Efectele Parteneriatului Public-Privat În Serviciile Publice De Alimentare Cu Apă Şi De Canalizare Din Municipiul București (Perioada 2008-2012)

Ioan RADU, PhD Cleopatra ŞENDROIU, PhD

THE EFFECTS OF THE PUBLIC PRIVATE PARTNERSHIP IN THE PUBLIC WATER SUPPLY AND SEWERAGE SERVICES OF BUCHAREST (2008 – 2012)

2013

FOREWORD

This Study is a continuation of the one developed by a team of professors – researchers1 from the Academy of Economic Studies which measured the effects of the Public – Private Partnership in light of the changing perceptions of consumers in Bucharest between 2000 and 2007. The condition of the water supply and sewerage services in Bucharest at the end of 2007 was revealed most faithfully by the conclusions drawn after having processed the responses obtained in a survey conducted on a representative sample of customers of Apa Nova Bucharest about their perceptions on various aspects of the services at the end of 2007 compared to their perceptions prior to the concession. The main conclusion was that most consumers perceived a major and steady increase in both the quality of the water and sewerage services and the relationships of the supplier of these services with all consumers.

This research is a continuation of the previous one and the authors have attempted a totally different vision from the first work to identify and

1 I. Radu, V. Lefter, C. Şendroiu, M. Ursăcescu, M. Cioc – Efectele parteneriatului public- privat în serviciile publice de alimentare cu apă şi de canalizare. Experienţa municipiului Bucureşti. ASE Publishing House, Bucharest, 2008.

further quantify the positive or negative developments in the performance of Apa Nova Bucharest between 2008 and 2012 on the following levels:

 The degree of achievement by Apa Nova Bucharest of the objectives of the Concession Agreement.

 The dynamic analysis of the overall performance of Apa Nova Bucharest as a water supply and sewerage service operator.

 The comparative analysis of the performance of Apa Nova Bucharest in relation to similar representative national operators.

 The analysis of the Public – Private Partnership in relation to the other forms of delegation of the water supply and sewerage services.

All these paths of action have allowed the authors to establish the development of the study called “Effects of the Public – Private Partnership in the Public Water Supply and Sewerage Service in Bucharest (2008 – 2012)” as the fundamental objective of the research.

The authors aimed at approaching the effects of PPP on the public water supply and sewerage services in Bucharest in terms of the degree of achievement of the Levels of Service specified in the Concession Agreement and undertaken by Apa Nova Bucharest as the Concessionaire,

as well as the overall performance recorded by it 12 years after the entry into effect of the concession of said services.

The authors would like to thank the management of Apa Nova Bucharest and give personal thanks to the Managing Director Mr. Bruno Roche and the Deputy Managing Director Mr. Epsică Chiru for their support throughout the development of this paper. Last but not least we would like to thank our colleagues PhD student Ramona Matei, who performed the calculation of the financial indicators in Chapter 2, and Mrs. Iulia Rugină for her special effort in making sure that the paper met the quality standards of such a paper.

The authors

CONTENTS

1 The Analysis of the Degree of Accomplishment of the Objectives of the Concession Agreement (2008 – 2012) ...... 4 1.1 4 1.2 Considerations on the Status of Water Supply and Sewerage Services at the End of 2007 ...... 4 1.3 The Need for the Study ...... 9 1.4 The Research Methodology ...... 13 1.5 The Presentation of the Concession Agreement ...... 16 1.5.1 Objectives of the Concession ...... 17 1.5.2 The Control of the Concession and Levels of Service ...... 18 1.5.3 Requirements of the Concession Agreement ...... 19 1.6 Levels of Service ...... 24 1.6.1 “Drinking Water” Levels of Service ...... 26 1.6.2 “Sewerage” Levels of Service ...... 55 1.6.3 “Customer” Levels of Service ...... 78 1.6.4 Industrial Water Levels of Service ...... 90

2 Dynamic Analysis of the Overall Performance of Apa Nova Bucharest (2008 – 2012) 92 2.1 General Considerations on the Performance of the Water Supply and Sewerage Services 92 2.2 Criteria for measuring Performance ...... 106 2.3 Analysis of the Performance of Apa Nova Bucharest in 2008 – 2012 ...... 110 2.3.1 Analysis of the Performance in terms of Internal Processes ...... 112 2.3.2 Operational Costs ...... 160 2.3.3 Personnel Expenses and Productivity ...... 169 2.3.4 Non-revenue Water ...... 175 2.4 Social Performance in Terms of the Internal Processes ...... 179 2.4.1 Working Conditions ...... 179 2.4.2 The Social Dialogue ...... 187 2.4.3 Professional Development ...... 190 2.5 Environmental Performance in terms of the Internal Processes ...... 194 2.6 Performance in Terms of Customers/Consumers ...... 203 2.6.1 The Profile of Consumers in Bucharest ...... 203 2.6.2 Social and Environmental Performance from the Perspective of Customers/Consumers ...... 223

