk and Mogilev), this control of the utilities is essentially an administrative monitoring based on quarterly reports from utilities, and the oblasts do not provide 9 In particular: rules for the technical operation of water and operational support to the utilities; in Mogilev, a separate entity in sanitation services (1994); the procedure for preventive the oblast administration (oblast Vodokanal) provides operational maintenance of centralized water supply and sanitation systems advice and operational support to subscribing utilities in the (2006); and the calculation of norms for losses and non-revenue oblast, whereas in Vitebsk, the support from the oblast vodokanal water (2005). is limited to the four vodokanals of the oblast. 25 Republic of Belarus Municipal Water Sector Review about 28,000 to 89,000 between 2001 and 2011, and its Figure 12: Share of population served by private share of GDP from 6.5 to 15.7 percent, i.e., an annual operators in 2004–2008 (%) growth rate of 8.5 percent. The legal framework needed to support the par- 60 53 ticipation of the private sector in the water and 50 wastewater services is still evolving. Chapter 4 of 40 38 41 34 the “Program of Socio-Economic Development of 30 27 25 the Republic of Belarus for 2011-2015,” approved by 20 12 Presidential Decree 136 of April 4, 2011, emphasizes 10 0.4 0 2 5 0.4 2 0.2 the importance of creating the conditions for a full 0 partnership of the private and public sectors. A draft ia an a a ne an tan ssi i en org hst rai yst law on private sector participation is being prepared k is Ru Arm Uk Ge rg zak be Ky Uz Ka by the MOE and should reportedly be discussed in 2004 2008 the parliament in 2013. This law would establish * a marginal part is transferred to state budget a framework for the progressive development of Source: OECD—Ten years of water sector reform in Eastern Europe, Caucasus and public private partnerships in the future, including Central Asia outsourcing of specific utilities functions. Private sector involvement in the water sector is Program, but, for the time being, the private sector is still marginal in Belarus compared to other CIS not involved in the sector operations. In contrast, the countries. Although the present government policy private sector is becoming more and more involved is to keep the water and sanitation sector and its in some countries of the former Soviet Union, as assets in public hands, the private sector is already illustrated in Figure 12. Since 2008, private sector modestly involved in sector activities. Local and involvement has further increased, most notably in international private consulting and construction Russia, but no recent data are available. firms are involved in implementing the Clean Water 3.7 Conclusion on legal and institutional framework In summary, the water and wastewater sector in Belarus shows the following: 1. A consistent and functional legal framework and strategy, despite its fragmentation and some gaps, as shown in Table 8. TABLE 8: STRENGTHS AND WEAKNESSES OF THE LEGAL FRAMEWORK Strengths Weaknesses ++ Consistent sector policies -- Lack of consolidated statement on sector policies and strategy ++ Comprehensive legislation on water resources and water -- Lack of comprehensive legislation on sanitation supply services -- Very conservative design norms ++ Ongoing development of legislation for PPP in public services -- Lack of differentiated design norms for small towns and rural areas (in particular for individual sanitation) 26 Legal and Institutional Framework 2. In general, a well-defined and functional institutional framework, but its vertically integrated infrastruc- ture development process, politically driven tariff setting, and lack of performance obligations for service providers may hinder sector efficiency. Table 9 lists the main strengths and weaknesses of the sector at that level. TABLE 9: STRENGTHS AND WEAKNESSES OF THE INSTITUTIONAL FRAMEWORK Strengths Weaknesses ++ Clear allocation of responsibilities among sector stakeholders -- Prioritization of investment projects not always based on ++ A reasonable unbundling of key functions (policy, regulation, economic criteria or master plan ownership of assets, service provision) -- Lack of contractual performance objectives for utilities -- Lack of transparent instruments for residential and legal entities tariff regulation -- Lack of technical regulation instruments (such as benchmarking) -- Regulation of industrial effluent discharges undermined by a conflict of interest for local authorities. 27 4 Water and Wastewater Infrastructure—Status and Challenges The review of water and wastewater infrastructure in the following subsections focuses on three main topics: (i) the challenges inherent in external factors, such as water resources and water demand, (ii) the current condition of the infrastructure, and (iii) the adequacy of infrastructure maintenance and planning policies from operational, financial, and technical perspectives. 4.1 Water resources and demand Belarus is a relatively water-rich country, and the available water resources are sufficient to meet both current and future demands. Groundwater resources are abundant, and the yearly volume of fresh water abstraction represents less than 3 percent of the total volume of fresh water generated. Water utilities are the main user of water resources: 31 percent of the water is used for agriculture, 20 percent for industries and the remaining 49 percent for residential consump- tion. A large majority (about 84 percent) of the country’s water supply needs are met by groundwater supplies, with the notable exception of the capital city, Minsk, where surface water is used for the production of potable water.11 Groundwater is abundant and well distributed all over the country, allowing a high density of small autonomous systems in rural areas. Water demand has been almost halved over the last two decades, along with the decrease of industrial output and the spread of water metering. As evidenced by water production records and illustrated in Figure 13, water demand decreased by 44 percent between 1991 and 2011. The decrease is largely driven by a decrease in industrial output in the 1990s and then, in the late 2000s, by the spread of water metering. In some places, water production has also been affected by the response of industries to high industrial tariff. The average tariff of BYR22,500/m3 (US$2.60) is about 15 times the residential tariff in the utilities surveyed. This situation resulted from the cross-subsidization between residential and industrial tariffs. In response, many industries 11 Minsk’s supply from the Vileika reservoir will be phased out in 2020, and replaced by groundwater sources. 29 Republic of Belarus Municipal Water Sector Review wastewater treatment plants. Sewerage systems Figure 13: Water intake for residential use (Mm3) collect these effluents along with residential waste- 1000 water. Without pre-treatment, certain types of indus- 800 trial effluents can seriously impair the performance Water production (Million m3/year) of the treatment facilities. This is particularly true 600 for effluents from dairies, which contain casein. 400 The current legislation governing the discharge of 200 industrial wastewater in public sewerage systems 0 dates back to 1995. 1990 1995 2000 2005 2010 As a result of decreasing water demand and con- Source: National Statistical Committee, MHU servative design norms, water and wastewater systems are greatly oversized. Water systems are developed their own water supply systems, as oversized for present conditions because they were noticed during the utility survey designed based on “generous” criteria (in terms of water demand, safety margin, etc.), because of the 4.2 Water supply and wastewater absence of systematic reference to master plans, and infrastructure status and condition because of the recent decrease in water demand. Statistics indicate a low utilization ratio (actual Almost all centralized water and wastewater sys- production or treatment/installed capacity) of water tems operated in Belarus present similar technical production and treatment facilities, as illustrated and technological features, which appear fully in Figure 14 (see Annex V for details per oblast adapted to local needs and constraints. With the and in Minsk). This underutilization is most likely unique exception of the capital city existing water detrimental to the systems’ energy efficiency and supply schemes usually consist of one or several well to performance of water and wastewater treatment. fields (composed of deep boreholes). Iron-removal plants, which generally employ an aeration/filtra- The water supply and sewerage networks are age- tion process, are more and more in use. Power supply ing, and their current rate of replacement does not to utilities is ensured everywhere on a continuous seem sufficient to reverse their overall ageing. On basis. In general, there is no systematic disinfection average the systems are 30 years old with most of for systems using groundwater. Wastewater collec- the systems’ infrastructure dating back to the 1970s tion is always ensured by separate sewerage systems and 1980s. Most water pipelines are made of cast iron (i.e. storm water is collected in different systems). and steel. For a decade, they have been progressively Wastewater treatment is available in all large and but slowly replaced by plastic (polyethylene or PVC) most medium-size cities and towns. It generally pipes. Most collection systems are made of concrete, includes a conventional process that comprises a pre-treatment (screening, grit and grease removal), primary treatment (sedimentation), secondary treat- Figure 14: Infrastructure utilization ratio ment (biological), and sludge processing. In some places, other treatment processes, such as infiltration 60% 55% 45% ponds, are still in use. Annex V presents an inventory 39% Utilization ratio 40% of the water supply and wastewater infrastructure in Belarus in 2011. 20% 0% Industrial effluents are often discharged into Water intake Water treatment Wastewater municipal sewerage systems without pre-treat- treatment ment, in many cases an illegal practice that is highly detrimental to the performance of Source: MHU statistics 2011 30 Water and Wastewater Infrastructure—Status and Challenges ceramic, or asbestos-cement pipes. The MHU sta- approved by the MHU in 2006; however, their pre- tistics on leaks and breakages for 2011 estimate that ventive maintenance plans are often only partially about 8 percent of water and sewerage networks implemented, and the maintenance is essentially require replacement, which is a low percentage for emergency repair, as found during visits to utili- 30-year-old pipes. ties. This situation is due in part to lack of financial resources and in part to lack of a maintenance culture Infrastructure renewal is often planned without an up-to-date assessment of current needs, thus Adequate equipment to operate and maintain perpetuating infrastructure overcapacity and lead- water and wastewater systems is clearly lacking ing to excessive investment and operating costs. At in small utilities. Getting modern operational tools the local level, investment focuses on the renewal and equipment is the privilege of a few vodokanals of pumps, construction of iron-removal plants, etc., that have the financial resources to recruit specialists often without questioning the overcapacity of the and purchase specialized equipment for meter test- existing systems. This perpetuates the present situ- ing and calibration, leak detection, sewer jetting, etc. ation and the resulting need for extensive repairs. These resources are clearly lacking in MUs, which cannot call on the private sector to provide the ser- Metering of water distribution is almost universal, vices needed. The small scale of the MUs prevents but the meters’ accuracy may deteriorate in small them from accessing modern tools and technology. utilities, due to the lack of calibration capacity and policy. All production facilities (boreholes, treat- Cooperation between utilities is very limited. ment plants) are reportedly metered, and residential Utilities very rarely share equipment or expertise. customer meters have been widely installed in the The only exception is in the Mogilev Oblast where last five years. Cold water meters—one, two, even the oblast administration has established an “oblast three—have been installed in apartments, as well vodokanal” to provide technical and operational as one or two hot water meters. These meters are support to the vodokanals and multi-utilities for installed by the customers and remain under their an annual fee. The Vitebsk Oblast Vodokanal pro- ownership. Meters have to be registered at, and vides such support only to the four vodokanals in approved by, the National Institute for Metrology. the oblast. They are reportedly checked every 10 years, or on customer request. Most vodokanals have their own 4.4 Infrastructure development meter calibration and repair workshop; however, programs this facility is not available in most MUs where the maintenance and control of meters are problematic. The government’s policy implementation is Although some bulk meters were installed decades based on 5-year programs called the Clean Water ago, there is no real policy for checking their accu- Programs. These programs started in 2002 with a racy and replacing them; therefore, the metered 4-year program (2002-2005), followed by a 5-year production is likely to be slightly underestimated. 2006-2010 program and the current 2011-2015 pro- gram. The current and previous programs included 4.3 Water and wastewater major investments aimed at increasing the level and infrastructure management quality of services and at preserving the environ- ment, as detailed below. Except for recently constructed facilities, the water and wastewater infrastructure is rather old and in The 2006–2010 Clean Water Program enabled the dilapidated condition due to lack of investment achievement of major improvements in the quality in maintenance and rehabilitation. Most utilities of services. Over the 2006-2010 period, investments plan for preventive maintenance, in accordance averaged US$58 million per year. As a result of this with the “Procedure for preventive maintenance of program, water supply coverage was extended centralized water supply and sanitation systems” to an additional 7 percent of the population and 31 Republic of Belarus Municipal Water Sector Review TABLE 10: 2006–2010 CLEAN WATER PROGRAM – TYPES AND COSTS OF INVESTMENTS Cost estimate Cost estimate Investments (BYR2006 billion) (million US$*) % of Program Development/rehabilitation of water and sanitation systems 564 263 90.3% Rehabilitation/renovation of agri-town systems 40 18 6.3% Support to villages in the Minsk area 5 2.3 0.8% Management tools and equipment 10 4.6 1.6% Technical rules and procedures 0.1 0.1 0.0% Control and monitoring equipment 6 3.0 1.0% Total for the program 625 291.0 100% *average exchange rate in 2006: US$ 1 = BYR 2150 Source: Clean Water Program 2006-2010 sewerage coverage to an additional 9 percent. It also through centralized systems in urban areas and enabled the opening of about 50 new iron-removal townships to 98 percent of the population by 2016; plants, reducing the number of people whose water (ii) provide centralized water supply systems in contained excessive levels of iron by about one agricultural towns (with 80 percent of the population million. The program also stressed the need for served by 2016); (iii) reduce water loss and NRW by introducing advanced technologies, improving util- 5 percent; and (v) extend sewerage systems in oblasts ity management and structure, and reducing costs to cover an additional 1.6 to 5 percent of the urban through energy-saving technologies, optimization population and 1 to 3 percent of the rural population. of processes, etc. However, the program has been almost exclusively infrastructure oriented, as shown 4.5 Conclusion on water and in Table 10. wastewater Infrastructure While the current program remains largely aligned The water and wastewater sector in Belarus shows with the previous one in its objectives and financial a solid but ageing infrastructure largely inherited means, its target this time includes the reduction from the Soviet Union and urgently requiring non-revenue water (NRW). Along with external modernization. Sector strengths and weaknesses in financing support (see following section), yearly terms of infrastructure are summarized in Table 11: capital investments in the sector represent an aver- age US$40 million per year. The stated priorities of the program are to (i) provide quality potable water TABLE 11: STRENGTHS AND WEAKNESSES OF WATER AND WASTEWATER INFRASTRUCTURE Strengths Weaknesses ++ Abundant renewable resource (with good chemical and -- Ageing infrastructure bacteriological quality). -- Excessive installed capacity ++ Metering almost universal -- Insufficient preventive maintenance ++ Increasing IFI financial support to the sector (in the context of -- Water utilities bear losses in hot water systems and residential decreasing central government financial involvement) buildings’ internal piping. 