Working group II Water Sector

Elif Oksuz - Turkey Novak Medenica - Montenegro Performance on the Water Supply and Anthony Amoah - Ghana Sewerage Companies as Regulatory Fatime Imeraj - Instruments in Albania , Marjan Nikolov - Macedonia Valona – Case study

Turin 2016 Structure of presentation

• Introduction

• Case study Introduction ALBANIAN WWS SECTOR

• Albania’ s available average quantity of freshwater is estimated at 9,551 m3/capita/year. • Amount of total renewable water resources is 41.7 km3 and freshwater withdrawal regarding to the sectors as domestic /industrial /agricultural is 43%/ 18% /39% respectively. • The population of the country is estimated as 3.2 million. The urban population covers 57.4% of total population (2015) and the major urban area is which is also the capital city of Albania. • The average access ratio of total water services (water supply and sanitation) regarding to the total population is 74% (2015). • The access to improved drinking water resources in the urban areas is 97% and 94% in the rural. • In this study, Vlore which is respectively small city in Albania has been chosen as a case study. • Vlore is a coastal city and municipality and also the second largest port city in southern Albania. • The total population of Vlore is 139.221 and the access ratio of total water services is 98%. In Albania, the water sector is organized as a two-tier system,  national government being responsible for sector strategies and policy development,  and local governments for service provision in the water supply sector.  There are 600 water supply systems for the 65 municipalities and 304 communes, 44% of them are gravity systems.  The new territorial reform reduced the administrative units to 61.  The WSS service functions mainly through the operators organized as joint venture companies owned by the local government.  In total, there are 57 water utilities that operate in Water & Wastewater Supply Sector (WSS), 32 of them offer also wastewater disposal service and 5 of them have the wastewater treatment service. Institutional and organizational framework

The water sector is organized as a two-tier system, with national government being responsible for sector strategies and policy development, and local governments for service provision.

National Water Council National Water Council is a central decision-making authority in the field of water resource administration in the republic of Albania I

Is the executive authority of NWC recently established in the Prime-Ministry responsible for the development and implementation of Technical Secretariat policies and strategies related to integrated water resources in Albania, ensuring effective functioning and monitoring of the total integrated water system in the country.

1.Gives the licenses for all the operators of the sector. 2.Sets tariffs, 3.Prepares/approves uniform service standards, Water Regulatory Authority (WRA) 4.Establishes a transparent, legal and regulatory environment, 5.Protects the interest of the public and the Consumers (e.g. development of a customer-utility model contract)

Ministry of Transport and Infrastructure is the line Ministry responsible for the Water Sector in Albania. The following Ministry of Transport and Infrastructure two directorates are the fundamental pillars for the Ministry for the water issues:

1.Plan the budget and financing of the sector in Albania – from the state budget and donors.2.Prepare strategies for the sector and National Agency of Water Supply and follow up on their implementation, 3.Manage and distribute subsidies from the national budget Sewerage 4.Monitor Sector Performance

Ministry of Agriculture, Rural Development Is set up under the General Secretary of Ministry of Agriculture, Rural Development and Water Resources and has two main sectors:1.River Basins Administration (6 Basin Agencies) and 2.Water State Inspectorate (12 Inspectorate Regional Directorates) and Water Resources

Ministry of Environment Its main functions are: 1.Issuing the environmental permits and 2.Monitoring and enforcing the environment legislation.

Ministry of Health is involved in the implementation of water sector legislation through the State Sanitary Inspectorate Ministry of Health

The Institute of Public Health at the Ministry of Health is responsible for: 1.Water quality monitoring (surface water, drinking water, The Institute of Public Health waste, water from washing), 2.Monitoring the effects of industrial emissions on health and intervention in case of accidental water pollution and 3.Development and application of quality control plans sources of drinking water and waste water evacuation