2.6.3 The Participation in Projects for protecting the Historical and Cultural Assets 242 2.6.4 Raising the Public’s Environmental Awareness ...... 243 2.7 Performance in terms of the Stakeholders/Civil Society ...... 246 2.7.1 Partnerships for Social Projects ...... 246 2.7.2 Environmental Partnerships and Actions ...... 248 2.7.3 The Relationship with the Regulatory Authorities ...... 250

3 Comparative Analysis of the Performance of S.C. Apa Nova Bucureşti S.A. against Similar Major Operators at National Level ...... 251

4 The analysis of Public-Private Partnership of Concession Type in Relation to Other Forms of Delegation of Water Supply and Sewerage Services ...... 279 4.1 Framework for the Analysis of Public Private Partnership of Concession Type 279 4.2 Specificities of the Concession of Water Supply and Sewerage Services in Bucharest ...... 302 4.3 Conclusions ...... 307

LIST OF ABBREVIATIONS

AFNOR Association Française de Normalisation NAAR National Administration Apele Române APA NOVA S.C. Apa Nova Bucureşti S.A., sometimes also BUCHAREST referred to as the operator or the Concessionaire MARPS Municipal Authority for the Regulation of Public Services of Bucharest ARBAC Agency for the Regulation of Water and Sewerage of Bucharest ADDBR Administration of the Danube Delta Biosphere Reserve WB World Bank ROLM Romanian Office for Local Metrology CA Concession Agreement GCB General Council of Bucharest DPHB Directorate for Public Health of Bucharest PE Permissible Exclusions CCA Continued Compliance Assessment ICA Initial Compliance Assessment FME Force Majeure Event DGCB Decision of the General Council of Bucharest IBNET International Benchmarking Network IFC International Finance Corporation NIS National Institute of Statistics MPF Ministry of Public Finance LOS Level of Service OSL Objective Standard Level MB Mayoralty of Bucharest DDBR Danube Delta Biosphere Reserve RADET Autonomous Administration for the Distribution of Thermal Energy WWTP Wastewater Treatment Plant DC Deadline for compliance E.U. European Union

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

1 THE ANALYSIS OF THE DEGREE OF ACCOMPLISHMENT OF THE OBJECTIVES OF THE CONCESSION AGREEMENT (2008 – 2012)

1.1

1.2 CONSIDERATIONS ON THE STATUS OF WATER SUPPLY AND SEWERAGE SERVICES AT THE END OF 2007

The status of the services at the end of 2007 is shown most reliably by the conclusions drawn from processing the answers obtained in a survey conducted for a representative sample of customers of Apa Nova Bucharest on their perceptions of various aspects of the services at the end of 2007 compared to those prior to the concession2. The main conclusion is that most consumers have seen a substantial and constant increase in both water supply and sewerage service quality and the relationships of this service provider with all consumers.

Table no. 1 provides a list of indicators measured in the survey and shows how customers’ perceptions have evolved over time. One may thus conclude that all the indicators on the quality of services show substantial improvements. Only one indicator has decreased slightly over time. The

2 I. Radu, V. Lefter, C. Şendroiu, M. Ursăcescu, M. Cioc – Efectele parteneriatului public- privat în serviciile publice de alimentare cu apă şi de canalizare. Experienţa municipiului Bucureşti. ASE Publishing House, Bucharest, 2008 4

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). indicator shows that tariff acceptability was slightly higher before the concession.

The analysis of the data (Table no. 1) has revealed a series of positive and negative aspects that characterize the consumers’ perception of the current provider of public water supply and sewerage services in Bucharest.

Table no. 1 Evolution of the consumers’ perception of the water supply and sewerage services between 2000 and 2007

Perception Perception Name of the indicator Monitored perception prior to at the end 2000 of 2007 Accuracy of billing Satisfied consumers 25.7% 73.7% Accuracy of meter Satisfied consumers 27.3% 62.3% reading Degree of acceptance of Satisfied consumers 54.7% 56.4% the tariffs Awareness of the need Customers attempting to to rationalise the water limit the water 63.0% 88.7% consumption consumption Communication with Dissatisfied customers 34.7% 17.0% customers Customer request Dissatisfied customers 45.7% 17.0% response time Customer complaint Dissatisfied customers 51.3% 18.0% response time Cold water pressure Satisfied customers 35.0% 76.0% Clogged sewerage Customers with problems 49.0% 21.7% Water supply Customers who consider interruptions notified time rational 31.3% 58.0% ahead of time Prompt interventions Satisfied customers 17.3% 53.7% for eliminating damages 5

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The overall analysis of the survey results and the content of the table above show the following positive aspects:

1. In 2000 – 2007 there was an increase in the percentage of consumers satisfied with the overall quality of the services by approx. 5% on average a year.