32 5 Conclusion of the Diagnostic Following more than a decade of strong and sustained commitment by the Government of Belarus, the sector has achieved very positive results in the area of water and wastewater services, with direct impacts on quality of life and economic development. The coverage, quality, and reliability of services have improved steadily, reaching excellent levels of service in urban areas in particular. Despite these important achievements, vast investment needs are still required to close coverage gaps in rural areas, to expand wastewater treatment capacity, to align the sector with European standards, and to address remaining water supply quality issues. In addition, without sustained modernization efforts to renew an ageing and oversized infrastructure, the operational performance of services will deteriorate, with immediate consequences in terms of quality and cost of services. Financing the achievement of these ambitious objectives will represent a major challenge given the decreasing water consumption, the Central Government’s intention to limit public financing of infrastructure, and the highly distorted tariff structure, which leaves the sector dependent upon a few large customers to generate revenues. The viability of service provision in small utilities, in particular, may be jeopardized without centralized financial support. These daunting challenges call for sound sector policies conducive to economically efficient investment programs and water and wastewater operations. The sector is currently organized in a clear and functional institutional framework, but the conservative design norms and investment appraisal and prioritization approaches, often devoid of clear economic criteria, may hinder the economic efficiency of invest- ments. The operational efficiency of water and wastewater operators is generally acceptable (in particular in large cities) but improvable. Small utilities (in general multi-utilities) often show a suboptimal level of performance and capacity, perpetuated by the absence of contractual performance requirements from local authorities and a lack of performance-oriented culture and management instruments within these organizations. 33 Republic of Belarus Municipal Water Sector Review Improving the sector’s economic efficiency is a par- financing mechanisms is required to guarantee sec- ticularly acute priority in the framework of the Social tor sustainability while ensuring the affordability and Economic Development Program for 2011-2015, of services. in which the government envisages phasing out cross-subsidies and operational subsidies (which A number of specific recommendations are offered currently account for 10 percent of sector revenues) in Part II of the present report. by 2015. From this perspective, a redefinition of 34 Part II Recommendations The following sections offer a number of recommendations to strengthen the water supply and wastewater services sector. The recommendations support four objectives: (i) to develop a legal and policy framework for the sector, (ii) to increase operational efficiency, (iii) to increase the efficiency of investments, and (iv) to finance the development of services. 1 Developing a Policy and Legal Framework for the Sector A national strategy that consolidates sector policies and strategy in a single document can serve as a key instrument to foster consensus and support for upcoming sector reforms. Three recommendations addressing this problem are presented below. Formulate a policy statement that specifies the commitments and key orientations of the government in the sector and the corresponding objectives. The statement could include a description of the present sector situation, identify the main challenges to sector development and describe the government’s commitments, principles and objectives for the medium- and long-terms. The statement would cover objectives (setting targets and a timeframe to reach them) such as: improving service coverage and level of service, enhancing the quality of service, ensuring affordability of services, ensuring equitable treatment of cus- tomers, clarifying sector responsibilities, achieving financial autonomy and protecting the environment. Formulate a strategy for the sector, providing a detailed road map for the achievement of policy objectives. To comply with the above com- mitments, principles, and priorities, and meet the policy objectives, the proposed strategy could focus on (i) increasing efficiency in water supply and wastewater operations, (ii) increasing efficiency of water supply and wastewater infrastructure development, (iii) securing financing of the water supply and wastewater services, and (iv) improving sector regulation. The strategy would be defined in line with both the govern- ment’s “Socio-Economic Program” and its sector policy, and would be prepared and issued by the Ministry of Housing and Utilities. It would provide sector guidance for regional and local governments, associations of local governments, and water supply and wastewater operators. It would be intended to serve as a detailed roadmap for the development of the sector and to make the issues, actions, and solutions understand- able to the widest possible group of stakeholders. It would present in a transparent manner the mechanisms to access public grants and credits. These strategic proposals are developed in the following sections. 37 Republic of Belarus Municipal Water Sector Review Update the sector legal framework with specific updated version of the law on water could optionally additions or clarifications on topics such as sani- be prepared, thus allowing a comprehensive vision tation and the right for users to develop services of the legal framework of both services. It would substitutes. A law on sanitation could be prepared, be advisable to identify and clarify specific circum- reflecting the diversity of contexts (in terms of size stances in which legal entities may or may not be and density of settlements) and possible approaches allowed to develop their own water or wastewater in small towns and rural areas. In parallel, an systems, to mitigate financial risks for the utilities. 38 2 Increasing Operational Efficiency The utilities’ operational efficiency can be improved in many areas, including technical, commercial, organizational, and financial. Several recommendations of the study—particularly the regionalization of water and wastewater services and the involvement of the private sector—would entail significant changes to the way services currently operate in Belarus. 2.1 Regionalization of services Regionalize services to attain greater efficiency and higher quality in the provision of local public services by facilitating access to funding and promoting independent, well-managed and financially sustain- able operations. The following paragraphs present the rationale and principles of the regionalization approach. Regionalizing the provision of services would address investment and operational efficiency, financing and other challenges of the sector. Raion multi-utilities (MUs) are, on average, far too small to develop sufficient professional capacity, and as result they are largely inefficient and unsustainable. With an average of 12,000 customers, raion MUs are far from the minimum size, 50,000 to 100,000 custom- ers, needed to ensure acceptable economies of scale in the water sector. Utilities operated at the regional level would (i) generate economies of scale, (ii) develop more professional services, (iii) pool capacities, means and resources, (iv) allow small utilities more access to funds; and (v) develop urban/rural solidarity. The regionalization of water and wastewater services could be adopted following the same model as other countries with similar sector characteristics and challenges, such as Romania. Geographic factors make it more practical for the regionalization to be aligned with existing administrative divisions. Ideally, because the sector is intimately associated with water resources, the regional- ization of services could be designed in accordance with river basin perimeters. However, in Belarus, river basins are very fragmented and disconnected from the administrative organization of the country and therefore not suitable for a water services organization. Another 39 Republic of Belarus Municipal Water Sector Review option is to align sector organization Figure 15: Oblast urban & rural population in 2009 on the existing administrative divi- (thousands) sions through oblasts and raions; this option has the advantage of not Potential Number of Customers disrupting the present sector organi- 0 200 400 600 800 zation. In the recommendation devel- oped in this report, a regional water Mogilev and wastewater utility would be Minsk established in each oblast, and each Urban Grodno would potentially provide services Rural to a population of 1.0 to 1.5 million Gomel people, i.e., about 400,000 to 600,000 Vitebsk customers, as shown in Figure 15. Brest The proposed institutional set-up 0 500 1000 1500 2000 would maintain local governments’ Population (thousands) control over the assets and enable them to manage jointly a perfor- Source: National Statistical Committee (population data) mance-based delegation of services. Vodokanals and multi-utilities have been established by local governments to ensure the economic management of their assets. The proposed institutional framework is designed to preserve the responsibility of the executive committees in the Figure 16: Allocation of responsibilities under the provision of services, and to allow them to access regionalized sector set-up investment funds through regional loans con- tracted by the regional water and wastewater utility (RWWU). Another set-up could foresee the transfer Local governments of assets management to an asset-holding company established at regional level, and responsible for Articles of Power of capital investment financing. Such an entity should association attorney have the capacity to maintain a continuous dialogue with the operator on business strategy and to quickly raise funds when needed. This would represent a serious challenge considering the number of local governments that would compose its board. The considered arrangement is illustrated in Figure 16: RWWU OALG Delegation contract • Asset owners represented by the local governments would form an “Oblast Association of Local Governments (OALG)”, Service Performance delivery monitoring whose exclusive function would be to pro- vide water and wastewater services to its members. Membership would imply that each local government grants a power of attor- ney to the association. Consumers Source: World Bank Staff, on the basis of Romania regionalization model 40 Increasing Operational Efficiency • The RWWU could be a joint stock company incentives offered by national and oblast authori- whose board would comprise all OALG mem- ties. Local governments could be encouraged to join bers, as well as representatives of the oblast the OALG through the opening of public financing administration and civil society. Assets would windows only available to the RWWU. Even in remain the property of the local governments, the case of localities that did not join the regional but would be transferred to the RWWU for eco- operator, the allocation of public development grants nomic management. could be conditioned on the projects’ compliance with regional investment plans approved by the • The association would sign a long-term del- RWWU and OALG. egation contract with the RWWU, specifying annual objectives and targets. The regional 2.2 Stimulate utilities’ utility’s operations and performances would be performance through yardstick supervised and monitored by the OALG through competition and social performance indicators and targets specified in accountability the contract. Promote benchmarking as a key tool for utilities The RWWU would be managed from the oblast to identify priority interventions, set performance capital city and be operated from sub-regional objectives and foster yardstick competition. It is branches. Headquarters in the oblast capital city essential for sector policy-makers to identify best would be responsible for management and devel- practices and performance gaps among utilities so opment issues. Several sub-regional branches, that asset owners can set adequate performance created by the expansion of existing vodokanals objectives for their utilities and encourage good to neighboring towns, cities, and raions, would be management. Proper sector benchmarking would dedicated exclusively to operations. Ideally, each require (i) developing of a set of well-defined perfor- branch should cover a population of 200,000 to mance indicators (a list of recommended indicators 300,000 consumers—an average of five operational is given in Annex VII), (ii) developing utilities’ capac- branches per oblast. ity to produce regular and reliable information, (iii) setting up a dedicated benchmarking management To overcome any implementation difficulties and unit in MHU responsible for collecting, benchmark- possible reluctance on the part of stakeholders, a ing, and disseminating results to sector stakeholders, progressive rollout of the regionalization scheme is and (iv) developing policy makers’, asset owners’ recommended, along with close consultation with and utilities’ knowledge of relevant benchmarking all those concerned. The implementation should approaches for sector regulation and planning. If not disrupt operations and service to the customers, properly introduced, a regulatory framework can and the expected benefits of this process will need be developed with a set of incentives and penalties to be communicated at all levels. Also, the reform to encourage performance improvements. implies that water and