NATIONAL WATER REGULATORY AUTHORITY NATIONAL REGULATORY COMMISSIONS COMPETENCE

• The Water Regulatory Authority in Albania (WRA) The Water Regulatory Authority in Albania is exercised by the National AREis a public AND independent institutionWHAT that regulates WE Regulatory Commission composed of 5 members supported by professional staff the water supply and sewerage sector established of 16 employees. by Law no. 8102, of March 28th,1996, as DOamended) The Commission is endowed with independence and the necessary tools to carry out its competences: • exercising the following functions and powers:  In its decision making it is independent from all involved interests, i.e.,  Gives the licenses for all the operators of the government, operators and customers. sector  works in conformity with the highest standards of public service, rigorously  Sets tariffs avoiding all conflicts of interest, and acts in a way as to protect the best  Prepares/approves uniform service standards public interest  Establishes a transparent, legal and  the necessary tools to carry out its independent role are: regulatory environment  Protects the interest of the public and the • regulatory powers (issuing regulatory instruments) Consumers • executive powers (decision making competence) (e.g. development of a customer-utility model contract) • supervision powers (supervising possible infractions of the regulatory elements) WRA MISSION

To ensure for all customers that water and sewerage service providers deliver the highest achievable quality, at a fair price and in a financially sustainable manner Consumer interests Financial sustainability of service providers TARIFF REGULATION

The WRA’s approach to setting tariffs is set out in the Tariff Setting Guideline, most recently revised and approved by National Regulatory Commission in September 2011 as amended 2015

 Tariff objectives  Tariff structure & approved model  Tariff monitoring for other services  Application model  Tariff approval process  Analysis of tariff change proposal

TARIFF POLICY OBJECTIVE THE WRA’S KEY PERFORMANCE INDICATORS

KPI Description The part of the operation and maintenance costs (excluding depreciation and 1 – O&M Cost Coverage capital costs) covered by income. The part of total costs for services provided that are covered by the company 2 – Total Cost Coverage income. 3 – Collection Rate The ratio between the collected income and the amount billed to clients.

4 – Staff Efficiency Number of company staff serving for each 1000 WSS connections.

5 – Non Revenue Water The part of the produced water that is not billed to clients. The part of metered connections (number of clients) as a percentage to the 6 – Metering Ratio general number of connections (clients). 7 – Water Supply Hours Average hours of water supply in a day.

8 – Drinking Water Quality* The part of tests of the water quality, which meet the standards

The part of the population within a company's service area, which provides the 9 – Sewerage Coverage sewerage service, but not necessarily the wastewater treatment. It is the assessment of the company activity in compliance with the regulatory 10 – Regulatory Perception framework. Case study Valona – environment for operation

• Decentralization – amalgamation: 373 to 61 • Valona prefecture is estimated 186,252 population • Tourism: 164,661 visitors in 2014 • Booming construction • Pressure for basic public services: water, electricity, local roads seasonal congestion

Valona – the PUC

• Water Supply and Sewerage, in Vlora has been authorized under the License No. 7, dated 21.02.2013, to carry out activities in the following categories: • Category A – collection and distribution of water for public consumption; and • Category C – removal of wastewater. • However: In 2014, the company has submitted the documentation for the renewal of the license but after review several shortcomings were identified in the submitted documentation by the WRA.

Financial analysis Items 2014 2013

Sales 246,111,153 241,317,225

Other operating revenues as subsidy, grant, interests 334,271,212 76,116,593

Cost of sales -14,716,767 -15,281,110

Wages and salaries -110,310,916 -119,788,280 Expenses for electricity -134,747,426 -141,138,714 EBITDA 320,607,256 41,225,714 EBITDA (with no subsidy) -13,663,956 -34,890,879 Depreciation & Amortization -146,143,601 -154,462,696

EBIT 174,463,655 -113,236,982

EBIT (with no subsidy) -159,807,557 -189,353,575

Other expenses -26,248,781 -25,122,904

Total Expenses -432,167,491 -455,793,704

Gain (loss) from operating activity 148,214,874 -138,359,886

Total Financial Incomes / Expenses -87,453,946 -17,169,517

Profit before Income tax 60,760,928 -155,529,403 Break even analysis – simulation 1