2. A significant improvement in consumer perception regarding the accuracy of the consumption billing and meter reading (25.67% before 2000, and 73.67% in 2007, respectively).

3. Maintaining the percentage of people who believe that the tariffs of the public water supply and sewerage services are acceptable, due to the increased affordability of these tariffs (54.7% before 2000, and 56.4% in 2007, respectively).

4. Consumer acceptance of the fact that the tariffs are correlated with the service quality (58.33% before 2000, and 59.45% in 2007, respectively).

5. An increase in the percentage of consumers satisfied with the professionalism of the operator’s staff and the response thereof to the issues raised by the customers (54.33% before 2000 and 83% in 2007, respectively).

6. An improvement in the drinking water quality, in the consumers’ view, compared to 2000 (31% before 2000, and 63% in 2007, respectively).

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

7. The percentage of consumers who believe that the pressure and continuity of services has increased significantly (e.g. 35% before 2000 and 76% in 2007, respectively).

8. A significant decrease in the number of complaints (49% before 2000, and 21.67% in 2007, respectively).

9. The general belief that the quality of the works performed by the operator has improved both in terms of damage repairs and related works such as street repairs (17.33% before 2000, and 53.67% in 2007 for promptness of damage repairs and 25.33% before 2000, and 65.67% in 2007, for the repair of the streets after the works).

10. Positive feedback from most consumers on the activity of Apa Nova Bucharest as the operator has often been characterized as “close to its customers”, “modern and dynamic”, “a trustworthy company” and as having “good technical level”.

However, in late 2007, several weaknesses in the operator’s activity were identified work, such as:

1. A poor activity of the operator in the front office area assessed by a significant percentage of the interviewed subjects who did not wish to comment on the issues in the questionnaire due to not knowing them.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2. About 15% of respondents made negative comments about the operator for almost all the questions contained in the survey organized by the Academy of Economic Studies of Bucharest.

3. Excessive closeness of the operator to the customers thereof (especially homeowners’ associations) to the detriment of direct contact with the end consumers. Since, on the one hand, the end consumers are represented before the operator by the directors of homeowners’ association/tenants’ associations and, on the other hand, they do not usually inform the end consumers of the operator’s initiatives, a steady and coherent flow of information is not achieved between the operator and the end consumers. This reduces the degree of awareness on part of the end consumers of the operator’s concerns for increasing the service quality and the participation thereof in various social actions.

4. The poor publicity of the meetings organized by the operator with the representatives of homeowners’ associations, which adversely affects the mutual understanding of the problems faced by the two Parties.

5. The failure to solve the issues raised by making the existing telescopic pipe networks compliant on approximately 10% of the apartment buildings in Bucharest at the time of the survey. Although in the Decision of the General Council of Bucharest no. 69/6.04.2006, the Bucharest Municipality admitted that telescopic 8

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

pipe networks had not been included in the concession granted to Apa Nova Bucharest and at the time of the survey the operator was carrying out complex actions for placing them on public domain and metering the buildings, unaware of the real situation, the vast majority of end consumers had a negative perception of the Company’s involvement in solving the issues raised by the existence of telescopic pipe networks.

In conclusion, we believe that Apa Nova Bucharest has managed to assert itself on the public utility market in Romania by the end of 2007 with a new pragmatic, efficient and consumer-oriented management model - even if the stage of the Concession Agreement at the time still did not allow it to implement and prove all the benefits of the concession of the public water supply and sewerage services in Bucharest.

1.3 THE NEED FOR THE STUDY

The way in which public utility services are provided in order to meet their beneficiaries’ requirements reflects the level and performance of the economic activity and, therefore, the overall development of a nation. Most economic sectors cannot operate without enjoying general public services (health, power and gas supply, telecommunications, public utility services, etc.), which is why providing/rendering them effectively, efficiently and economically is a fundamental requirement in the context of economic development and public welfare enhancement. Thus, the World

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Bank’s Report of 19943 showed that the development of the infrastructure capacity “could bring major benefits to economic development, poverty eradication and environmental protection, but only if it provided services to meet the requirements effectively”.

In order to ensure sustainable development and guarantee the achievement of objectives such as improving the health of the population and the quality of the environment, a key prerequisite that must be met by a company is providing wide access to drinking water, the sewerage network and other basic public services. The poor condition of these services in Bucharest before 2000 was largely due to the public nature of the suppliers of these services, which led to the development of monopoly markets and, therefore, the disappearance of competition and competitiveness.

As a feature of the last decade, in Romania there is a growing interest for the development of partnerships between the public and the private sector for projects capable of providing a steady and continuous growth of the quality of the water supply and sewerage services and its improved perception among consumers. This trend has been determined both by the willingness of the private sector to take over some of the responsibilities and risks posed by the increasing demands of consumers, and the willingness of the public sector to delegate the management of this

3 World Bank, 1994. World Development Report 10

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). service given the existence of limited financial resources, unable to meet the investment requirements of the water supply and sewerage services.