wastewater operations in MUs should be disassociated from the other activities, and Enhance service providers’ accountability to their vodokanals should abandon their sideline activities. end users. The publication of utilities’ performance To allow for potential roadblocks, the regionaliza- information and MHU benchmarking analyses could tion reform should be implemented progressively, foster customers’ demand for improved services starting with a pilot project in one or two oblasts. at a lower cost. It could become a condition to the Also, the OALG could be formed with several local allocation of budget support to utilities. Reinforcing governments within on oblast and then progressively social accountability would also require stimulating develop as other interested local governments join in. customers’ feedback to both utilities and local gov- ernments through clear and transparent mechanisms The regionalization process would not be compul- to redress grievances. sory, but it could be accelerated through financing 41 Republic of Belarus Municipal Water Sector Review 2.3 increased capacity and raion utilities, which have the most significant per- efficiency through public–private formance deficiencies, would not have the scale of partnerships operations required to attract professional private operators. Lease/affermage contracts would require Encourage the involvement of the private sector the setting-up of asset holding companies, which is through public-private partnerships (PPPs) to not part of the present recommendations. reach immediate and significant efficiency gains in areas where utilities lack experience and capac- Ensure that service contracts set out clear perfor- ity. PPPs have two main objectives: (i) increasing mance objectives in areas where the utilities lack quality and efficiency of the water and wastewater resources and experience. In the context of Belarus, services through enforceable contractual obligations; this type of contract could include (i) outsourcing of and (ii) raising financing from capital markets. Both the construction of new water and sewerage con- are particularly relevant objectives in the context of nections, (ii) unblocking and cleaning of sewerage Belarus. Private sector involvement in the public connections and pipes, (iii) implementing a leak sector may take various forms, including service detection campaign, (iii) maintaining hardware contracts (outsourcing), management contracts, and software, and (iv) improving some aspects of lease/affermage contracts and concession/BOT commercial operations. Involving the private sec- (Build-Operate-Transfer) contracts.12 For these PPP tor through service contracts would require careful contracts, fixed assets, i.e., infrastructure facilities, attention to ensure that the service contractor has managed by the operator remain under public own- the required capacity and that contracts are awarded ership. In the short-run, service contracts appear to on a competitive basis. Also, the contract should be the most appropriate option to initiate these types include clear performance objectives to ensure that of partnerships. this contractual arrangement is profitable to the util- ity, not only financially but also in quality of service Delay extensive PPP arrangements (e.g., conces- and timeliness. sions, BOTs) not be immediately applicable in the short-term. Such contracts have to be financed Ensure that all stakeholders thoroughly under- mostly from funds raised on the local capital mar- stand the benefits and challenges associated with kets. The local capital markets may not be able to PPPs. The involvement of the private sector in the provide funds on terms compatible with a sector water and wastewater services operations, if it that depreciates its assets over a long period and occurs, would clearly be a cultural change for the thus requires loans that mature over 12 to 15 years. main stakeholders. It is important that it be carefully Consequently, such forms of PPPs are highly risky. managed and that thorough information on the pros and cons of such an involvement be provided to Consider management contracts as an option if a decision-makers. This could be achieved through large vodokanal shows very significant potential meetings with sector officials and utility managers to improve its performance. Management contracts from countries with experience in PPPs, meetings (usually for 4 to 5 years) are considered when major with private operators, and seminars/workshops improvements in operational performance and focusing on the legal and contractual aspects of PPPs. capacity are required at all levels. Such a level of assistance may not be relevant in most large water 2.4 Improving operation and utilities in Belarus, where the potential for perfor- maintenance performance mance improvement often seems limited, but it could be considered if one of them demonstrates Perform energy audits to assess the potential for particularly poor levels of performance. Small improving utilities’ energy efficiency. Energy audits could be carried out at a utility level. Such audits would not only assess the current performance 12 See World Bank, Water & Sanitation PPP Toolkit for a full description of each type of partnership. of electromechanical equipment, they would also 42 Increasing Operational Efficiency analyze the relevance of operational policies (par- of meter reading and preparation of bills by the ticularly regarding water pumping and storage) and water utilities would be an opportunity to introduce possibly formulate recommendations to restructure new technologies, such as automatic meter read- the systems’ hydraulic architecture with a view to ing (AMR). Also, with the planned increase in the reducing energy consumption. water tariff, the utilities could verify on a frequent, but random, basis the adequacy of consumption Set up control teams specifically dedicated to the volumes reported by customers living in residences reduction and control of water loss in utilities that other than apartment buildings. This might lead to have high or deteriorating levels of non-revenue the conclusion that meter reading should be fully water (NRW), and provide them with performance internalized by the utility in the future. objectives and remuneration incentives. The NRW level appears acceptable across the sector, but Clarify the allocation of responsibilities between operational performance varies significantly among customers and utilities as soon as owner associa- utilities and the scope of improvement needed may tions are in place. An association of owners would be very significant in some cases. The control teams be set up in each residential building to take care set up to manage these cases would receive specific of all common property.13 A bulk meter would be training on NRW management, special equipment, installed at the entrance of the building to indicate etc. This control team set-up as a transversal unit the aggregate consumption of cold water, and would directly report to the utility director. Short building residents would be charged through the and long-term objectives for the NRW ratio should owners’ association, which would divide the water be given to this NRW control team. For example, a bill among the households. This scenario assumes long-term objective could be reaching and maintain- that forming an owners’ association becomes com- ing a given NRW ratio, with appropriate remunera- pulsory. A deadline for instituting bulk metering for tion incentives. apartment buildings could then be set, with utilities given the right to discontinue supplying buildings Clarify the costs for municipalities to cope with that have not signed a customer contract. the discharge of untreated industrial effluent discharge to centralized sewerage systems. An If owners’ associations remain noncompulsory, assessment of the current insufficiencies in terms provide formation incentives for building resi- of industrial wastewater pre-treatment capacity dents. Associations of owners should be charged at would first help understand the associated impacts the residential tariff, not at the legal entities tariff. for utilities and asset owners. This analysis would In addition incentives could be proposed by utili- clarify the costs for both municipalities and indus- ties, such as: the (one-time) repair of internal piping tries to maintain the status quo or to enforce local leakages and installation of bulk meter free of charge regulation on effluent discharge, and would thereby given the formation of an owners’ association and help municipalities select the most economically signing a customer contract. rational approach. Install bulk meters at water heating points and 2.5 Modernizing commercial charge (at the residential tariff) to the hot water operations to improve their company hot water volumes as measured by these efficiency meters. Under such arrangement, the water utility would no longer bear the consequences of the pos- Install and monitor bulk meters for residential sible leaks in the hot water networks. buildings, and increase meter oversight. Such an arrangement (already in place in Minsk vodokanal) would enable utilities to check the information pro- 13 Utilities could consider providing internal piping maintenance vided by customers regarding their water consump- services to the owners associations (as is currently the case in Bobruisk and Mogilev vodokanals), but that cost should not be tion and thereby help reduce NRW. The introduction borne by customers outside of the building. 43 Republic of Belarus Municipal Water Sector Review 2.6 Optimizing organization and Most well-performing utilities do not use staffing human resources sizing norms and determine the right organizational structure and staff size empirically, i.e., based on Recruit managers on a competitive basis and their own experience. They strive to minimize their develop attractive compensation and incentive personnel costs through a rationalized organiza- policies that link compensation to achievement. tion, the pooling of resources, the development of This strong recommendation is in line with the automation, the outsourcing of non-core activities, “Program of Socio-Economic Development of the etc. It is therefore recommended that the utilities’ Republic of Belarus for 2011–2015” approved by managers, notably the human resources managers, Presidential Decree 136 of April 4, 2011 and the become familiar with such empirical approaches of Presidential Decree 181 of May 2011. It will enable staffing through regular contacts or, ideally, a twin- utilities to attract and retain talented professionals. ning with performing utilities. If staff retrenchment Employment conditions should be comparable with is envisaged, staffing plans should be prepared that of the private sector in Belarus and recruit- identifying the associated social and financial costs ment of utilities’ management should be done on and identifying options to mitigate them (staff rede- a competitive basis. Combined with redeployment ployment, voluntary retirement, etc.). of the staff, the proposed salary upgrade should not increase the total payroll of the utilities. 2.7 Improving utilities’ business planning Develop economic, financing, and business man- agement competencies, and enhance their quality Consider preparing 3-year rolling business plans, through national certification systems. To develop including clear objectives measurable through per- and manage water utilities as modern and economi- formance indicators and action plans to reach them. cally efficient companies, those in charge of hiring Business planning is the comprehensive roadmap of and training management staff could seek a better the utility, and a monitoring tool for its contracting balance among areas of competency (management, authority. It is recommended that the Ministry of economics, finance and engineering). A certifica- Housing and Utilities prepare a model for business tion program for key utility management functions plans specific to water and wastewater utilities— based on intensive training programs and clear under a standard format with clear instructions. The certification procedures would be recommended to business plan should be action-oriented and limit develop high professional standards, in particular the presentation of statistics to indicators that can for non-traditional functions. Strengthening cus- suggest and support specific actions; all objectives tomer relations and human resource functions in should be measurable through performance indica- the utilities’ organizational structure will also be tors. The business plan would address all functions beneficiary, considering (i) the expected increase in of the service provider (finance and accounting, the residential tariff and (ii) the proposed restructur- investments, operation and maintenance, customer ing of staffing policies. management, organization and human resources, etc.). The content should be short and actionable to Improve staff productivity by (i) discontinu- allow for an easy and unambiguous dialog between ing the norm-based approach, (ii) assessing real the utility and the contracting authority. needs, and (iii) rationalizing staff inputs, on the model of well-performing utilities. The “Program Prepare regular financial reports on a regular basis, of Socio-Economic Development 2011–2015” states according to IFRS standards. A utility’s access to that the structural transformation of the economy is external funds would be conditional on its prepar- based on personnel restructuring to achieve higher ing full financial reports. They would include a productivity and on optimizing the number of transparent and detailed breakdown of costs so employees in line with the real needs of production. that potential areas of operational cost reduction or optimization can be identified. These reports would 44 Increasing Operational Efficiency be subject to systematic independent audits. As by utilities. Such a requirement would facilitate long as operating subsidies remain necessary for a dialogue between utilities and their financiers on number of utilities in the sector, such reports would the development of and commitment to operating enable public authorities to plan their allocation on efficiency targets. the basis of medium-term financial forecasts issued 45 3 Increasing Efficiency of Infrastructure Development Revise the norms and standards used for the sizing and design of facilities, with the objective of maximizing economic and finan- cial returns on investments. With regard to water demand norms, statistical data should be used more systematically in designing and sizing facilities. The safety-first principle in use in western countries is not based on the doubling the number of facilities, but on the quick and effective intervention of repair and maintenance teams to fix the problems. Such norms could be extensively revised, taking into consideration funding limitations. A clear differentiation of technical and technological standards for urban and rural areas would be as well strongly recommended. More generally, a comprehensive revi- sion of the norms and standards in use for the sizing and design of facilities could be considered, and these design rules could be updated to maximize economic and financial returns of investments. It is believed that savings of up to 30% can be achieved in many types of capital investments. Make the preparation of regional and local water and wastewater master plans mandatory for project funding requests. Once the regionalization of services is in place, regional master plans would be prepared to identify long-term changes in the current arrangements, especially regarding the possible economies of scale that might result from the grouping of facilities serving several settlements. The master plans could also identify which areas are eligible for centralized sys- tems and which areas are better suited (technically and economically) for collective water services (standpipes, collective wells) and on-site sanitation. Complementary to the regional master plans, local master plans would be prepared on a systematic basis, based on local urban or rural development plans. These long-term master plans would pri- oritize projects on the basis of transparent criteria (such as economic rate of return). That prioritization should be transparent and justified in the master plans and subject to appraisal. Funding for infrastructure development would be allocated on the basis of master plan appraisals by potential financing entities (public authorities, IFIs, etc.). 