Example Valona Target operational profit because of the collection problems

Operational profit Unit m3 LEKE/m3 Total Value in LEKE -444,677,259.00 Production 29,863,000 57 1,702,191,000 Are there problems? Sale 5,300,000 57 302,100,000 Collection 4,134,000 57 235,638,000 YES a problem as % of sale 78.00% 66,462,000 Can we solve the problems with increase collection? Public consumption (10 %) 530,000 57 30,210,000 -378,215,259.00 Technical loss water (max.18-20%) 1,060,000 57 18,596 Not with increased collection rate Commercial loss What should be the collection rate Tariff Households 30.00 225.195385% Legal entities 60.00 Break even analysis – simulation 2

Example Valona Target operational profit because of the collection problems

Unit m3 LEKE/m3 Total Operational profit Value in LEKE -151,163,259.00 Production 29,863,000 128 3,822,464,000 Sale 5,300,000 128 678,400,000 Are there problems? Collection 4,134,000 128 529,152,000 YES a problem as % of sale 78.00% 149,248,000 Public consumption (10 %) 530,000 128 67,840,000 Can we solve the problems with increase collection? Technical loss -1,915,259.00 water (max.18-20%) 1,060,000 128 8,281 Not with increased collection rate Commercial loss Tariff Households 65.00 What should be the collection rate Legal entities 135.00 100.282320% Conclusions

• Water regulation in Albania is robust and based on performance benchmarking • There are transitional challenges from the territorial amalgamation • There are some licensing challenges • Costs in Valona are not covered by tariff – declining performance for the period 2013-2015 • Collection rate in Valona is improving for the period 2013-2015 (58%, 71%, 78%) but: • Only 20% billed water compared to produced water will require more investment in the network • There is a declining staff efficiency in Valona (staff/1000 connections) Way out for future – short and long run recommendations Way out for future – short and long run recommendations

Tariff setting for Vlore between 2015-2019

Name 2015 2016 2017 2018 2019 Water Supply

The total amount billed for water 000/m3 5,300 5,300 5,300 5,300 5,300

Average tariff for water lek/m3 56.77 62.45 68.69 75.56 83.12

Billing 000/lek 300,880 330,968 364,065 400,471 440,518 Polluted Water

The total amount billed for sanitation 000/m3 24,871 25,617 26,386 27,177 27,993

Average tariff for sanitation lek/m3 3.73 3.84 3.95 4.07 4.20 Billing 000/lek

Total income 325,751 356,585 390,450 427,648 468,511 *Average tariff for water and sanitation has been calculated by using the total amount of billed water / year and the total volume of billed water. Same methodology are used for the sewerage system. * after 2019 the price of water will remain same as 83,12 lek. Years 2015 2019 2024 2029

Water Loss 82% 75% 60% 50%

Total amount of billed water 5300 7465 11945 14931 (000 / m3)

Total billed water (lek) 300.880 619.742 992.868 1.241.064

The calculations above states that if Regulatory Authority increases the tariffs as 10% for the short term (for 5 years),and water losses are decreased as shown, the company will start to rapidly increase the sales and decrease subsidies. Also in the long-run for 15 years at least if government can invest the water loss issue, than Vlore Company significantly increase the sales of water supply as seen the above table. The other aspects for the increasing the efficiency of Vlore are increasing collection ratio and stuff efficiency but in this case these aspects are really high compared to other cities and the standards, 78% and 3,777 employee/ 1000 water + sewage connection. Long Term Objectives  Vlore has 82% of physical water loss in the pipeline system or non-revenue water. Our plan is by decreasing the water losses in 5 years period, than we can increase the water sales and decrease the amount of non-revenue water. The assumption is decreasing the water loss for the 1st cycle as 75%, for 2nd cycle %60 and for the 3rd cycle 50% compared to other cities (Tirana, Duras, Korce), Vlore water supply company has far the highest percentage of losses. If the Ministry of Transport & Infrastructure will invest the renovating the pipelines, it won’t create a burden to the company. It can be calculated as the incentive from the national government The performance measurement Group 1 - O&M Cost Coverage (%) Operation and Maintenance Cost 200 190 Coverage 180 170 160 150 140 130 120 For 2015, the best performance company in the first group is Sh.a. WSS 110 100 90 Korça, where the O&M cost coverage is at the level of 194.28%, where the 80 70 poorest performance company is Sh.a. WS Fshat, O&M cost 60 50 coverage is at the level of 56.92%. 40 30 20 Two companies are at the limits of acceptable performance (levels 80%- 10 0 100%), Sh.a. WSS Kavajë and Sh.a. WSS Durrës respectively, with98% and Korçë Tiranë - Kuçovë Sarandë Elber sh.p.k Shkodër Vlorë Kavajë Durrës Elbasan Fshat 91%.