The importance of the water supply and sewerage services for ensuring satisfactory quality for human life is given by its five features, highlighted in numerous documents promoted at EU level: universality, continuity, quality and price accessibility of the service, and protection of users and consumers. Undoubtedly, consumer perception is significantly influenced by the degree to which an operator manages to ensure the simultaneous fulfilment of the characteristics mentioned above.

The transfer of the water supply and sewerage services from the public to the private sector through the concession has marked a turning point in the policy of the General Council of Bucharest to quickly solve the service issues and to ensure the conditions for implementing corporate management practices capable of aligning the performances of this service provided in Bucharest with the EU standards in optimum time.

The research conducted by the National Association of Technicians, Experts and Researchers in General Public Services (NATER), through the authors of the Study, seeks to identify and further quantify the positive or negative development of these performances in 2008 – 2012 by:

1. Analysing the achievement by Apa Nova Bucharest of the objectives of the Concession Agreement.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2. Analysing the dynamic progress of the overall performance of Apa Nova Bucharest.

3. Comparatively analysing the performances of Apa Nova Bucharest against similar nationally representative operators.

4. Analysing the Public/Private Partnership against other forms of delegation of the water supply and sewerage services.

All these considerations have allowed the research team to set the performance of the study entitled “Effects of the Public/Private Partnership in Public Water Supply and Sewerage Services in Bucharest (2008 – 2012)” as the fundamental objective of the research. As stated above, this study is meant as a continuation of the previous one, so in 2013 we might have an objective view on the evolution of the performances of the water supply and sewerage services in Bucharest, by the 12th anniversary of the concession.

The research, in its entirety, seeks to objectively highlight the progress of the water supply and sewerage services in Bucharest between 2008 and 2012, on the following two levels:

 Internally by relating the operator’s activity to the obligations thereof under the provisions of the Concession Agreement along with its overall performance measurement.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Externally through a comparative analysis of the performances of Apa Nova Bucharest against similar nationally representative operators and the identification of the impact of the results to be obtained from this analysis on the position of PPP compared to other ways of management of the water supply and sewerage services.

The completion of the research for the two aforementioned levels has laid the foundation for presenting a fair view on the evolution of the concession and its impact on consumers.

1.4 THE RESEARCH METHODOLOGY

The work relies on a comprehensive documentary review focused mainly on studies, research and reports developed by various national and international organizations (financial institutions, governmental authorities, regulators, international research institutes, NGOs, universities, etc.).

This documentation followed two directions: collecting information on the technical, economic, financial and social part of the service provision between 2008 and 2012, on the one hand, and getting information on the demographic, economic and social background behind the evolution of Bucharest in the considered period, on the other hand.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The assessment and analysis of consumer perception of the consequences of involving private capital in the provision of public water supply and sewerage services in Bucharest, as well as the creation of opportunities for comparative analysis of the activity of Apa Nova Bucharest against other nationally representative operators have involved analyzing detailed information in terms of both quality and quantity, by using the following data sources:

A. Documents certifying Consumer Perception

In order to analyze how household and industrial consumers have perceived the impact of the concession on the service quality consumer testimonials extracted from the press of 2008 – 2012 have been considered showing the main categories of problems they were facing at the time.

B. Annual Reports

The annual progress reports of Apa Nova Bucharest were checked and the resulting data were used primarily to perform technical and economic and financial analyses. The annual concession monitoring reports published by MARPS (Municipal Authority for the Regulation of Public Services) and NARCS (National Authority for the Regulation of Public Utilities Community Services) were also checked. For these data, correlations were made with the information provided by independent organizations or stakeholders

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). who had an influence on the water supply and sewerage services in Bucharest between 2008 and 2012.

C. Results of Studies prepared by Universities, International Research Institutes or Non-governmental Organisations

Objective approaches of the paper’s issues materialised in scientific studies and research conducted by independent organizations have been reviewed. In order to ensure maximum objectivity, the results of international research were primarily selected such as: “Bucarest, Observatorio de los Servicios Publicos” (Complutense University of Madrid, 2005), “Le rapport annuel sur le prix et la qualité du service” (Communauté d’Agglomération du Pays Voironnais, 2010), “Governance, Partnership and Financing for Essential Services” (Institut de la Gestion Deleguée, 2006), “Water, Time and European Cities – History Matters for the Futures” (Tampere University, 2005), “Annual report 2012” (International Finance Corporation, 2012).

D. Reports published by Governmental Agencies or National and International Financial Bodies

The views of some representative stakeholders who influenced the evolution of the services mainly at the time of their concession were selected as relevant and the World Bank reports were checked (“Project Performance Assessment Report, Bucharest Water Supply Project” – 2003,

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

“Approaches to Private Participation in Water Services” – 2006, “Evaluation of the Bucharest Water and Wastewater Concession” – 2010), NARCS Report “Condition of the Water Supply and Sewerage Services” – 2011).