47 4 Financing the Development of Services Financing the development of the water and wastewater sector will represent a major challenge in a context characterized by (i) regularly decreasing residential consumption; (ii) high dependence on the behav- ior of legal entities that represent only 2 percent of the customers but 77 percent of sales revenues; (iii) a prospective rapid phase-out of operat- ing subsidies and capital grants planned by the central government; (iv) the need for rehabilitation of facilities that have excess capacity; and (v) the incapacity of the local capital market to provide funds on terms compatible with the economy of a sector that depreciates its assets over long periods. This chapter offers general recommendations regarding tariff and investment financing policies, a number of which are supported by a sector financial model elaborated for this study. 4.1 Tariff regulation and allocation of operating subsidies Regulate tariffs by contract on the basis of transparent economic and financial models. Proper economic regulation of the sector does not necessarily require a “regulator,” and it can be performed by the government (here the Ministry of Economy) on the basis of clear and well accepted regulatory instruments, such as financial and economic models (as is the case in France, the Czech Republic, and South Africa, among others). To succeed, an independent regulator would need to be fully predictable, free of political interference, transparent, and participatory, which may not be fully achievable in the short-term in Belarus. A detailed economic and financial model could be prepared to define and update the tariff structure and levels. Tariffs would ideally be automatically adjusted according to a simple cost index formula to protect revenues against inflation. Once the regionalization process has been completed, regional tariff levels could be set by the OALG according to the methodology and principles defined by the Ministry of Economy. Set tariffs with the objectives of covering operating costs (and ulti- mately the long-run marginal cost of water), stimulating economic 49 Republic of Belarus Municipal Water Sector Review efficiency, and ensuring equity and affordability.14 to authorities’ budget constraints; (ii) concentrat- The primary objective of tariffs is to recover “finan- ing planning and debt repayment responsibilities cial” costs, i.e., operation and maintenance, depre- encourages asset owners or their concessionaires ciation, and financing costs. Also, utilities can be to increase the efficiency of investments. Financing motivated to improve their operational (and CAPEX) services through fair and efficient taxation can also efficiency if tariffs are set just below the level be appropriate economically, and help maintain enabling them to recover operating costs. Tariffs tariffs at a more affordable level to all customers. could be set to ensure equity among categories of Either financing approach (or a mix of them) can customers through reduction of cross-subsidization be found among performing water and wastewater between customer categories, rationalization and sectors in the developed world. Detailed analyses of homogenization of the categories, and setting of the fiscal burden of infrastructure financing and of residential consumer tariffs15 at national level, or at the social impacts of tariffs would be recommended regional level after the regionalization of services to identify the optimal cost-sharing arrangement. is implemented. The selected financing approach could maintain As long as operating subsidies remain necessary development grants for certain types of projects for a number of utilities in the sector, set-up alloca- and develop lending from the central government tion mechanisms encouraging the improvement of to help asset owners or their concessionaires build their operational efficiency. The allocation of operat- a credit record. Development grants could remain ing subsidies could integrate performance incentive primarily targeted to projects with a strong “public mechanisms such as: linking their provision (at least good” element, such as environmental protection to a certain extent) to utilities’ level of performance, or service to the poor. With regard to borrowing or to the preparation of audited financial reports and options, commercial lenders are unlikely to be business plans (as described in section 2.7). able to provide debt on terms compatible with the economy of the sector, which depreciates its assets 4.2 Infrastructure development over long periods and therefore requires long-term financing loan maturity of, say, 12 to 15 years, without a guar- antee from the central government. In the absence The overall capital investment needs of the sector of a municipal development bank, the only source in the years to come could not be assessed as part of local debt is likely to be the central government. of the present study, but developing a master plan On-lending conditions should be similar to those of for providing water and wastewater services would the local market in order to help asset owners or their help clarify the sector’s investment needs in the concessionaires build their credit record and enable short-, medium- and long-terms. their future access to capital markets. Identify the optimal infrastructure financing 4.3 Sector financing policy strategy balancing contributions from taxpayers discussion and from service users. Financing asset develop- ment through tariff revenues can present several A consolidated financial model of the water sup- advantages for the sector: (i) utilities rely on more ply and wastewater sector was prepared to assess predictable financial sources and are less vulnerable the relevance of various sector financing policies. The model reconstitutes the income and cash flow 14 Demand management is usually considered a key principle of statements of the sector, taking into consideration tariff setting. However significant progress has already been available data on operational characteristics, costs, accomplished with regard to reducing consumption to European levels. With an average daily consumption of 117 liters per person and revenues in 2011, as well as capital investment per day, this objective is not considered a priority in Belarus. 15 Residential tariffs would also apply to services supplied to owners’ associations even though these associations are considered legal entities. 50 Financing the Development of Services programs and partnerships with donors.16 The objec- Three other scenarios are tested on the basis tive of this preliminary analysis is to identify key of alternative tariff policies and recommended principles and milestones for sector financing policy investment financing approaches. Three tariff in the next 10 years. Briefly summarized below are policy scenarios have been defined as shown on (i) the key assumptions and scenarios considered Table 13, considering that: (i) an increase of more in the analysis, and (ii) the main results and conclu- than 10 percent per year in the residential tariff may sions drawn from the financial model, in particular, be difficult to implement from social and political the setting of realistic milestones for the elimination perspectives, and (ii) the elimination of cross-sub- of subsidies. sidies may require lowering the current tariff level for legal entities, a distinct possibility if tariffs are The elimination of operating subsidies and cross- not adjusted for inflation. Results are presented in subsidization by 2015 would require significant Table 14. The scenarios assign different priorities residential tariff increases in the short-term. Two to the two major and competing objectives of the approaches have been considered, as shown in government: eliminating operating subsidies and Table 12: (i) if legal entity tariff is maintained at eliminating cross-subsidies between categories of its current level, residential tariff would need to customers. Capital financing scenarios are built increase by 158 percent per year to achieve the objec- considering the mix of development grants, loans tives set by the current government policy; and (ii) if and cash generation as a long-term objective (a more legal entity tariff is reduced down to operating cost demanding assumption than the current approach recovery level in 2015, an increase of residential tariff exclusively based on development grants). by at least 78 percent per year would be required. The twin goals of eliminating both operating subsidies and cross-subsidization in the short- or medium-term appear ambitious. The recovery of 16 Note: A key limitation of this model stems from its consolidated structure as operating losses of some utilities are compensated operating costs and elimination of cross-subsidies for by the profits of others. However, with the recommended between categories of customers are competing regionalization of services, such an approach would become fully relevant in the medium-term. Until this consolidation of objectives. All scenarios assume a CAPEX of 350 resources is achieved, the model is likely to present a slightly billion BYR per year (US$40 million/year). As more optimistic picture of the overall sector financial situation than it may be in reality. seen in Scenario A in Table 14, operating subsidies TABLE 12: TARIFF ADJUSTMENT OPTIONS TO ACHIEVE THE ELIMINATION OF OPERATING SUBSIDIES AND CROSS-SUBSIDIZATION BY 2015 Legal entity tariff down to Approach Legal entity tariff unchanged operating cost recovery level Residential tariff adjustment +158%/year +78%/year Non-residential tariff adjustment no change -31%/year Unified tariff level in 2015 BYR15,030/m3 BYR7,190/m3 Operating costs in 2015 BYR7,190/m3 Operating + capital financing costs in 2015 BYR8,080/m3 TABLE 13: TARIFF INCREASE SCENARIOS Scenario A Scenario B Scenario C Main priority Reduction of operating subsidies Balanced between both objectives Reduction of cross-subsidies Residential tariff +10%/year 10%/year 10%/year Non-residential tariff +0%/year -2%/year -5%/year 51 Republic of Belarus Municipal Water Sector Review could be phased out in 2017, but the cross-subsidy definition of an optimal tariff policy would require ratio would still be 3.8 in 2018. In Scenario C, cross- the fine tuning of scenarios into a more detailed subsidies can be eliminated by 2023, but operating and reliable financial model taking into account an subsidies may still be needed by that date. Scenario updated assessment of capital investment needs. B assumes a sustained residential tariff increase and industrial tariff decrease. Under this scenario, sales A sensitivity analysis conducted on the basis of revenues should be sufficient to cover depreciation Scenario D, the recommended scenario, confirms and financing costs about three years after operating the urgency of reducing cross-subsidization and costs are recovered. improving utilities’ commercial and customer relations management. Sector financial stability Another option would be to sequence tariff adjust- would be significantly impacted by a reduction of ments to first eliminate operating subsidies and residential consumption levels, potentially triggered then gradually eliminate cross-subsidies as soon by the planned substantial increase in the water tar- as sales revenues are sufficient to cover operat- iff. To better understand and anticipate the impact, ing costs. This approach (Scenario D, summarized a study of consumers’ capacity to pay for services in Table 14 and presented in detail in Annex VIII) is recommended. A rapid increase of commercial is in line with both government economic policy NRW would also greatly affect sector financial situa- objectives, but delays the achievement of full cost tion. An assessment of the level of effort required to recovery (including for CAPEX) and the phasing develop sound commercial and customer relations out of development grants. Under this scenario, management will most likely demonstrate their rel- cross-subsidization reaches a ratio of 1 to 2 in 2023. evance and urgency from an economic perspective. The elimination of cross-subsidies would require, in Finally, the sector is highly vulnerable a reduction of a variant of this Scenario D: (i) a continuous increase industrial consumption levels, which confirms the of residential tariffs by 13 percent per year until 2023; urgency of reducing cross-subsidization. Details of and (ii) a decrease by 11 percent per year of legal the sensitivity analysis are presented in Annex VIII. entity tariffs between 2018 and 2023. Overall, the 52 TABLE 14: FINANCIAL MODEL SCENARIOS: TARIFF ASSUMPTIONS AND COST RECOVERY ANALYSES SCENARIO A SCENARIO B SCENARIO C SCENARIO D Priority: subsidies reduction Balanced priorities Priority: cross-subsidies reduction Sequenced priorities Tariff increase Residential +10%/year Residential 10%/year Residential 10%/year Residential 10%/year No change then Non-residential No change Non-residential -3%/year Non-residential -5%/year Non-residential -3%/year Average tari : Residential 16,000 16,000 15,028 15,028 16,000 16,000 15,028 12,518 12,905 Legal entities 12,000 12,000 10,427 12,000 11,047 12,000 Average 9,089 8,120 8,436 8,000 8,000 7,674 8,000 8,000 6,964 7,199 6,451 6,451 7,199 6,451 Cost recovery tari : 6,363 5,885 6,451 4,000 4,000 4,000 4,000 3,641 3,641 3,641 3,641 OPEX 0 0 0 0 OPEX 2013 2018 2023 2013 2018 2023 2013 2018 2023 2013 2018 2023 + depreciation + interests Unit: BYR billion Cross- in 2018 3.8 3.0 3.8 3.8 subsidy 53 in 2023 2.3 1.8 2.0 2.0 ratio OPEX recovered in: 2019 2022 ~2024 2019 OPEX + interests + depreciation 2022 ~2025 >> 2024 2023 recovered in: Total subsidies 6,000 5,500 2013–2023 Operations (operations and 3,800 3,800 Investment investments) 4,000 3,400 2,500 2,500 2,000 1,000 1,000 Unit: BYR billion Financing the Development of Services Republic of Belarus Municipal Water Sector Review 4.4 Impact on affordability settle their utility bills, as is currently the case in Belarus; (ii) cash transfers from local executive com- Setting residential tariff rates at a level sufficient to mittees to their utilities to compensate for a discount recover operating costs will significantly affect the on their bills (ii) a very low tariff block covering affordability of services for low-income popula- essential water needs (for example 30 liters per tions. At the current highly subsidized tariff levels, capita per day), ensuring that the water