2013 2014 2015 Poor Performance Good Performance Group 2 - O&M Cost Coverage (%)

210 200 190 180 170 160 150 140 130 120 110 In 2015, 9 companies in second group have managed to cover the operation 100 90 and maintenance costs with more than 100%, thus being ranked as very good 80 70 performance companies. 60 50 40 30 20 10 0

Group 3 - O&M Cost Coverage (%) 2013 2014 2015 Poor Performance Good Performance

150 140 130 120 110 100 90 80 70  60 In third group, the level of the objective set by WRA for good performance in 50 40 covering completely the O&M costs has been only achieved by two companies, Sh.a. 30 20 10 WSS Ersekë (109.32%), and Sh.a. WS Bulqizë (102.73%). 0

2013 2014 2015 Poor Performance Good Performance Grupi 1 - Total Cost Coverage (%) Total cost coverage 140 130 120 110 For 2015, there are 5 companies that are ranked at the level of good performance with 100 90 over 80% of cost coverage and namelySh.a. WSS Tiranë 113%, Sh.a. WSS Berat-Kuçovë 80 70 93%, Sh.a. WSS Fier 92.7% Sh.a. WSS Korçë 86.7% si dhe Sh.a. WSS Sarandë 84.7%. 60 50 40 30 20 10 0 Korçë Tiranë Berat - Sarandë Fier Elber sh.p.k Shkodër Vlorë Kavajë Durrës Elbasan Kuçovë Fshat Group 2 - Total Cost Coverage (%)

2013 2014 2015 Pour Performance Good Performance 210 200 190 180 170 160 150 140 130 The level of the objective set by WRA for good performance and progress is surpassed by 5 out 120 110 of 21 companies of this group, where Sh.a WSS Gjirokastër me 101.54%, Sh.a. WS Gramsh me 100 90 94.89%, Sha.WS me 91.62%, Sh.a. WSS me 84.35% Total Cost Coverage 80 70 60 50 40 30 20 10 0

Group 3 - Total Cost Coverage (%) 120 2013 2014 2015 Poor Performance Good Performance 110 100 90 80 70 60 13 companies are ranked in the area of poor performance, thus the majority of companies in 50 this group do not cover even 50% of the total costs. 40 30 20 10 0

2013 2014 2015 Pour Performance Good Performance Group 1 - Collection Rate (%) Collection Rate 110 105 100 95 90 85 80 75 70 65 60 55 Company with the best performance for this indicator for 2015 is Sh.a. WSS Tiranë, which has 50 45 managed to collect 107.34% as well as Sh.a. WS Elbasan Fshat with 107.87%. 40 35 30 25 20 15 10 Group 2 - Collection Rate (%) 5 0 140 Elbasan Tiranë Korçë Berat - Sarandë Elber sh.p.k Shkodër Vlorë Durrës Fier Kavajë 135 130 Fshat Kuçovë 125 120 2013 2014 2015 Poor Performance Good Performance 115 110 105 100 95 90 85 80 75 70 65 60 55 50 21 companies have achieved the level of the collection rate with over 82%, which is the best 45 40 performance, 35 30 5 companies are in the levels of good performance (levels of 60%-82%) 25 20 2 companies are at the level of poor performance (below 60%) 15 10 5 0

Group 3 - Collection Efficiency (%) 2013 2014 2015 Poor Performance Good Performance 125 120 115 110 105 100 95 90 85 80 75 70 18 companies have a positive tendency of “collection rate” indicator. 65 60 55 For 10 companies, their collection rate in 2015 is bigger that 82%,thus in the level of very 50 45 40 good performance, 35 30 25 12 companies are at the level of good performance (60-82%) 20 15 10 5 0  2 companies are at the level of poor performance below 60%.