1.5 THE PRESENTATION OF THE CONCESSION AGREEMENT

The key objective of the concession of the water supply and sewerage services in Bucharest was improving their quality and efficiency. For the operator selection transparent competition and accountability maximization procedures were used, the same as very strict and easily quantifiable selection criteria, so the winner would be a company recognized worldwide for its experience and strong enough to take on such an important municipal service as the water supply and sewerage of Bucharest. The concession was awarded to Apa Nova Bucharest after having won the international public tender organized by the Bucharest Municipality on 20.03.2000, after the tenderers and the General Council of Bucharest had approved the text of the Concession Agreement.

The concession deal was prepared with the aid and under the control of the International Finance Corporation, part of the World Bank Group, which was supported in developing the Concession Agreement by international law firms with vast experience in the field, namely the companies of Kameron McKenna and Sinclair Roche & Temeperley.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

1.5.1 Objectives of the Concession4

The objectives of the concession of the water supply and sewerage services in Bucharest are as follows: a. Achieving the specified Levels of Service for the lowest possible tariff by using both private public works and management experience, greater efficiency and a system upgrade so that the quality of the drinking water and wastewater standards might meet the standards set out by the European Union and the water might be available to customers at all times and the services might extend to sections of the Service Area that are yet to be served. The Parties confirm that, by the signing date, the Services do not meet the Levels of Service or fully comply with all applicable laws. b. Ensuring that the Concessionaire is able to finance the activity thereof, and derive income from the investment thereof to the extent of the business risk involved and the fact that the same has sufficient financial resources and, as such, is able to obtain sufficient funding to achieve the specified Levels of Service, which requires efficient operation and prudent capital investment. c. Avoiding the abuse of a dominant position by implementing transparent regulatory mechanisms.

4 Concession Agreement between Bucharest and S.C. Apa Nova Bucureşti S.A. on the provision of water supply and sewerage services for Bucharest, Romania, 2000. 17

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). d. Ensuring the compliance with applicable environmental protection, health and safety standards. e. Ensuring efficient operation and maintenance of public assets. f. Ensuring the provision of Services in such a way that, as far as reasonably practicable, they comply with, and adapt to, the Customers’ needs.

By Contract, by way of personal investment, the service Concessionaire is required to obtain real results, top quality levels of service, sound business and fund management and proper maintenance of the system assets. The Concessionaire has been given the freedom but also the responsibility to finance and complete the investments necessary for achieving and maintaining the established Levels of Service. The Concessionaire is required to achieve results (in the form of achieving and maintaining the Levels of Service) subject to the basic tariff set by public tender, including the completion of a major investment started by the Municipality (the Crivina Water Treatment Plant), a mandatory investment, which allows full management freedom in terms of the necessary investments and the promotion of efficient technical solutions.

1.5.2 The Control of the Concession and Levels of Service

The progress of the Concession Agreement is monitored by the General Council of Bucharest by way of the municipal Contract regulatory authority – MARPS (formerly ARBAC) and the national economic regulatory authority 18

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

– NARCS.

The Levels of Service measure the results of the Concessionaire’s activity in the form of objectives set out in the Concession Agreement. For example, by Contract, Apa Nova Bucharest is required to make investments for the improvement, upgrade and maintenance of the water supply and sewerage system to meet the Standards of the Levels of Service, but has freedom in terms of the initiative and control of the investments. The sole technical monitoring responsibility of the achievement by Apa Nova Bucharest of the Levels of Service established by the Concession Agreement devolves upon MARPS, a regulator subordinated to the General Council of Bucharest.

1.5.3 Requirements of the Concession Agreement

The Concession Agreement stipulates a number of requirements for the water supply and sewerage service Concessionaire which form a set of measures designed to ensure enhanced consumer satisfaction and protection and the exemption of the Grantor (Bucharest Municipality) from a financial effort falling under the responsibility of the Concessionaire5.

Of these, we list the following: a. Providing services in exchange for the lowest possible tariff in view of ensuring European quality services. The offer selected after the tender had an average basic tariff during the term of the

5 Annual reports of MARPS 19

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

concession of 11 cents, lower than the one used by the former RGAB of about 17 cents, and well below the values estimated by the consultants6 for achieving the Levels of Service (43 cents). This way, compared to the consultants’ estimates7, savings of more than $ 1.5 billion were obtained for the users of the water and sewerage services for the entire period of the concession. The basic tariff which contributed to winning the tender was consolidated in dollars and set permanently for the duration of the concession, subject to considerable guarantees from the Concessionaire for undertaking the contractual obligations and the organization, monitoring and objective assessment of these obligations. b. The need for focus in the Concessionaire’s business on customer and consumer satisfaction, by radically changing the existing system up to the effective date of the concession. The Concession Agreement is consumer result-oriented since the contract Tender Book aims at achieving the Levels of Service at consumer level. c. Setting the tariff by way of market mechanisms. In addition to the advantage of obtaining the lowest possible tariff on the