bill would services are affordable to low-income households. not exceed 2 to 4 percent of the poorest household’s Currently, the disposable income available to budget. The first approach best targets financial the poorest 8 percent of the population (with the support to the poor since in the second option, exception of the very lowest 0.2 percent) is between every customer—regardless of needs, would benefit BYR16,000 and BYR32,000 per month (US$3.7/ from the cross-subsidized tariff for the first trench month), according to Belarus National Statistical of consumption. To the extent that local executive Committee. Affordability limits for water services committees maintain the capacity to clearly identify are usually considered to be between 2 and 4 percent low-income households, direct financial assistance of expenditures. With a 10 percent yearly increase in appears to be the most effective option, potentially the average residential tariff, the impact on afford- complemented by cash transfers. ability of services is likely to be acceptable until 2017 (see Figure 17). After that, an average residential Conduct an analysis of social impacts of a tariff tariff of more than BYR4,000 per m3 (US$0.46/m3) increase, in tandem with the study of consumer’s may not be affordable to the poorest households of capacity to pay. A detailed assessment of the social this income group. impacts would enable policymakers to adjust accordingly the perimeter and scope of direct finan- Vouchers to struggling low-income households cial assistance. Thus, a study analyzing the effect may be more economically appropriate than any of water bills on low-income households’ budgets, cross-subsidization scheme. Three approaches public attitudes and expectations regarding water can be considered to tailor the cost of services to prices, and existing coping mechanisms could prove low-income household budgets: (i) direct financial a valuable tool. assistance from the local executive committee to Figure 17: Share of residential water bill within the disposable income for the lowest income group (hypotheses: 10% yearly tariff increase; consumption of 117 liters per capita per day) 8,000 6,000 Residental tari 4% 4,000 BYR/m3 3% (of disposable income) 2,000 2% 0 2013 Source: National Statistical Committee, MHU 2018 2023 54 Annexes Annex I: Demographic Characteristics This annex provides background information on population trends in rural and urban areas, on the distribu- tion of population by level of per capita disposable resources. TABLE 15: POPULATION TRENDS IN RURAL AND URBAN AREAS—2002/2012 Evolution Population (thousands) 2002 2012 % in 2012 (2012/2002) Urban population 6,982 7,175 76% + 2.8% Minsk City population 1,699 1,885 20% + 10.9% Urban population (except Minsk City) 5,283 5,290 56% + 0.1% Rural population 2,917 2,290 24% - 21.5% Total Belarus population 9,900 9,465 100% - 4.4% Source: Belarus National Statistical Committee Figure 18: Distribution in percentage of the population by level of per capita disposable resources at national level was as follows for the second quarter of 2012. 160 140 120 Thousand BYR/month 100 80 60 40 20 0 0 10 20 30 40 50 60 70 80 90 100 Population ranked by income (percentile) Source: Belarus National Statistical Committee 57 Republic of Belarus Municipal Water Sector Review Annex II: Note on the Assessment of Non-revenue Water Various sources of information suggest that NRW compare the current level of physical losses with a18 levels commonly range between 20 and 35 percent: minimum, unavoidable level considering network (i) 23 percent country-wide according to govern- characteristics. Their applicability is limited by the ment statistics 2011; (ii) 26 percent for across the lack of available information on the specific levels 40 utilities participating to the IBNet (International of physical and non-physical losses. Benchmarking Network) in 2011; and (iii) 33 percent in average in the 25 surveyed utilities (see Annex V), Three assumptions have been tested in a prelimi- where NRW levels have reportedly been deteriorat- nary calculation of these indicators, as illustrated ing in recent years. in Table 16: TABLE 16: INFRASTRUCTURE LEAKAGE INDEX (ILI) Indicator Unit Assumptions18 % of total NRW 50% 75% 100% Physical losses m3/day 72,703 109,054 145,405 UARL m3/day 70,068 ILI no dimension 1.0 1.6 2.1 The comparison of utilities’ or countries’ perfor- With ILI in the range of 1 to 2, physical losses could mance in terms of non-revenue water indicators be considered at an acceptable level, and further is however biased because losses depend to some efforts to reduce them may be uneconomic. 19 extent on contextual factors outside the control of Detailed investigations at the utility level would be the utility (such as topography, age and type of required to refine this analysis and to identify cost- network, length of network per connection, water effective NRW reduction strategies adapted to the use per capita, etc.). A more relevant assessment context of each utility. of non-revenue water levels can be conducted on the basis of indicators, such as the unavoidable real losses (UARL) and the infrastructure leakage index (ILI)17. These indicators make it possible to 17 ILI (no dimension) = Total Physical Loss (m3/year)/UARL (m3/year) With: - Total Physical Losses (m3/year) = Volume of water supplied into the networks (m3/year) - Volume of water billed 18 Considering the very low domestic tariffs, non-physical losses (m3/year) (meter inaccuracies, inadequate meter reading and water theft) - UARL (Unavoidable Real Loss) (l/con/day) = (18 Lm/Nc + 0,8 represent probably less than 50 percent of total NRW + 25 Lp/Nc) x p (in m), where: Lm is the network length in km, Lp is the length of service 19 World Bank, December 2006: The Challenge of Reducing Non- pipelines in km and Nc is the number of service connections Revenue Water in Developing Countries 58 Annex III: Investment Planning and Tariff Setting Procedures This present annex provides background information on the investment planning process, and on the tariff setting and operational subsidies allocation process. Figure 19: Flowchart on investment process Preparation phase Implementation Supervision phase Presidential 8. Approves the Budget 16. Receives yearly report on program Administration implementation Ministry of 7. Veri es Budget proposal Finance Ministry of If revisions 6. Forms the investment program 9. Allocates budget funds for needed in the State Budget Communal Services (not Economy earmarked to water) Ministry of 4. Consolidates programs at national level, 15. Receives quarterly report veri es consistency with national sector from Oblast => prepares Housing and strategy and other policies yearly report for Presidential Utilities Admin. 1. Assists in project 3. Reviews, selects and prioritizes 5. Defends the regional 14. Prepares quarterly 10. Receives and distributes Oblast identi cation / formulation investment projects program at national level budget funds for Communal report on program Services implementation Municipality / 2. Reviews proposal and nalizes 11. Receives and distributes District / City proposals budget funds for Communal raion Services 1. Identi es capital investment 12. Receives funds and 13. Reports to Oblast on Utility project needs implements the project implementation progress 59 Republic of Belarus Municipal Water Sector Review Figure 20: Tariff setting and operational subsidies allocation process Determination phase Implementation phase Program of Social and Economic Development de nes max Presidential % of costs for communal services to be covered by pop. Administration Ministry of 5. Veri es that the request is realistic and 6. Earmarks subsidy for If revisions consistent with macroeconomic forecast communal services in local Finance needed budget Revises nation-wide residential tari level Ministry of for each communal service Economy Ministry of 4. Consolidates costs and revenue information => Calculates Housing and subsidy needs for each communal service and submits the request Utilities 3. Consolidates costs and revenues at oblast level for all 7. Receives budget (including earmarked funds for communal Oblast communal services services) and decides distribution to raions 2. Consolidates costs and revenues at raion level for all 8. Receives budget (including earmarked funds for communal Municipality / services) and decides distribution to communal services communal services raion 1. Reports costs and revenues for water 9. Receives and uses Utility services operations subsidies 60 Annex IV: Water/ Wastewater Quality Standards and Environmental Tax Rates This annex provides background information on the current potable water quality standards, including the maximum admissible concentrations of the main pollutants, and on the prevailing environmental tax rates. TABLE 17: BELARUS & INTERNATIONAL POTABLE WATER QUALITY STANDARDS Parameter Belarus EU£ WHO Iron (mg/l) 0.3 0.2 0.3 Manganese (mg/l) 0.1 0.05 0.1 Nitrate (mg/l) 45 50 50 Total coliform 0.001 0 Absence TABLE 18: BELARUS STANDARDS FOR EFFLUENT QUALITY (AVERAGE VALUES) Equivalent COD BOD5 SS Ammonium N total P total population mgO2/l mgO2/l mg/l mg/l mg/l mg/l <500 125 35 40 N/A N/A N/A 501 – 2000 120 30 35 20 N/A N/A 2001 – 10000 100 25 30 15 N/A N/A 10001 – 100000 80 20 25 N/A 20 4.5 >100001 70 15 20 N/A 15 2.0 TABLE 19: ENVIRONMENTAL TAX RATES FOR WATER ABSTRACTION (2013) % of average operating cost Purpose Tax (BYR/m3) for water services Residential water supply 50 1.4% Food producers (byproducts of animal/plant origin) 3 0.1% Production of beverages 17,840 498% Other use 170 4.7% Sources: Tax code of the Republic of Belarus TABLE 20: ENVIRONMENTAL TAX RATES FOR UNTREATED EFFLUENTS DISCHARGE (2013) % of average operating cost Place of discharge Tax (BYR/m3) for wastewater services Waterway 470 16.5% Earth reservoir, groundwater through filtration fields 630 22.1% Sources: Tax code of the Republic of Belarus Note: A coefficient of 1.5 to the above rates applies to unmetered abstractions and discharges. 61 Republic of Belarus Municipal Water Sector Review Annex V: 2011 Statistics (oblasts and Minsk City) This annex provides background information water and sewerage facilities and on sector operational, eco- nomic, and financial indicators at oblast level. TABLE 21: INVENTORY OF WATER AND SEWERAGE FACILITIES AT OBLAST LEVEL Brest Vitebsk Gomel Grodno Minsk Mogilev Belarus Oblast oblast oblast oblast oblast oblast City of Indicator Urban Rural Minsk Total Total Total Total Total Total Total areas areas I. Water and sewerage facilities Water facilities Quantity, unit water pipelines 01 5,175 248 3,826 612 1,101 761 473 1,146 1,081 1 standpipes 02 60,203 21,407 26,904 2,813 11,892 13,633 2,219 9,097 19,460 1,089 artesian boreholes 03 9,513 2,540 5,373 1,236 1,600 1,429 1,030 2,039 1,828 351 iron removal plants 04 462 158 198 91 106 67 84 42 70 2 2nd and 3rd lift pumping stations 05 836 646 101 149 89 93 51 99 59 296 water towers 06 3,991 272 2,916 528 803 603 386 998 667 6 storage reservoirs 07 742 391 212 168 139 82 77 134 96 46 fire hydrants 08 54,847 36,205 12,455 7,484 6,187 14,032 4,733 6,448 8,842 7,121 fire protection storage tanks 09 145 33 73 10 39 33 1 56 6 0 laboratories 10 92 72 13 25 7 20 12 13 11 4 of which accredited 11 84 65 13 24 6 19 12 11 10 2 Length, km 32,885.7 14,234 13,892 4,907.9 4,760.0 6,914 2,983 5,757 5,988 1,576 transmission pipelines 12 4,807.7 2,689 1,380 647.6 739.0 934.8 545.4 626.0 595.7 719.2 distribution pipelines 13 22,635.2 7,921 11,375 3,320.8 3,339.0 4,918.5 1,742.3 4,504.0 4,810.6 internal networks (inside buildings/blocks) 14 5,442.8 3,624 1,137 939.5 682.0 1,061.1 694.9 627.0 581.7 856.6 Length of pipelines (km), per age of service up to 5 years included 15 3,595.4 1,484 1,694 875.5 417.0 714.6 353.4 526.0 655.5 53.4 5 to 15 years included 16 5,115.8 2,292 2,373 751.0 451.0 1,213.3 502.4 966.0 986.7 245.4 15 to 30 years included 17 12,357.9 4,167 6,465 1,525.1 1,726.0 2,569.0 829.6 2,604.0 2,501.4 602.8 more than 30 years 18 7,875.2 4,155 2,143 733.7 1,577.0 1,356.3 602.3 1,204.0 1,407.6 994.3 Length pipes requiring replacement transmission pipelines 19 391,777 210,820 91,595 45,935 89,362 82,640 16,655.0 77,948 5,296.0 73,941 distribution pipelines 20 1,816,569 318,450 1,016,428 56,831 481,691 412,088 65,373.0 722,365 71,303.0 6,918 Installed production capacity (m3/day) 1st lift pumping stations 21 4,811,074 2,801,278 1,076,096 395,545 933,700 652,743 472,628 737,258 664,300 954,900 water treatment plant 22 2,707,912 1,885,689 91,223 179,510 731,000 440,334 311,390 183,078 317,500 545,100 of which iron removal plants 23 2,312,862 1,494,077 87,785 179,512 731,000 365,282 311,390 183,078 317,500 225,100 transmission pipelines 24 4,843,271 2,807,418 1,107,153 354,800 928,700 801,937 399,586 735,048 668,300 954,900 Sewerage facilities Quantity, unit sewerage network 30 1,365 174 1,028 323 163 244 224 197 213 1 with direct discharge to the environment 31 180 83 45 20 52 14 33 35 25 1 WWTP 32 1,315 163 986 314 166 222 204 203 205 1 of which are filtration ponds 33 1,120 99 919 297 102 229 170 175 146 1 sewerage pumping stations 34 2,707 996 1,409 660 302 616 337 431 310 51 of which main pumping stations 35 1,212 211 903 344 98 192 205 213 158 2 laboratories 36 91 76 3 17 12 11 16 25 9 1 of which accredited 37 77 67 1 15 9 11 13 20 8 1 Length, km 17,359.1 9,482 4,677 2,652 3,200 3,086 1,844 2,705 2,220 1,653 main collectors 38 4,606.6 2,517 1,468 775.6 621.9 955.0 511.7 857.0 537 348.2 secondary sewerage network 39 6,757.8 3,516 2,565 1,075.6 676.9 1,266.0 723.6 1,250.0 1,152 613.9 internal networks (inside buildings/blocks) 40 5,994.7 3,449 644 800.5 1,901.3 865.0 608.7 598.0 531 690.7 Length of sewer (km), per age of service up to 20 years included 41 5,227.2 2,973 1,842 1,043.5 412.4 1,081.9 631.6 679.0 767.3 611.5 20 to 30 years included 42 5,821.9 2,939 2,113 925.8 770.1 1,124.4 695.0 1,071.0 927.8 307.8 30 to 50 years included 43 3,832.4 2,446 714 579.4 672.7 698.6 460.2 887.0 336.2 198.3 more than 50 years 44 1,125.9 1,056 24 44.4 46.1 182.2 57.2 70.0 190.8 535.2 Length sewer requiring replacement main collectors 45 350,229 172,410 67,819 22,266 110,000 89,770 27,731 85,802 14,607 53 secondary sewerage network 46 352,764 114,548 80,970 15,673 157,246 52,917 37,776 74,704 10,078 4,370 Installed wastewater treatment capacity (m3/day) 47 3,039,715 2,457,906 288,699 461,580 293,110 132,795 295,073 427,157 660,000 770,000 Installed sludge treatment capacity (ton/day) 48 452.1 431 21 113.9 0 21.6 38.2 38.0 64.0 176.4 Sludge dispoal areas (thousand m2) 49 3,277.1 2,227 486 308.5 564 171.4 376.5 722.0 455.0 679.5 Of the total of sewerage facilities - those not in 50 10 3 7 2 0 7 0 1 0 0 operation Source: MHU statistics 2011 62 Financing the Development of Services TABLE 22: OPERATIONAL INDICATORS OF WATER AND WASTEWATER SERVICES AT OBLAST LEVEL Brest Vitebsk Gomel Grodno Minsk Mogilev Belarus Oblast oblast oblast oblast oblast oblast City of Indicator Minsk Urban Rural Total Total Total Total Total Total Total areas areas II. Operation of water and sewerage facilities Water supply Pumped water by 1st lift pumping stations 55 681,151 561,633 45,502 74,117.9 74,016.0 103,422.8 65,298.8 79,531.1 80,915.0 203,849.4 (thousand m3) of which from groundwater sources 56 608,981 489,683 45,284 74,171.9 74,014.0 101,542.1 65,299.8 79,312.8 80,915.5 133,724.9 Water injected into distribution network 57 651,554 533,445 47,108 72,348.8 70,948.0 96,990.1 63,393.0 81,169.5 78,674.8 187,977.1 (thousand