2013 2014 2015 Pour Performance Good Performance Group 1 - Staff Efficiency (staff / 1000 connections) Staff Efficiency 14 13 12 11 Compared to 2013, for all companies of this group, this indicator has had small 10 9 positive and negative changes. 8 7  The tendency was positive for Elbasan fshat with -2.49, Elber sh.p.k. (today 6 Elbasan Qytet Sha) with -1.75 and forSh.a. WSS Tiranë, Sh.a. WSS Vlorë and Sh.a. 5 4 WSS Berat-Kuçovë where the number of staff per 1000 connections is reduced 3 2 with less than 1 person per 1000 connections. 1 0 Korçë Elber Sarandë Tiranë Vlorë Shkodër Berat - Durrës Fier Kavajë Elbasan sh.p.k Kuçovë Fshat Group 2 - Staff Efficiency (staff / 1000 connections) 2013 2014 2015 Good Performance Poor Performance 30 28 26 24 22 20 Compared to 2013, positive changes are noticed of this indicator for 17 out of 21 18 16 companies of this group. 14 12 The biggest positive change is for Sh.a. WSS Shkodër fshat where the staff efficiency is 10 8 improved considerably (number of staff per 1000 connections is reduced by 15.07 6 employees). This improvement was influenced by the merger of two companies into 4 2 single one. 0

Group 3 - Staff Efficiency (staff / 1000 connections) 2013 2014 2015 Good Performance Poor Performance 45 40 35 30 10 out of 24 companies have less than 10 staff per 1000 connections. 25 The best performer is Sh.a. WSS Erseke with(5.81) staff per 1000 20 connections 15 .At the level of good performance are ranked Sh.a. WS Selenicë, Sh.a. WSS 10 Libohove,Sh.a. WSS FushëArrëz, Sh.a. WS Delvinë, Sh.a. WSS Fushë Krujë, Sh.a. 5 0 WS , Sh.a. WS Vau i Dejës, Bashkia Pukë and Sh.a. WSS . At the level of poor performance, there are 9 companies ranked above the red line.

2013 2014 2015 Good Performacne Poor Performance Group 1 - Non Revenue Water (%) Non Revenue Water 90 85 80 75 WSS Korçë, of this indicator continues to be the company with the best 70 65 performance in the last three years. 60 55 A deterioration of this indicator, compared to 2013, have suffered the 50 45 companies Sh.a. WS Elbasan Fshat with 4,97%, Sh.a. WSS Vlorë with 3,36 %, 40 35 Sh.a. WSS Durrës with1,48% and Sh.a. WSS Berat-Kuçovë with 2,74%, getting 30 25 further away from the limit of good performance. 20 15 10 5 0 Korçë Elbasan Fshat Kavajë Fier Tiranë Durrës Shkodër Elber sh.p.k Berat - Sarandë Vlorë Kuçovë 2013 2014 2015 Good Performance Poor Performance Group 2 - Non Revenue Water (%) 90 85 80 75 70 In the second group made up of 21 companies, for 12 of themSha U 65 60 Gjirokastër Fshat(13,98%), Sha U Rubik(19,29%), Sha UK Delvinë (24,11%), Sha 55 50 45 UK Krastë (26,84%) si dhe Sha UK Libohovë (27,56%) stand out for better 40 35 30 performance. 25 20 15 10 5 0

Group 3 - Non Revenue Water (%) 90 85 80 75 70 2013 2014 2015 Good Performance Poor Performance 65 60 55 50 45 40 35 30 25 20 15 10 5 0 As it can be seen from the chart, the companies of second group do not show stability in their performance for the last 3 years.