6 International Finance Corporation, a part of the World Bank Group, namely the Kameron McKenna and Sinclair Roche & Temeperley companies. 7 ”Water in Bucharest - A Utility’s Efficiency Gains under a Concession”, NOTE NUMBER 326, FINANCIAL AND PRIVATE SECTOR DEVELOPMENT VICEPRESIDENCY, published by THE WORLD BANK GROUP 20

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

market this requirement is also a guarantee of the actual achievement of the Levels of Service. The market procedure for setting the tariff provides Contract stability and sound reasons for maintaining the quality/cost ratio from the tender at a great level for the users. This mechanism successfully applied in the concession transaction has proved the role of maximizing the quality and efficiency generating competition in the privatization of the public utilities. d. Improving service quality and monitoring its evolution by establishing measurable Levels of Service and by getting transparent regulatory organizational entities involved, namely by establishing ARBAC currently MARPS. e. Improving the quality of the front-office, particularly in terms of ensuring continuous and accurate information to the customers. f. Providing financial balance for the Agreement. The major provisions of the Concession Agreement (Clause 20 and Appendix IV – Tariff) provide the financial balance in the application of the explicit provisions of the Concession Law. These provisions protect the municipality and service users against unjustified tariff increases and protect the Concessionaire against illegitimate interventions to alter this balance. g. Anticorruption provisions. The Concession Agreement was designed so as to promote efficiency, effectiveness and economy 21

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

and to discourage corruption. For the first time in the Romanian contractual framework, Clause 42 of the Agreement also sets important corrective measures for proven acts of corruption during its development which may go as far as the maximum penalty, namely the termination. h. Relieving the local budget of the investment effort in the water supply and sewerage service. According to the Concession Agreement, the obligations to achieve the Levels of Service according to European standards are met by the Concessionaire’s own financial effort (Apa Nova Bucharest), subject to the tendered tariff, without resorting to funding from the local budget. Thus, upon the start of the concession, Apa Nova Bucharest also took over the tasks and investments from the municipality to operate the system under concession in conditions of maximum efficiency. This has at least two positive aspects:

o In compliance with the undertaken contractual obligations and the minimum basic tariff, which is one of the foundations of the Concession Agreement, the operator is encouraged to be careful in controlling the tasks and costs and reducing the losses by effectively and efficiently using the funds collected from the service beneficiaries.

o The municipality is free to start new projects outside the system under concession and other problematic areas of the 22

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

local municipal public services, without having the obligation to invest in the water supply and sewerage services. i. The guarantee that the water supply and sewerage services are operated and improved with maximum efficiency. This requirement is driven by the basic tariff capping at the consolidated tendered amount (in dollars) which may be adjusted for the entire duration of the concession depending on the inflation and other objective factors, according to strict procedures. The fact that the Agreement is result-oriented by measuring the output indicators (for the results of the business) and the operator’s private interest in making a profit are also a guarantee. j. Ensuring the protection, rehabilitation and maintenance of the public assets under concession. The Agreement stipulates firm obligations for keeping the record of, maintaining and replacing the public assets under concession and transferring them to the municipality upon the termination of the concession, in normal operating conditions. These obligations are non-existent and without any warranty in the institutional framework where most operators in the country operate. k. Adding clear and easy to monitor responsibilities for the operator and higher penalties for non-compliance. The 23

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Agreement specifies performance bonds of up to EUR 20 million and penalties for non-compliance of up to EUR 5 million a year, all of which are completely absent in the current practice of delegating the management of public utilities. l. Ensuring transparent and objective monitoring. The bylaws of the Municipal Authority for the Regulation of Public Services (MARPS) ensure conditions of transparent, objective and responsible monitoring of the results of the concession.

1.6 LEVELS OF SERVICE

The concession Private Public Partnership (PPP) between Bucharest and Apa Nova Bucharest is seen as an example of best practices. This is due to the fact that this PPP is not based on investment commitments but on Levels of Service (LOS), covering areas such as water quality, system performance to respond to customers’ requests, the number of interruptions etc. Thus, the operator’s monitoring by the technical regulator (MARPS) is based on predetermined qualitative and quantitative criteria. The operator also has the opportunity to present the achievements thereof to the citizens through the LOS defined in the Concession Agreement.