m3) including: pressurized 58 644,484 529,686 44,277 71,944.5 70,522.0 93,315.2 63,206.7 79,313.1 78,205.8 187,977.1 gravity-fed 59 63 0 59 59.0 4.0 0.0 0.0 0.0 0.0 0.0 purchased from other organizations 60 7,007 3,759 2,773 345.3 475.0 3,674.9 186.3 1,856.4 469.0 0.0 Water processed through treatment plants 61 441,686 377,008 8,179 62,428.1 56,498.0 80,551.7 55,453.5 33,555.1 61,090.2 92,108.9 (thousand m3) Water supplied to (thousand m3) 62 497,849 409,398 35,885 60,428.3 52,567.0 73,786.0 51,266.7 61,651.4 57,191.2 140,958.5 including: for customers (connections) 63 493,239 405,554 35,504 60,036.6 52,181.0 72,990.8 50,841.0 60,887.9 55,343.2 140,958.5 including: 0 0 for population 64 346,494 281,367 26,268 44,730.0 38,859.0 50,616.4 34,260.9 39,641.8 36,878.9 101,507.2 for administrative needs 65 98,721 81,763 6,594 9,841.4 10,364.0 13,648.4 11,774.0 11,834.0 14,583.1 26,675.8 for industrial needs 66 48,024 42,424 2,642 5,465.2 2,958.0 8,726.0 4,806.1 9,412.1 3,881.2 12,775.5 to other distribution systems 67 4,610 3,843 381 391.7 386.0 795.2 425.7 763.5 1,848.0 0.0 "Technical" water consumption (thousand m3) 68 44,295 35,872 3,230 2,788.0 5,192.0 11,495.0 2,445.4 2,678.5 3,823.3 15,872.3 Losses and unaccounted for water (thousand 69 145,405 119,826 8,906 11,544.9 16,673.0 21,915.7 11,586.7 16,839.7 19,826.8 47,018.6 m3) % losses and unaccounted for water 22% 1 1 16% 24% 23% 18% 21% 25% 25% Electricity consumption for water production and 70 1,173,735 407,364 713,383 785,471.6 52,988.0 79,178.5 49,960.7 49,971.4 51,566.6 104,598.2 supply, thousand kWh Sewerage Collected wastewater (thousand m3) 75 462,207 443,314 18,893 62,260.4 60,725.8 48,505.5 66,099.0 77,369.4 147,246.6 including wastewater : from population 76 274,099 261,454 12,645 39,213.7 37,761.7 29,802.0 34,969.3 30,888.5 101,463.6 from administrative needs 77 88,014 83,438 4,575 9,556.2 13,045.1 7,501.6 13,071.6 15,345.5 29,493.6 from industrial needs 78 91,204 90,064 1,140 12,585.9 6,450.9 10,583.5 14,600.1 30,966.8 16,016.6 from other distribution systems 79 8,891 8,358 533 904.6 3,468.1 618.4 3,458.0 168.6 272.8 Wastewater processed through treatment plants 80 549,936 532,460 17,476 80,135.2 76,096.1 62,190.1 68,146.1 86,786.4 176,582.0 (thousand m3) of which, for full biological (physical-chemical) 81 538,319 523,084 15,235 80,873.5 66,167.5 62,190.1 66,212.1 86,293.6 176,582.0 treatment of which with tertiary treatment 82 180,123 179,843 279 63,301.8 11,127.3 0.0 31,990.8 73,702.9 0.0 discharge of wastewater to natural water 83 398,684 395,684 3,000 70,043.7 57,322.8 58,827.9 1,528.5 36,800.1 174,161.0 bodies of which, insufficiently treated 84 3,811 3,636 175 0.0 0.0 90.4 2,280.2 0.0 1,440.0 Transfer of wastewater to other sewerage 85 21,840 17,399 4,441 663.6 16,144.4 1,083.3 2,804.5 722.2 422.0 systems (thousand m3) Electricity consumption for wastewater transfer 86 287,054 275,629 11,425 41,027.7 44,118.3 37,116.7 37,341.3 47,625.7 79,823.9 and treatment, thousand kWh Source: MHU statistics 2011 63 Republic of Belarus Municipal Water Sector Review TABLE 23: ECONOMIC AND FINANCIAL PARAMETERS AT OBLAST LEVEL Brest Vitebsk Gomel Grodno Minsk Mogilev Belarus Oblast oblast oblast oblast oblast oblast City of Indicator Urban Rural Minsk Total Total Total Total Total Total Total areas areas III. Economic and financial paremeters (million BYR) Revenues from the operation (net of value added 90 1,807,294 1,260,558 55,496 213,045.7 337,052.0 430,226.3 154,188.8 275,439 397,343 tax, excise duties and other charges) waterworks 1,039,721 678,211 36,006 112,744.0 122,691.0 187,199.0 218,061.9 15,613.7 141,282.9 242,128.0 sewerage 890,265 582,347 19,490 100,301.7 149,853.0 212,164.4 138,575.1 134,155.6 155,215.0 including, from population: 91 397,413 293,057 25,845 61,359.5 42,050.0 75,367.6 36,462.1 52,112.0 130,062.0 waterworks 268,615 174,169 17,841 36,733.3 24,032.0 28,598.0 39,433.3 23,976.1 35,205.4 80,637.0 sewerage 152,830 118,888 8,004 24,626.2 13,452.0 35,934.3 12,486.0 16,906.6 49,425.0 Operation costs 92 1,879,349 1,272,083 72,182 233,481.3 275,189.0 395,194.4 259,895.5 277,358.2 438,231.0 waterworks 1,174,110 689,768 46,419 124,315.0 132,562.0 154,887.0 200,807.9 150,474.6 143,600.3 267,463.0 sewerage 837,802 582,316 25,763 109,166.3 120,302.0 194,386.5 109,420.9 133,757.9 170,768.0 including: material expenditure 93 834,488 585,345 21,872 90,145.6 112,390.0 163,792.6 114,880.5 117,298.5 235,981.0 waterworks 533,876 326,033 15,888 52,580.7 55,462.0 66,465.0 83,291.8 70,028.4 61,091.7 144,956.0 sewerage 356,075 259,313 5,985 37,564.9 45,925.0 80,500.8 44,852.1 56,206.8 91,025.0 of which: energy costs 94 534,013 387,123 12,206 42,957.6 72,357.0 122,123.7 62,326.6 70,293.7 163,954.0 waterworks 312,140 217,787 9,443 23,511.7 46,244.0 62,079.2 38,665.6 36,661.0 104,978.0 sewerage 221,873 169,336 2,763 19,445.9 26,113.0 60,044.5 23,661.0 33,632.7 58,976.0 labor costs 95 398,769 257,490 16,577 59,404.9 64,561.0 87,724.5 60,140.9 54,108.8 72,829.0 waterworks 253,254 140,693 10,049 29,814.7 34,248.0 34,645.0 44,564.5 33,618.8 27,712.5 48,650.0 sewerage 179,764 116,797 6,529 29,590.2 29,916.0 43,160.0 26,522.1 26,396.3 24,179.0 deductions for social needs 96 141,685 91,628 5,951 20,840.2 22,996.0 30,936.6 21,109.3 19,702.5 26,100.0 waterworks 90,931 50,065 3,620 10,483.8 13,080.0 12,331.0 15,703.2 11,835.3 10,059.0 17,439.0 sewerage 63,833 41,563 2,331 10,356.4 10,665.0 15,233.4 9,274.0 9,643.5 8,661.0 depreciation and amortization 97 224,655 150,059 12,460 28,826.0 35,285.0 50,932.9 26,850.8 27,928.8 54,831.0 waterworks 138,461 76,602 8,220 16,016.8 17,687.0 20,247.0 25,985.8 15,705.1 13,191.1 29,628.0 sewerage 103,881 73,457 4,240 12,809.2 15,038.0 24,947.1 11,145.7 14,737.7 25,203.0 other expenditures 98 279,454 187,561 15,321 34,264.6 39,658.0 61,807.8 36,914.0 58,319.6 48,490.0 waterworks 157,289 96,375 8,643 15,419.0 12,085.0 20,899.0 31,262.6 19,287.0 31,546.0 26,790.0 sewerage 134,250 91,186 6,679 18,845.6 18,759.0 30,545.2 17,627.0 26,773.6 21,700.0 Background information Iron concentration in water networks (mg/l) 100 Number of breakdowns on water works 101 1,882 53 251 304 161 1008 0 409 0 0 on sewerage systems 102 582 0 16 16 465 0 101 0 0 Number of employees at year end on water works 103 13,015 5,867 934 1813 1,818 2414 1,201 1982 1861 1926 on sewerage systems 104 9,944 5,166 586 1753 2241 1,134 1951 1621 1244 ( Source: MHU statistics 2011 TABLE 24: KEY FINANCIAL RATIOS (2011) Belarus (except Minsk Indicator / Oblast Vitebsk) Brest Vitebsk* Gomel Grodno Minsk Mogilev City Operational costs/consumption (BYR/m3) 3,755 3,409 3,287 6,820 3,828 4,507 2,720 Water 2,089 1,804 1,845 3,463 2,213 2,356 1,687 Wastewater 1,665 1,605 1,442 3,356 1,614 2,151 1,033 Total costs/consumption (BYR/m3) 4,265 3,889 3,770 7,829 4,268 5,012 3,109 Sales from operations/consumption (BYR/m3) 4,101 3,549 4,618 8,523 2,532 4,977 2,819 Water 2,081 1,878 2,565 4,320 256 2,553 1,718 Wastewater 2,020 1,671 2,053 4,203 2,276 2,424 1,101 Cost coverage ratio (all revenue included) 1.08 1.02 1.37 1.13 0.83 1.15 0.97 Cost coverage ratio (subsidies excluded) 0.96 0.91 1.22 1.09 0.59 0.99 0.91 Contribution of internal sources to invest. % Subsidization ratio (subsidies/revenue) 10.6% 10.6% 10.7% 3.7% 28.2% 13.6% 6.7% Source: MHU statistics 2011 * incomplete information on Vitebsk Oblast **not available 64 Financing the Development of Services The flow of funds in the sector, both for investment financing and for revenues, is illustrated in Figure 21. Revenue flows are indicated for the reference year 2011 and calculated on a 2011-2015 average for investment funds, based on the Clean-Water financing plan. In the absence of complete revenue data for Vitebsk oblast, the resulting revenue amounts are indicative only. Figure 21: Indicative flow of funds in the sector 1 15 Central Donors Government 5 50 50 Oblast 34 34 authorities Development Grant and Loans 50 50 Flow of funds – public 14 ing (MUS$/year) Raion/Municipal Flow of funds – from 13 donors (MUS$/year) authorities Revenues (subsidies and sales) Flow of revenues 14 (MUS$/year) Taxes (environmental) 46 50 7 10 4 46 5 14 Flow of taxes 1 (MUS$/year) Utilities Investment funds: 41 M$/year Environmental taxes: 35 M$/year Revenues: 421 M$/year 71 243 Domestic Other customers customers Source: World Bank team own elaboration, based on: - Investment flows as an average of 2011-2015 programs (Clean Water, donors programs) - Revenues and subsidies calculated based on MHU operational and financial statistics 201 - Tax fund flows estimated based on MHU operational statistics 2011 (for quantities), and 2013 tax code (for rates and allocation rules) 65 Republic of Belarus Municipal Water Sector Review Annex VI: Utilities Survey The present annex provides background information on the utilities survey conducted in December 2012 in the framework of the present study. It is composed of five sections: A. Questionnaire (template and example received) B. List of utilities surveyed C. List of feasibility studies reviewed D. Main conclusions E. Survey data 66 Financing the Development of Services A. Questionnaire (template and example received) NAME OF WATER/WASTEWATER UTILITY: Utility Contact details of the officer responsible for questionnaire completion: Name, position: ________________________________________ Phone number, e-mail: ________________________________________ A. Overview 1. Legal status of the utility : unitary enterprise Please specify and attach copy of the Charter if any (copy of the Articles of Association attached) 2. Area of service (km²) 3. Population: 3.1 total in service area 2010: 2011: 3.2 served (water) 2010: 2011: 3.3 served (wastewater) 2010: 2011: 4. Level of service (water supply) % (01/01/2012) 4.1 In-house (connected to distribution system): Fountains: 4.2 Other sources: 5. Level of service (wastewater) % (01/01/2012) 5.1. Through sewerawge system: 5.2. On-site sanitation: B. Quality of services 6. Reliability of service hours/day of water availability (average) 2010: 2011: 7. Water quality: % of samples in conformity with standards (2011) 7.1 Bacteriological parameters: 7.2 Chemical parameters: 7.3 Physical parameters: 7.4 Specify nature of quality problems( if any) 67 Republic of Belarus Municipal Water Sector Review C. Technical aspects 8. Metering (water) 8.1 Bulk metering at production: % of production metered: 100% 8.2 Customer metering: % of customers metered: 100% 9. Water supply system 9.1 General layout of water supply system (sketch on a separate sheet) 9.2 Specify water sources, treatment, pumping, supply and storage 9.3 Production capacity (m3/day): 9.4 Average production (m3/day) 2010: 2011: 9.5 Length of supply pipes (km) 2010: 2011: 9.6 Main pipe materials: 9.7 Storage capacity (m3): 10. Water distribution system 10.1 Volume distributed (billed) (m3/year) 2010: 2011: 10.2 Length of distribution pipes (km) 2010: 2011: 10.3 Number of leaks repaired 2010: 2011: 11. Sewerage system 11.1 Length of sewers (km) and materials: 11.2 Main pipe materials: 11.3 Number of blockages fixed 2010: 2011: 11.4 Wastewater treatment facilities: 11.4.1 Date of construction/recent reconstruction: 11.4.2 Capacity : (m3/day) : 8100 11.4.3 Treatment type :   mechanic other : ___________ 11.4.4 Water samples meeting standards % (2012): 12. Energy consumption (kWh) 12.1 Water supply : 2011 :   / 2012 :   / 12.2 Wastewater : 2011 :   / 2012 : D. Commercial aspects: 13. Connections (water/wastewater) numbers on January 1 (active connections) 13.1 residential 2011 : 2012 : 13.2 privileged companies 2011 : 2012 : 13.3 industries 2011 : 2012 : 13.4 others 2011 : ___________ ___________ 2012 : ___________ 14. Water consumption (per category of consumers) cum/year billed 14.1 residential 2011 : 2012 : 14.2 privileged companies 2011 : 2012 : 14.3 industries 2011 : 2012 : 14.4 others 2011 : ___________ 2012 : ___________ 68 Financing the Development of Services 15. % of volumes billed according to meters 2011 : 1408137 2012 : 1144651 16. Billing and collection (in BYR) 16.1 total billing 2011 : 3 419 893 714 2012 : 4 772 745 860 16.2 total collection 2011 : 3 375 435 096 2012 : 4 677 290 943 E. Human resources 17. Staffing 17.1 total staff (January 1) 2011 : 2012 : 17.2 - % technical (O&M) 2011 : 2012 : 17.3 - % commercial 2011 : 2012 : 17.5 - % management/administration 2011 : 2012 : 17.5 average age 2011 : 2012 : 17.6 average seniority 2011 : 2012 : F. Financial aspect 18. Financial management Please provide a copy of the most recent financial statements :balance sheet, revenue & expenditures. 19. Cost structure: % of operating costs: 19.1 % personnel costs 2011 : 2012 : 19.2 % energy costs 2011 : 2012 : 19.3 % chemicals 2011 : 2012 : 19.4 % maintenance 2011 : 2012 : 19. Cost structure: % of operating costs: 19.1 % personnel costs 2011 : 2012 : 19.2 % energy costs 2011 : 2012 : 19.3% chemicals 2011 : 2012 : 19.4 % maintenance 2011 : 2012 : 20. Subsidies 20.1. From Municipal and Regional (local) budgets (rub) 20.1.1 for operating costs: 2010: ___________ 2011: ___________ 20.1.2 for investments: 2010: 2011: ___________ 20.1. From the State budget 20.1.1. for operating costs: 2010: ___________ 2011: ___________ 20.1.2. for investments: 2010: ___________ 2011: ___________ 21. Tariff (BYR/m3) 21.1 residential 2010: 2011 : 2012 : 21.2 privileged companies 2010 : 2011 : 2012 : 21.3 industries 2010 : 2011 : 2012 : 21.4 others 2010 : _________ 2011 : _________ 2012 :________ 69 Republic of Belarus Municipal Water Sector Review 22. Depreciation rates %/year for : 22.1 civil works— 22.2 electrical/mechanical equipment— 22.3 pipes— G. Monitoring 23. Major performance indicators in use Please specify performance indicators in use in the utility and provide indicator values for 2010 and 2011 PERFORMANCE INDICATORS. 70 B. List of utilities surveyed and feasibility studies reviewed TABLE 25: SELECTED UTILITIES (AND POPULATION) Population Oblast Total (City) Vitebsk Gomel Grodno Minsk Mogilev Brest > 50,000 Orsha 117,200 Gomel 484,300 Molodechno 94,200 3 > 10,000 Postavy 19,800 Kalinkovichi 38,400 Volkovysk 44,000 Vilejka 26,800 Gorki 32,600 Bereza 29,400 13 < 50,000 Lepel 17,400 Dobrush 18,300 Smorgon 36,200 Dzerzhinsk 25,200 Osipovichi 32,400 Luninets 23,600 Kliev 17,900 < 10,000 Sianno 8,000 Petrikov 10,600 Dyatlovo 7,800 Miadel 7,200 Dribin 3,100 David-Gorodok 9 Obol 3,000 Ross 6,200 6,500 (Orshevsky District) (Korelichi District) Gorodich 2,000 (Baragoritchsky District) Total 5 4 4 4 4 4 25 In bold = selected places for site visits – underlined = Vodokanals In addition, the Minsk Vodokanal was visited, but the questionnaire has not been returned. 71 TABLE 26: FEASIBILITY STUDIES REVIEWED FOR THE DIAGNOSTIC City (Oblast) Population City (Oblast) Population Vitebsk (Vitebsk) * 386,000 Mariina Gorka (Minsk) ** 21,400 Mogilev (Mogilev) ** 354,000 Glubokoye (Vitebsk) ** 18,200 Bobruisk (Mogilev) ** 215,000 Smolevichi (Minsk) ** 15,100 Baranovitchi (Brest) * & ** 168,200 Berezino (Minsk) ** 12,000 Slonim (Grodno) * 48,800 Verkhnedvinsk (Vitebsk) ** 7,300 Note: * EBRD financed Feasibility Study ** IBRD financed Feasibility Study Financing the Development of Services Republic of Belarus Municipal Water Sector Review Selection criteria for the utility surveys were: geographical distribution across the 6 Oblasts, variety of sizes and no participation to an IFI-financed project (information on the utility would otherwise already be avail- able through the Feasibility Studies). Overall, the study collected information on utilities covering 21% of the total population supplied by central- ized water systems in Belarus (including 21 of the 50 largest utilities). Figure 22: Utilities covered by the diagnostic, through the survey and through review of feasibility studies 400,000 Population covered by the utilities included in the diagnostic — compared to total population 350,000 Surveyed Feasibility Population (questionnaires) study review Total 300,000 > 50,000 13% 14% 27% 250,000 > 10,000 to 50,000 32% 8% 40% Population 200,000 > 10,000 1% 0% 1% 150,000 City / Town not investigated 100,000 With surveyed utility With Feasibility Study 50,000 0 Cities / towns ranked by population C. Main conclusions 1. Only 22 utilities answered the survey questionnaire (5 Vodokanals and 17 multi-utilities). 