2013 2014 2015 Good Performance Poor Performance Group 1 - Metering Ratio (%) Metering Ratio 100 95 90 This is the group I of big companies. For the three year in a row, Sh.a WSS Korçë 85 80 75 continue to be the only company with the indicator 100% in the service of metered 70 65 water supply. The lowest level of metering for this group belongs to the WSS 60 55 50 Company Vlorë with 30 %, in spite of small increases from year to year. 45 40 35 30 25 20 15 10 5 0 Korçë Durrës Tiranë Sarandë Elber sh.p.k Elbasan Fier Kavajë Berat - Vlorë Shkodër Fshat Kuçovë Group 2 - Metering Ratio (%) 2013 2014 2015 Good Performance 100 95 90 85 80 75 70 Second group has considerable increases of this indicator, where from 5 companies 65 surpassing the good performance limit of 85% in 2013, in 2014 there are 5 companies 60 55 surpassing this limit. .a. UK (97.99%), Sh.a U (77.6%), Sh.a UK Librazhd 50 45 (93.97%) dhe Sh.a. UK Krujë (85.56 %) and Sh.a U Lushnje Fshat. 40 35 30 25 20 15 10 5 Group 3 - Metering Ratio (%) 0

100 95 90 85 80 75 70 2013 2014 2015 Good Performance 65 60 55 50 45 40 35 30 25 For several years in a row, this group remains with the lowest 20 15 10 levels of metering ratio. 5 0

2013 2014 2015 Good Performance Group 1 - Hours of Supply (hours/day) Water supply hours 24 22 20 18 The first group of the companies in 2015 provides in average 13.75 16 hours of water a day, whereas for 2014 this indicator was 13.66 14 12 hours of water a day, not making any evident improvements. 10 Sh.a.WSS Korçë continues to be the only company providing 24 8 6 hours of water supply. Sh.a. 4 2 0 Korçë Shkodër Fier Elbasan Vlorë Elber sh.p.k Tiranë Berat - Kavajë Durrës Sarandë Fshat Kuçovë

2013 2014 2015 Good Performance Poor Performance Group 2 - Hours of Supply (hours/day) 24 The average of water supply hours for 2015 in the second group is 12.26 22 hours. Compared to 2014, this indicator has had a decrease of 0.36 hours. 20 18 16 14 12 10 8 Group 3 - Hours of Supply (hours/day) 6 4 24 22 2 20 0 18 16 14 12 10 8 6 4 2 2013 2014 2015 Poor Performance Good Performance 0

The third group companies provided in average 10.33 hours of water supply a day for 2014, having an increase with a 2013 2014 2015 Pour Performance Good Performance supply of 0.89 hours of water a day, compared to 2013. Group 1 - Sewerage Coverage (%) Sewerage Coverage 105 100 95 90 85 80 75 Companies of first group only 9 companies provide the 70 65 sewerage service. Even for this year, the company Elber sh.p.k 60 55 (today Elbasan Qytet Sha) continues to keep the sewerage 50 45 40 coverage at the level (100 %). 35 30 25 20 15 10 5 0 Elber sh.p.k Korçë Sarandë Tiranë Berat - Kuçovë Shkodër Fier Durrës Vlorë Kavajë

2013 2014 2015 Good Performance Poor Performance Group 2 - Sewerage Coverage (%)

105 100 95 90 85 80 Out of 21 companies of the second group, 12 of them 75 70 65 provide the sewerage service and only 3of them Sh.a. WSS 60 55 50 Krujë (93,79%) , Sh.a. WSS Lezhë (97,03%) , Sh.a. WSS 45 40 35 Librazhd (84,29%).are on the threshold of the good 30 25 performance with 75%. 20 15 10 5 0 Lezhë Krujë Librazhd Pogradec Kukës Tepelenë Lushnjë Peshkopi Gjirokastër Mallakastër Rrogozhinë Shkodër Fshat

2013 2014 2015 Good Performance Poor Performance Group 3 - Sewerage Coverage (%)

105 100 95 90 85 80 75 70 65 60 Only 9 companies out of 25 companies in this group provide the 55 50 45 sewerage service. The company Sh.a.WSS Ersekë had a decrease of 40 35 30 about (-16,83%), 25 20 15 10 5 0 Krastë Ersekë Delvinë Mirditë Bashkia Pukë Fushë Krujë Fushë Arrëz Rubik Pukë Fshat

2013 2014 2015 Good Performance Poor Performance Thank You! Faleminderit! Hvala! Blagodarime! Tesekkurler!