The implementation of the system of Levels of Service is designed to achieve the following key objectives for the quality of services, and the

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). monitoring of their compliance is made at intervals clearly set in the Concession Agreement:

 Bringing the quality of the drinking water delivered to the connection to EU standards;

 Improving the water distribution and increasing the number of served streets, while ensuring the pressure level;

 Improving the sewerage services through wastewater quality control and the increase of the service coverage;

 Reducing the technical and commercial losses by shortening the action deadlines in the case of damages or by metering;

 Improving customer relations by reducing response times (in case of damages, sewer clogging or complaints etc.).

Each Level of Service8 has an Objective Standard that has to be met and a calendar date of completion (Deadline for Compliance) by which it is mandatory for the level of quality to be met. Until then, the Concessionaire has the obligation to comply with the service quality in the Basic Standards approved by the Technical Regulator (ARBAC and, now, MARPS).

The Concessionaire is required to comply with the values of the Levels of Service although in some cases the laws in force are more lenient. For example, for written replies to customer requests, the laws specify a

8 www.apabucur.ro – ANB official website 25

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). mandatory response period of 30 days. In the Concession Agreement, this period ranges between 10 and 20 days.

All the Levels of Service are targets for providing services to customers and consumers. Apa Nova Bucharest must therefore improve, upgrade and maintain the drinking water supply and sewerage system to reach and meet the Levels of Service.

1.6.1 “Drinking Water” Levels of Service

A1 Level of Service – drinking water quality9

The calculation formula for the Objective Standard Level is given by the number of tests in accordance with the Romanian Standard (between years 5 and 10 of the concession) or the European Standard (after the 10th year of the concession), in relation to the total number of tests.

The deadline for compliance is: a) The end of the 5th year (17.11.2005) – for the Romanian Standard (STAS 1342/1991). b) The end of the 10th year (17.11.2010) – for the European Standard (EC Directive 98/1993).

9 Definition: the quality of the drinking water provided by Apa Nova Bucharest at the connection, according to the standards of drinking water quality set by the concession Tender Book.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The Level of Service is measured by routine sampling for the parameters monitored by analyzing the drinking water produced and delivered by Apa Nova Bucharest at the sampling points according to the parameters and frequency established by the provisions of the Concession Agreement. The service level monitoring is done by checking the drinking water quality in accordance with the procedure approved by the Concession Agreement, Part “C” of the Appendix “Drinking Water Quality Monitoring”, Part III - Levels of Service of the Concession Agreement.

The Department for Public Health of Bucharest (DPHB) performs the audit monitoring of the drinking water quality in Bucharest, by way of samples taken from the three treatment plants and the distribution system. Apa Nova Bucharest performs the control monitoring through samples taken on the treatment line of the three plants, at the storage tanks and in 52 sampling points of the distribution network, agreed with DPHB throughout Bucharest.

The Concession Agreement stipulates the following Permissible Exclusions:

 The Concessionaire will not be asked to comply with the Standards set for pesticides and trihalomethanes until the Initial Compliance has been achieved according to EU standards or by the Deadline for meeting EU Standards, whichever is first.

 The Concessionaire will not be responsible for the contamination of the water supply pipes that are not under the control thereof and are the

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

property of other people. This Permissible Exclusion also includes the failure to comply with the standards on the lead content.

 The Concessionaire will not be held liable for the failure to meet the standards if the same can show, to the satisfaction of the Technical Regulatory Authority, that the events of default of the standards were due to the fact that the water quality was lower than the one specified in the Appendix “Core values of the raw water for Roşu and Arcuda” to the Concession Agreement.

 The Concessionaire will not be held liable for the failure to meet the Standards on Polycyclic Aromatic Hydrocarbons if the same can show, to the satisfaction of the Technical Regulatory Authority, that the events of default of the standards were due to the rehabilitation of the distribution system and that the Concessionaire had taken all reasonable steps to minimize the violation of these standards.

The Concessionaire will be deemed to meet this Level of Service in terms of the failure to meet other standards than the failures specified above if the number of satisfactory results obtained at the tests carried out in the conditions of monitoring specified in Appendix “Drinking Water Quality Monitoring” is not below the set percentages.

Between 2008 and 2012, the number of samples taken only from the distribution network (Figure 1) and tests performed for the entire drinking water supply system (Figure no. 2) was in accordance with the provisions of

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). the drinking water quality monitoring programme for the distribution network, as approved annually by DPHB.

Figure no. 1 Evolution of the number of samples taken from the distribution network in 2008 – 2012

Figure no. 2 Evolution of the number of tests performed in 2008 – 2012

Figure no. 3 shows in percentages the compliance of the results in relation to the legal provisions in force.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure nr. 3 Evolution of the compliance of drinking water quality parameters in 2008 – 2012

The fact that the results were consistent with the requirements of the laws in force has been shown by the lack of DPHB notifications regarding the potability of the water distributed to consumers and/or the existence of any threats to public health.

The annual checks carried out by MARPS have shown compliance percentages comparable to the compliance percentages for each concession year reported by Apa Nova Bucharest and the limits of the actual values checked by MARPS fall under Law no. 458/2002, as subsequently amended and supplemented.