2. Quality of answers is very uneven. Inconsistencies are frequent especially in small multi-utilities; they generally reflect a lack of control of statistics, orders of magnitude, and understandings of indicators. 3. There is no problem regarding availability of water resources. 4. Production capacity is often several times the actual production. No issue of production capacity and permanent supply. 5. Storage capacity is generally satisfactory (more than ½ day of production). 6. Water quality is not a concern for utilities, except for the presence of iron. A small percentage—but significant in terms of public health risk—of bacteriological tests does not conform to the norms. The disinfection of water—and facilities—would avoid this limited but serious risk. 7. The large variations in number of leaks and blockages by kilometer of pipes and sewers likely reflect the lack of proper monitoring and recording of incidents, and analysis for planning replacements or improvements 72 Financing the Development of Services 8. The number of people with residential connections is low (average # 2.5), and the average daily con- sumption is generally around 100 liters per capita per day, e.g. markedly below the tariff threshold of 140 liters per capita per day. 9. Multi-utilities have obvious difficulties in identifying specific information regarding water and sanitation services among their multiple activities, especially in terms of staffing, billing and collection, subsidies, and even the real number of customers 10. In some places, utilities mix information between the district and the district capital. 11. Subsidies for operations are received from the local or regional authorities, never from the central government. 12. The customer categories called “privileged institutions” and “others” are not always clearly distinct, and it appears that the utilities are giving their own definitions to these categories, hence a feeling of opacity in the customer management. For both categories tariff is being generally close to - or even more than— the industrial tariff. 13. Despite the small size of the utilities’ commercial departments (mostly due to the self-reading and cash- ing practices), the productivity ratio (staff/connections) is, for consistent information, around 10 e.g. far above standards for performing utilities (1 to 3). However, visited utilities claimed that their staff is below the “norms” issued by the MHU. The lack of outsourcing and the modest level of automation cannot, by themselves only, explain this poor productivity ratio. 14. The cost structure presented by the utilities is somewhat confusing; it appears that cost accounting pro- cedures should be improved, with a clear definition of each cost item and category. Sharing the costs in multi-utilities among a large number of activities is visibly challenging, and is definitely a source of confusion and opacity. 15. The present organization of the customer cycle leads to a collection rate close to 100%. Utilities where collection rates below 95% are therefore considered to be lax. 16. Average non-revenue water ratio is about 30%, clearly above the 2011 statistics from MHU (about 23%). The situation should be looked at carefully, case by case, for both physical and non-physical losses (in particular bulk and customer metering and meter reading potential problems) 17. Specific energy consumption is generally between 1and 1.5 kwh/m3 produced; this quasi-uniformity reflects the fact that most production facilities have very similar features. 18. Operational subsidies in 2011 concern half of the Vodokanals, and a large majority of multi-utilities, where they are supposed to subsidize the whole of the activities, not only the water and sanitation ones. 19. The industrial tariff is hugely higher than the base residential tariff, often more than 20 times. This is clearly an incentive for large industries and businesses to develop their own water supply, and a threat for the sustainability of the utilities. D. Survey data (see next page) 73 TABLE 27: RESULTS FROM THE UTILITIES SURVEY Molo- Osipo- Kalin- Djatlov- Shumi- Smor- Volko- Indicators / Utilities Vileika 0rsha Gomel Luninec Postavi Dobrush Lepel Dribin Gorki Klichev Mjadel Rechica Sianno Jerginsk Rossk dechno vichi kovich skoe linsk gon visk Total popula tion in service area 108400 26740 137510 507700 71000 49640 28890 21550 38880 17350 7585 11370 30930 7333 28090 71120 24210 2635 36740 55780 25410 5390 Popul a ti on s e rve d (wa t e r) 102700 24200 137510 505600 45340 42250 22370 18525 13160 13310 4590 8885 30930 7135 12050 63130 19300 2320 35020 41960 2 5 110 5100 Popul a ti on s e rve d (s e we ra ge ) 84200 18610 116885 443700 29600 29600 14050 7180 9300 11060 4505 5900 22270 N/A 8153 55700 12590 1994 32230 41520 19760 3240 Cove ra ge Wa te r % popul a ti on 95% 91% 100% 100% 64% 85% 77% 86% 34% 77% 61% 78% 100% 97% 43% 89% 80% 88% 95% 75% 99% 95% Coverage Wastewater % popula tion 78% 70% 85% 87% 42% 60% 49% 33% 24% 64% 59% 52% 72% 29% 78% 52% 76% 88% 74% 78% 60% % popula tion served connected (water) N/A 91% 88.8% 99.6% 98% 94.8% N/A 97.6% 91.7% 86% 87.8% 97% 100% 95.5% N/A 97% 77% 65% 97% 95% 98.8% 94.6% Re l i a bi l i ty wa t e r /2 4 h 24 24 24 24 24 24 24 24 24 2 3 .9 24 24 24 2 3 .8 24 24 24 24 24 24 24 24 Conformi t y ba ct e ri ol ogy % 100 9 8 .2 9 8 .5 9 9 .6 100 100 100 9 8 .5 9 9 .8 100 100 100 100 100 9 9 .3 99 9 3 .1 100 100 100 100 100 Conformi t y che mi c a l % 9 9 .6 9 4 .3 8 4 .2 9 9 .6 82 18 5 .2 40 96 90 6 6 .1 6 4 .3 100 94 6 8 .9 50 8 1 .7 80 100 98 100 100 % me te ri ng (bul k) 100 98 100 100 100 100 100 100 100 100 100 99 100 100 100 100 100 100 100 100 100 100 % me te ri ng (cu s tome rs ) 90 100 98 9 6 .7 9 4 .5 92 7 3 .4 97 90 99 85 72 100 100 77 100 100 80 98 85 98 100 Producti on ca pa c i t y m3 /d 66500 14300 61900 169000 22200 28400 24860 6530 20000 5284 2640 1730 15200 2700 17100 48000 2000 1488 12000 12800 15360 5700 Ave ra ge producti on m3 /d 24030 4874 29200 130700 N/A 8621 5470 4000 11000 2567 1367 1510 5600 1674 2659 14211 2000 513 10000 10234 4500 952 Uti l i za t i on ra ti o % 36% 34% 47% 77% 30% 22% 61% 55% 49% 52% 87% 37% 62% 16% 30% 100% 34% 83% 80% 29% 17% Stora ge ca pa ci ty m3 31265 4000 9400 65400 1155 1445 6290 3950 7900 2818 300 2100 4800 800 1800 124000 1025 200 6800 6270 3500 2000 % storage/average produc tion (hours) 31 20 8 12 4 28 24 17 26 5 33 21 11 16 209 12 9 16 15 19 50 Una ccounte d-for Wa t e r UFW % 27% 21% 34% 31% 32% 40% 90% 58% 37% 13% 34% 9% 45% 72% 27% 24% 28% 26% 38% 35% 24% Republic of Belarus Municipal Water Sector Review L e ngt h di s tri b. s ys t e m km 298 93 337 985 257 1 9 .6 86 106 135 71 39 193 87 1 2 .7 88 220 60 11 64 50 81 15 L e a ks re pa i re d 171 5 78 532 34 31 136 8 63 23 10 27 40 7 25 250 139 136 35 512 10 16 L e a ks re pa i re d/km/ye a r 0 .6 0 .1 0 .2 0 .5 0 .1 1 .6 0 .1 0 .5 0 .3 0 .3 0 .1 0 .5 0 .6 0 .3 1 .1 2 .3 0 .5 0 .1 1 .1 L e ngt h s e we ra ge s ys t . Km 188 55 239 570 144 131 86 20 80 47 19 145 59 19 101 149 22 9 80 77 81 21 Bl oc ka ge s fi xe d 980 100 1522 7271 83 58 1460 12 70 43 1 28 50 84 100 1012 112 96 367 803 10 48 Bl oc ka ge s /km/ye a r 5 .2 1 .8 6 .4 1 2 .8 0 .6 0 .4 1 7 .0 0 .6 0 .9 0 .9 0 .1 0 .2 0 .8 4 .4 1 .0 6 .8 5 .1 1 0 .7 4 .6 1 0 .4 0 .1 2 .3 WWTreatment capacity m3/day 43245 N/A 57000 180000 N/A 29500 6300 N/A N/A 5200 610 4000 10000 569 8400 40000 3000 849 19300 18500 11300 4200 74 Conformi t y e ffl ue nt % 100 100 9 5 .4 100 100 100 100 80 N/A 98 100 100 100 100 100 100 96.5 90 100 100 100 100 Total electricity consumpti on 1000xKwh 10776 2411 9170 56558 3008 3435 2242 534 2404 1319 812 546 3101 273 2834 6571 1830 2561 4339 4078 2103 589 Ene rgy tot a l cons . Kwh/m3 1 .2 3 1 .7 1 1 .3 1 1 .7 3 1 .4 5 1 .8 1 1 1 .6 2 0 .8 7 0 .9 5 1 .6 2 2 .4 7 1 .0 9 2 .7 4 1 .6 2 4 .0 1 1 .6 6 3 .4 6 1 .6 0 1 .7 7 1 .9 7 2 .2 2 D ome s t i c wa t e r c on n e c t i on s 42141 7515 56224 178680 14169 18175 11000 7508 14090 7100 2704 2759 13254 2253 12580 40131 18695 N/A 13050 16818 6273 2062 Privileged customers connections 21 14 14 0 23 5 1 0 19 25 7 0 16 3 24 4 1 N/A 6 4 0 4 Industrial & other water connec tions 95 147 44 2059 18 192 52 0 229 93 2 28 6 108 0 53 2 N/A 337 11 2 0 Othe r c onne ct i ons 727 0 554 0 270 33 0 146 1 0 67 4 144 70 71 284 65 N/A 20 357 197 21 Tota l wa te r c onne ct i ons 42984 7676 56836 180739 14480 18405 11053 7654 14339 7218 2780 2791 13420 2434 12675 40472 18763 N/A 13413 17190 6472 2087 Pe rs ons /dome s ti c conne c ti on 2 .4 3 .2 2 .4 2 .8 3 .2 2 .3 2 .0 2 .5 0 .9 1 .9 1 .7 3 .2 2 .3 3 .2 1 .0 1 .6 1 .0 2 .7 2 .5 4 .0 2 .5 Domes tic consumpti on 1000 m3/year 3867 844 4224 21829 1342 1444 149 576 1332 404 255 199 636 154.4 435 2981 397 N/A 1352 1885 830 193 Privil.customers consumption 1000 m3/year 549 103 16 0 8 52 2 0 114 57 12 0 406 13.5 17 12 2 N/A 18 124 103 1 Industrial consumpti on1000 m3/year 1960 461 566 9675 249 287 42 0 635 351 5 205 4 0.3 0 293 3 N/A 1106 103 18 0 Other consumption 1000 m3/year 43 0 2182 1254 474 111 0 39 454 0 57 98 86 0.3 255 681 127 N/A 235 191 119 71 Total water consumpti on 1000 m3/year 6419 1408 6988 32758 2073 1894 193 615 2535 812 329 502 1132 168.5 707 3967 529 N/A 2711 2303 1070 265 D o me s t i c c on s u mp t i o n l c d 103 96 84 118 81 94 18 85 277 83 152 61 56 59 99 129 56 106 123 91 104 Household consumption m3/month 7.6 9.4 6.3 10.2 7.9 6.6 1.1 6.4 7.9 4.7 7.9 6.0 4.0 5.7 2.9 6.2 1.8 8.6 9.3 11.0 7.8 Tota l bi l l i ng BYR mi l l i on 2 0 1 1 26721 3420 23536 136371 7978 9059 943 780 9840 2081 642 241 3264 507 6431 30045 792 N/A 13934 4587 4848 883 Total collec tion BYR million 2011 26594 3375 23771 137682 7681 7671 915 740 9407 1994 546 241 3003 487 6431 29876 762 N/A 13934 4280 4122 742 Co l l e c t i o n r a t e % 2 0 1 1 9 9 .5 % 9 8 .7 % 1 0 1 .0 % 1 0 1 .0 % 9 6 .3 % 8 4 .7 % 9 7 .0 % 9 4 .9 % 9 5 .6 % 9 5 .8 % 8 5 .0 % 1 0 0 .0 % 9 2 .0 % 96% 100% 99% 96% 100% 93% 85% 84% Utility sta ff (water & sanita tion) 482 164 506 N/A 266 358 116 123 1127 59 29 N/A 218 22 105 650 38 48 129 29 125 97 Utility sta ff / 000s popula ti on served 4.7 6.8 3.7 5.9 8.5 5.2 6.6 85.6 4.4 6.3 7.0 3.1 8.7 10.3 2.0 20.7 3.7 0.7 5.0 19.0 Utility sta ff / 000s water connections 11.2 21.4 8.9 18.4 19.5 10.5 16.1 78.6 8.2 10.4 16.2 9.0 8.3 16.1 2.0 9.6 1.7 19.3 46.5 Opera ti onal subsidies BYR million 0 0 3809 0 2391 7141 3253 3036 0 1158 1856 3190 4650 1196 2089 3023 3865 2122 1242 1567 0 1400 Ope ra t . Subs i di e s /tot a l s a l e s % 0 0 16% 0 30% 79% 345% 389% 0 56% 289% 1324% 142% 236% 32% 10% 488% 9% 34% 0% 159% Base domes ti c tari ff (W+S) BYR/m3 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 1450 Privileged customer tari ff (W+S) BYR/m3 6550 9606 N/A N/A 7450 N/A 19685 N/A 28460 14674 N/A N/A 16935 1450 17181 32460 23887 26171 7706 N/A N/A 11579 Indus tri a l ta ri ff (W+S) BYR/m3 26697 28449 9578 20188 13200 N/A 20770 34172 28950 21797 N/A N/A 16601 8688 N/A 33617 31643 29365 16315 N/A N/A 21299 Indus t./Dome s t . Ta ri ff ra ti o 1 8 .4 19.6 6.6 13.9 9.1 14.3 23.6 20.0 15.0 1 1 .4 6 .0 2 3 .2 2 1 .8 2 0 .3 1 1 .3 1 4 .7 Le ge nd V odokanals M ult i-Ut ilit ie s N/A = Information not available or inconsistent Annex VII: Performance and Key Performance Indicators The present annex proposes a list of performance and key performance indicators to be used for planning and reporting purposes. 75 TABLE 28: PROPOSED PERFORMANCE (PI) AND KEY PERFORMANCE (KPI) INDICATORS Indicator Type Unit Concept Employees per connection KPI No/1000 connections Nb. of full time equivalent employees/nb. of active service connections x 1000 Pipe rehabilitation PI % per year Length of transmission & distribution pipes rehabilitated during the year/total length of pipes x 100 Service connection rehabilitation PI % per year Nb. of service connections replaced or renewed during the year/total nb. of active service connections x100 Pipe failures/repairs PI No/100 km/year Nb. of pipe failures during the year/total pipe length x 100 Service connection failures/ repairs PI No/1000 connections/year Nb. of active service connections failures during the year/nb. of active service connections x 1000 Sewer rehabilitation PI % per year Length of sewers rehabilitated during the year/total length of sewers x 100 Sewerage connection rehabilitation PI % per year Nb. of sewerage connections replaced or renewed during the year/total nb. of connections x100 Sewer failures/blockages PI No /100 km/year Nb. of sewer blockages during the year/total sewer length x 100 Sewerage connections blockages PI No/1000 connections/year Nb. of sewerage connections blocked during the year/nb. of connections x 1000 Population coverage (water/sewerage) KPI % Resident population served/total resident population Supply by standpipes PI % Resident population served through standpipes/total resident population x 100 Republic of Belarus Municipal Water Sector Review Continuity of Supply KPI % Nb. of hours of availability of water during the year/24/365 x100 Quality of water supplied KPI % Total nb. of treated water tests complying with legislation/total nb. of tests performed x 100 Quality of treated effluents KPI % Total nb. of treated effluents tests complying with legislation/total nb. of tests performed x 100 Energy saving (water) KPI % Energy consumed for water services (kwh/m3 produced)- Evolution from past year 76 Energy saving (wastewater) KPI % Energy consumed for wastewater services (kwh/m3 produced)- Evolution from past year Customer complaints (on quality of service) KPI No complaints/connection/year Nb. of complaints of quality of service during the year /nb. of active service connections Unit operating costs KPI BYR/m3 Annual operating costs/authorized consumption Unit total costs PI BYR/m3 (Annual operating + capital costs)/authorized consumption Average water charges KPI BYR/m3 Annual water sales revenue/total authorized consumption Operating cost coverage KPI % Annual revenue/annual costs Receivables KPI Months of billing Receivables at year end/Average monthly billing during the year Payables KPI Months of expenses Payables at year end/Average monthly expenses during the year Contribution of internal sources to investment KPI % Investments financed by the cash flow/total investments x 100 Current ratio (liquidity ratio) KPI % Current assets/current liabilities Non-revenue water (NRW) KPI % (Volume produced – Volume billed)/Volume produced Source: IWA performance indicators Annex VIII: Financial Model The present annex provides assumption and calculation details from financial model, in the case of scenario D. It also provides detailed outputs from the sensitivity analysis. A. Financial model details—Scenario D TABLE 29: ASSUMPTIONS USED IN THE FINANCIAL MODEL FOR SCENARIO D—CONSUMPTION VOLUMES AND OPERATING COSTS Uni t 2 0 1 4 -1 8 2 0 1 9 -2 3 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 General Cha nge BYR - USD Annua l c ha nge 3% 3% 5675 8400 8652 8912 9179 9454 9738 10030 10331 10641 10960 11289 11628 P o pul a t i on Annua l growth -0 .2 % 0.0% 9 .4 3 9 .4 1 9 .3 9 9.37 9.35 9 .3 3 9 .3 1 9 .2 9 9 .2 9 9 .2 9 9 .2 9 9 .2 9 9 .2 9 Consumption and Production Water supply W a t e r c ove ra ge % Annua l growth 1 .2 % 1.0% 86% 87% 88% 89% 90% 91% 92% 93% 94% 95% 96% 97% 98% Sewerage coverage % Annual growth 1.8% 1.4% 74% 75% 77% 78% 79% 81% 82% 84% 85% 86% 87% 89% 90% W a t e r s e rvi ce s be ne fi ci a ri e s m i o p e op l e 8 .1 1 8.19 8.27 8.35 8.43 8.52 8.60 8.69 8.78 8.86 8.95 9.04 9.13 Wastewater services bene ficiari e m i o p e op l e 6 .9 7 7.09 7.20 7.31 7.43 7.55 7.67 7.79 7.90 8.01 8.12 8.24 8.35 Residential consumption P e r c a pi t a c o ns u mpt i o n l cd -1 % -1 % 117 117 116 115 114 113 111 110 109 108 107 106 105 Industrial consumption Ind us tri a l o ut put i nc re a s e Annua l growth 2 .5 % 2.5% Ind us tri a l c ons um pt i on t o o ut put 1 Water volumes Re s i d e n t i a l mi o m3 /ye a r 347 350 350 350 350 350 350 350 350 350 350 350 350 Ind us tri a l mi o m3 /ye a r 99 101 104 107 109 112 115 118 121 124 127 130 133 Admi ni s t ra t i ve /ot he r m i o m3 /ye a r 48 48 48 48 48 48 48 48 48 48 48 48 48 Under Domesti c ta ri ff mi o m3 /yea r 347 35 8 365 366 366 366 366 366 367 367 367 368 368 Under Lega l enti ti es t a r i ff mi o m3 /yea r 132 13 5 137 140 142 144 147 149 152 155 158 160 163 under Pr i vi l eged t a r i ff mi o m3 /yea r 15 7 - - - - - - - - - - - Tot a l mi o m3 /ye a r 494 500 503 505 508 510 513 516 519 522 525 528 531 Non re ve nue wa t e r mi o m3 /ye a r 145 145 146 146 147 148 149 150 150 151 152 153 154 Non re ve nue wa t e r % Annua l growth 0 .0 % 0.0% 23% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% Non revenue water (comm) % Annual growth 0.0% 0.0% Wa te r prod uc ti o n mi o m3 /ye a r 639 645 648 652 655 658 662 666 669 673 677 681 685 Wastewater volumes D o m e s t i c wa s t e w a t e r c o l l e c t i o n mi o m3 /ye a r 274 278 280 281 283 285 286 288 289 290 291 292 294 P e r c a p i t a d o m e s t i c w a s t e wa t e r l cd 108 108 106 105 104 103 102 101 100 99 98 97 96 I n d u s t ri a l w a s t e w a t e r c o l l e c t e d mi o m3 /ye a r 91 92 95 97 99 102 104 106 108 110 112 114 116 % o f i n d u s t ri e s o n l y c o n n e c t e d t o W W 9% 10% 10% 10% 10% 10% 10% 11% 11% 12% 13% 14% 14% Admin/other wastewater collected mi o m3 /ye a r 97 98 99 100 100 101 101 102 102 103 103 104 104 Under Domesti c ta ri ff mi o m3 /yea r 274 28 8 299 301 303 305 307 309 310 311 313 314 316 Under Lega l enti ti es t a r i ff mi o m3 /yea r 169 17 2 174 177 179 182 185 188 190 192 194 196 198 under Pr i vi l eged t a r i ff mi o m3 /yea r 19 10 - - - - - - - - - - - Tot a l wa s t e wa t e r col l e c t e d mi o m3 /ye a r 462 469 473 478 482 487 492 496 500 503 507 510 514 Operating costs and revenues Energy costs Cons umpt i on (kWh/m3 ) Annua l growth 0 .0 % 0.0% Ta ri ff (R/kW h) Annua l growth 2 .0 % 2.0% Energy costs 825 849 871 892 915 938 962 987 1,012 1,038 1,065 1,093 1,122 Sta ff costs Sta ffi ng ra ti o Annua l growth 0 .0 % 0.0% Uni t s t a ff c os t Annua l growth 0 .0 % 0 .0% Sta ff c os t s BYR bi l l i on 908 908 908 908 908 908 908 908 908 908 908 908 908 Provi s i on for ba d de bt s % of bi l l i n g -2 .0 % -2 .0 % Ot he r re ve nue s 1 .0 % 1.0% 79 80 80 81 82 83 84 84 85 86 87 88 89 Ma i nt e na nc e cos t s 0 .0 % 0.0% 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1,375 1,375 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 Admi ns i t ra t i ve c os t s 0 .0 % 0.0% 451 451 451 451 451 451 451 451 451 451 451 451 451 77 TABLE 30: ASSUMPTIONS USED IN THE FINANCIAL MODEL FOR SCENARIO D — TARIFF POLICY AND FINANCING PLAN 2014-18 2019-23 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Tari policy Average tari Water 3.2 Re s i d e n t i a l BYR/m3 Annua l growth 1 0 .0 % 1 0 .0 % 1 ,1 9 3 1 ,3 1 2 1 ,4 4 4 1 ,5 8 8 1 ,7 4 7 1 ,9 2 1 2 ,1 1 3 2 ,3 2 5 2 ,5 5 7 2 ,8 1 3 3 ,0 9 4 3 ,4 0 4 3 ,7 4 4 L E & Pri vi l e ge d BYR/m3 Annua l growth 0.0% -3 .0 % 8 ,1 0 1 8 ,1 0 1 8 ,1 0 1 8 ,1 0 1 8 ,1 0 1 8 ,1 0 1 8 ,1 0 1 8 ,1 0 1 7 ,8 5 8 7 ,6 2 3 7 ,3 9 4 7 ,1 7 2 6 ,9 5 7 Wastewater Re s i d e n t i a l BYR/m3 863 949 1 ,0 4 4 1 ,1 4 8 1 ,2 6 3 1 ,3 8 9 1 ,5 2 8 1 ,6 8 1 1 ,8 4 9 2 ,0 3 4 2 ,2 3 7 2 ,4 6 1 2 ,7 0 7 L E & Pri vi l e ge d BYR/m3 6 ,9 2 6 6 ,9 2 6 6 ,9 2 6 6 ,9 2 6 6 ,9 2 6 6 ,9 2 6 6 ,9 2 6 6 ,9 2 6 6 ,7 1 8 6 ,5 1 7 6 ,3 2 1 6 ,1 3 2 5 ,9 4 8 Water+Wastewater Re s i d e n t i a l BYR/m3 2 ,0 5 6 2 ,2 6 1 2 ,4 8 7 2 ,7 3 6 3 ,0 0 9 3 ,3 1 0 3 ,6 4 1 4 ,0 0 6 4 ,4 0 6 4 ,8 4 7 5 ,3 3 1 5 ,8 6 5 6 ,4 5 1 L E & Pri vi l e ge d BYR/m3 1 5 ,0 2 8 1 5 ,0 2 8 1 5 ,0 2 8 1 5 ,0 2 8 1 5 ,0 2 8 1 5 ,0 2 8 1 5 ,0 2 8 1 5 ,0 2 8 1 4 ,5 7 7 1 4 ,1 4 0 1 3 ,7 1 5 1 3 ,3 0 4 1 2 ,9 0 5 Water+Wastewater average BYR/m3 5 ,9 1 6 5,897 5,911 6,132 6,369 6,625 6,901 7,199 7,388 7,604 7,849 8,125 8,436 Average cost recovery tari BYR/m3 7 ,2 0 4 7 ,1 6 6 7 ,1 7 3 7 ,1 8 0 7 ,1 8 8 7 ,1 9 6 7 ,2 0 4 7 ,2 1 2 7,2 2 1 7 ,2 3 0 7 ,2 3 9 7 ,2 4 9 7 ,2 5 9 Average full cost recovery tari BYR/m3 8 ,0 1 6 8 ,0 4 9 8 ,0 8 1 8 ,1 1 3 8 ,1 4 4 8 ,2 0 6 8 ,2 6 7 8 ,3 2 8 8 ,3 8 6 8 ,4 4 1 8 ,4 6 7 Operating subsidies BYR bi l l i on 388 532 532 532 532 0 0 0 0 0 0 0 0 Income taxes % 20.0% 20.0% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% 20% Financing Plan CAP EX BYR bi l l i on 350 350 350 350 350 350 350 350 350 350 350 Republic of Belarus Municipal Water Sector Review Ca s h ge ne ra ti on % of CAPEX 0 0 0 0 0 120 120 120 120 120 120 De ve l opme nt gra nt s % of CAPEX 350 350 350 350 350 120 120 120 120 120 120 De bt (ne w l oa ns ) % of CAPEX 0 0 0 0 0 110 110 110 110 110 110 Ma turi ty ye a r s 15 Interest rate outstanding ppal 15% Gr a c e p e r i o d ye a r s 3 78 Debt service (existing loans to utilities) Ppal outstanding BYR billion 0 2 1 0 5 20 20 20 20 20 20 20 I nt e re s t BYR bi l l i on 1 2 3 3 3 3 2 2 2 2 Debt service (new loans) Loan disbursment (annual) BYR billion 0 0 0 0 0 110 110 110 110 110 110 Loan disbursment (cumula tive) BYR billion 0 0 0 0 0 110 220 330 440 550 660 Ppal repaid (annual) BYR billion 0 0 0 0 0 0 0 0 9 18 28 Ppal repaid (cumula tive) BYR billion 0 0 0 0 0 0 0 0 9 28 55 Ppal outstanding BYR billion 0 0 0 0 0 110 220 330 431 523 605 I nt e re s t BYR bi l l i on 0 0 0 0 0 17 33 50 65 78 91 Depreciation Fi xe d a s s e t s BYR bi l l i on 9 ,8 8 6 1 0 ,2 3 6 10,586 10,936 11,286 11,636 11,986 12,336 12,686 13,036 13,386 13,736 13,736 D e p re c i a t i o n BYR bi l l i on 4% 4% 395 409 423 437 451 465 479 493 507 521 535 549 549 Financing the Development of Services TABLE 31: SECTOR INCOME STATEMENT AND CASH FLOW STATEMENT IN SCENARIO D 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Income Statement Sales revenues Wa te r 26% 28% 29% 31% 33% 35% 37% 40% 43% 46% 48% Dome s t i c 414 469 527 580 639 703 774 852 938 1 ,0 3 2 1 ,1 3 6 1,251 1 ,3 7 7 L e ga l e nti t i e s 1 ,0 7 2 1 ,0 9 3 1 ,1 1 1 1 ,1 3 0 1 ,1 5 0 1 ,1 7 0 1,190 1 ,2 1 1 1 ,1 9 5 1 ,1 8 0 1 ,1 6 5 1,151 1 ,1 3 7 Pri vi l e ge d 119 61 0 0 0 0 0 0 0 0 0 0 0 Sewerage Dome s t i c 236 273 292 323 357 395 437 484 534 590 652 720 795 L e ga l e nti t i e s 1 ,1 7 2 1 ,1 8 9 1 ,2 0 7 1 ,2 2 4 1 ,2 4 2 1 ,2 6 1 1,280 1 ,2 9 9 1 ,2 7 4 1 ,2 4 9 1 ,2 2 5 1,202 1 ,1 7 9 Pri vi l e ge d 130 66 0 0 0 0 0 0 0 0 0 0 0 Provision for bad debts -32 -31 -33 -34 -36 -37 -39 -41 -43 -44 -46 -48 -50 Ot he r re ve nue s 79 80 80 81 82 83 84 84 85 86 87 88 89 Total revenues (net of subsidies) 3,190 3,200 3,185 3,305 3,435 3,574 3,725 3,889 3,984 4,094 4,220 4,363 4,526 Ope ra ti ng s ubs i di e s 388 532 420 321 214 98 0 0 0 0 0 0 0 Total operating revenues 3,578 3,732 3,605 3,626 3,649 3,672 3,725 3,889 3,984 4,094 4,220 4,363 4,526 En e rgy c os ts 825 849 871 892 915 938 962 987 1 ,0 1 2 1 ,0 3 8 1 ,0 6 5 1,093 1 ,1 2 2 St a ff c os ts 908 908 908 908 908 908 908 908 908 908 908 908 908 Ma i nte na nc e c os t s 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1,375 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1 ,3 7 5 1,375 1 ,3 7 5 Admi ni s tra ti ve c os ts 451 451 451 451 451 451 451 451 451 451 451 451 451 Total operating expenses 3,559 3,583 3,605 3,626 3,649 3,672 3,696 3,721 3,746 3,772 3,799 3,827 3,856 EBIDTA 0 0 0 0 0 0 29 168 238 321 420 536 670 Debt service (interests) Exi s ti ng l oa ns 1 2 3 3 3 3 2 2 2 2 Fu t u r e l o a n s 0 0 0 0 0 17 33 50 65 78 91 D e p re c i a t i on 395 409 423 437 451 465 479 49 3 507 521 535 549 549 Taxable income -395 -409 -423 -438 -454 -468 -453 -345 -305 -252 -182 -94 28 Income tax 0 0 0 0 0 0 0 0 0 0 0 0 6 Net income -395 -409 -423 -438 -454 -468 -453 -345 -305 -252 -182 -94 22 Cash Flow Statement Ca s h be gi nni ng of ye a r 50 50 50 48 46 44 36 42 51 113 242 456 771 Ne t i nc ome -3 9 5 -4 0 9 -4 2 3 -4 3 8 -4 5 4 -4 6 8 -4 5 3 -3 4 5 -3 0 5 -2 5 2 -1 8 2 -9 4 22 D e p re c i a t i on 395 409 423 437 451 465 479 493 507 521 535 549 549 De ve l opme nt gra nts 350 350 350 350 350 350 350 120 120 120 120 120 120 L o a n d i s b u rs e d 0 0 0 0 0 0 0 110 110 110 110 110 110 Total in ow 350 350 350 349 348 347 376 379 432 499 583 686 802 Debt repayment (principal) Exi s ti ng l oa ns 0 0 2 1 0 5 20 20 20 20 20 20 20 Fu t u r e l o a n s 0 0 0 0 0 0 0 0 0 0 0 0 0 CAPEX tested 350 350 350 350 350 350 350 350 350 350 350 350 350 Total out ow 350 350 352 351 350 355 370 370 370 370 370 370 370 Cash end of year 50 50 48 46 44 36 42 51 113 242 456 771 1,203 Financing plan CA PEX 350 350 350 350 350 350 350 350 350 350 350 350 350 C a s h c on t ri b u t i on 0 0 0 0 0 0 0 120 120 120 120 120 120 De ve l opme nt gra nts 350 350 350 350 350 350 350 120 120 120 120 120 120 De bt to uti l i ti e s (IFIs ) 0 0 0 0 0 0 110 110 110 110 110 110 D e b t t o t a l s e r vi c i n g 0 2 2 2 8 23 39 56 72 87 100 112 79 Republic of Belarus Municipal Water Sector Review B. Sensitivity analysis The reaction of residential consumers to tariff increases is expected to have a major impact on sector finan- cial planning. The planned substantial increase in the residential tariff is likely to drive down consumption levels, with immediate consequences for sector revenues. Depending on the reaction of residential consumers to tariff increases, the time needed for cost recovery may vary significantly, as shown in Table 32. To better understand and anticipate the impact, a study of consumers’ capacity to pay for services is recommended. TABLE 32: SENSITIVITY OF SECTOR FINANCIAL PROJECTIONS TO THE EVOLUTION OF PER CAPITA CONSUMPTION (LITERS PER CAPITA PER DAY) Date of achievement of cost-recovery for: Total operating + Consumption investment subsidies Scenario (level in 2023) OPEX OPEX + depreciation + interests 2013–2023 (bil. BYR) Base 117 down to 105 2019 2023 3500 High Constant at 117 2018 2022 3300 Low Down to 90 2020 ~ 2027 5300 Span of variations 2 years ~ 5 years 2,500 Note: cells are darkened proportionally to the deviation from the base scenario The financial stability of the water and wastewater sector depends strongly on the condition and behavior of the industrial customers, which confirms the urgency of phasing out cross-subsidization. Two factors can cause significant variation in industrial water consumption20: (i) the evolution of industrial output (which is closely linked to industrial water consumption), and (ii) industries’ strategy regarding water supply and wastewater services (development of autonomous systems or connection to municipal systems, reduction of average water consumption per output). The preliminary sensitivity analysis indicates that the sector’s financial stability is strongly dependent on industrial water consumption, as shown in Table 33. This confirms the urgency of moving away from the current extreme cross-subsidization level. TABLE 33: SENSITIVITY OF SECTOR FINANCIAL PROJECTIONS TO THE EVOLUTION OF INDUSTRIAL CONSUMPTION Date of achievement of cost-recovery for: Total operating + Consumption investment subsidies Scenario (level in 2023) OPEX OPEX + depreciation + interests 2013–2023 (bil. BYR) Base Constant at 2.5% 2019 2023 3500 High Constant at 5% 2017 2021 3300 Low Constant at 0% 2021 ~2026 4000 Span of variations 4 years ~ 5 years 1,500 Note: cells are darkened proportionally to the deviation from the base scenario An insufficient focus on the commercial management and customer relations could entail a major cost for the sector and enhance its dependence on budget support. With the planned increase in water tariffs, commercial losses may increase. This may be particularly critical if utilities do not put in place tools to help mitigate the risk, such as direct meter reading, bulk metering of residential buildings, and customer care services, described in Section 2.5 above. As shown in Table 34, an increase of 5 percentage points of commercial NRW would 20 A review of the evolution of industrial water consumption and of industrial output in Belarus over the 1991-1997 period suggests an elasticity of 1. 80 Financing the Development of Services require additional financial assistance from the budget of about 700 billion BYR (US$80 million) over the next 10 years. An assessment of the level of effort required to develop sound commercial and customer relations management will most likely demonstrate their relevance and urgency from an economic perspective. TABLE 34: SENSITIVITY OF SECTOR FINANCIAL PROJECTIONS TO THE EVOLUTION OF NON-REVENUE WATER (COMMERCIAL LOSSES) Date of achievement of cost-recovery for: Total operating + investment subsidies Scenario UFW (evolution) OPEX OPEX + depreciation + interests 2013–2023 (bil. BYR) Base Constant at 23% 2019 2023 3500 High Up to 28% 2019 -2024 4200 Span of variations 0 years 1 year 700 Note: cells are darkened proportionally to the deviation from the base scenario The potential impact of energy efficiency or electricity cost variations appears more limited than with the previously discussed parameters. Two operational parameters directly impact energy costs, a key compo- nent of operating expenditures: the cost of purchasing electricity (outside of the utilities’ control) and energy efficiency (which can be optimized by appropriate management of assets). Sensitivity analyses (see Table 35 and Table 36) show that the impact of variations in these costs on sector financial planning does not seem as significant as for the parameters previously analyzed. Utility energy audits would be useful to assess the potential for further energy efficiency improvement and to adjust the conclusions, if necessary. TABLE 35: SENSITIVITY OF SECTOR FINANCIAL PROJECTIONS TO THE EVOLUTION OF ELECTRICITY COSTS Date of achievement of cost-recovery for: Total operating + Industrial output investment subsidies Scenario (evolution) OPEX OPEX + depreciation + interests 2013–2023 (bil. BYR) Base + 2% per year 2019 2023 3500 High + 3% per year 2019 2025 3700 Low + 1% per year 2018 ~2023 3400 Span of variations 3 years ~ 4 years 300 Note: cells are darkened proportionally to the deviation from the base scenario • Parameter: energy efficiency TABLE 36: SENSITIVITY OF SECTOR FINANCIAL PROJECTIONS TO THE EVOLUTION OF UTILITIES’ ENERGY EFFICIENCY Date of achievement of cost-recovery for: Total operating + Energy efficiency investment subsidies Scenario (change by 2023) OPEX OPEX + depreciation + interests 2013–2023 (bil. BYR) Base No change 2019 2023 3500 High +10% 2018 2023 3400 Low -5% 2019 ~2024 3600 Span of variations 3 years ~ 3 years 200 Note: cells are darkened proportionally to the deviation from the base scenario 81