A2 Level of Service - Pressure at the connection10

10 Definition: the minimum drinking water pressure to be ensured by the Concessionaire and to be achieved at the customer’s connection or the maximum flow available for apartment buildings over 2 storeys high or when the pressure is achieved by pressure boosting units. 30

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The calculation formula is based on the number of adequate pressure connections out of the total number of existing connections providing drinking water to the users.

The deadline for compliance was the 5th year of concession (17.11.2005). According to the Concession Agreement, the Third Part, Levels of Service, the compliance should have been assessed 75 days prior to 17.11.2005, so on 02.09.2005.

The Level of Service is measured according to the provision that “All low pressure reports, if found by the Concessionaire or in customers’ complaints, shall be investigated by the Concessionaire within 72 hours, and pressure measurements shall be taken by the Concessionaire:

 Either on the customer’s side of the connection/meter or, if this is not possible,

 Via an altered reference level of 15 m of pressure water column in the adjacent distribution pipes apart from another altered reference level which may prove to be appropriate”.

The Level of Service is monitored annually by MARPS through a register kept by the Concessionaire which gives details on low pressure household connections.

The Concession Agreement specifies the following Permissible Exclusions:

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Abnormal requests. This exclusion does not include the daily or weekly peaks and is limited to events occurring no more than five times for the same customer during a reporting year.

 Planned maintenance.

 Short-term low pressure incident lasting less than 1 hour a day, which does not occur on a regular basis.

 An incident occurring only once in the equipment operated by the Concessionaire: pipe explosions, equipment failures.

 Incidents due to a third party: fire fighting, another action of a third party.

The Standard Objective Level (SOL) is 98 % and is conditioned by the following requirements:

 For one or two-storey houses with a pressure of 10 m of water column or greater on the customer’s connection/meter side at a flow of 9 l/min.

 For apartment buildings (i.e. buildings with more than two storeys) the provided pressure and flow will be such that the supply of the residents of the apartments on the top floor of the building would not be inferior to the one specified in the preceding paragraph subject to the following conditions:

a. The supply of the apartments on the upper floors shall

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

depend on the operation of existing pressure boosting units (e.g.: water booster systems) directly supplying water to the apartment building and these pressure boosting units shall be under the control of the Concessionaire.

b. The Concessionaire will not held liable for any damages caused by the condition or sizing of the indoor plumbing in the apartment building. Where the existing pressure boosting units are not under the control of the Concessionaire, the latter shall be responsible for ensuring maximum flow available for the apartment building as follows:

- 9 l/min/apartment for apartment buildings with up to four apartments;

- 6 l/min/apartment for apartment buildings with 5 to 20 apartments;

- 3 l/min/apartment for apartment buildings with over 20 apartments.

Between 2008 and 2012, based on the information of Apa Nova Bucharest, the works started on the drinking water distribution system consisted of:

 Replacing the pipes with multiple failures;

 Replacing the network valves and optimizing the network from a hydraulic point of view;

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Upgrading the pumping stations;

 Reducing the damage intervention time.

During this period, Apa Nova Bucharest failed to show any incident or event requiring the approval of the compliance with the Permissible Exclusions. The notifications were made for specific cases which did not resurface in the database (they were not repeated more than five times in one contract year – a requirement to include the connection in the category of connections “at risk” or during the assessment) and were checked and handled by Apa Nova Bucharest. Taking into account, inter alia, the permanent dynamic of the water supply system that has generated multiple users a significant increase in the number of connections resulted from the beginning of the concession and, consequently, in the analyzed period (Figure no. 4).

Figure no. 4 Evolution of the number of connections in 2008 – 2012

After analyzing and monitoring the information from the period of

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Assessment of Continued Compliance11, MARPS showed that Apa Nova Bucharest had met its contractual obligations in terms of meeting the compliance. The resulting value of the assessment period was 100% higher than specified by the Concession Agreement on OSL, i.e. 98%.

A3 Level of Service – continuity of service12

The calculation formula is based on the number of water supply interruptions, with durations according to the Basic Standard, out of the total number of interruptions of the drinking water supply.

The deadline for compliance was the 5th year of concession (17.11.2005).

According to the Concession Agreement, the Third Part, Levels of Service, the compliance should have been assessed 2 months prior to 17.11.2005, so on 17.09.2005.

The Level of Service is measured by Apa Nova Bucharest that records and prepares reports on the interruptions notified by the Concessionaire personally in the drinking water supply (planned interruptions announced in advance at least 9 hours before the interruption) or following customers’

11 Item 1.3 of the Concession Agreement: for the Levels of service (LOS), an Assessment of Continued Compliance (ACC) will be performed every 12 months, for the duration of the Concession, after the Initial Compliance provided the compliance of those LOS is always achieved during the previous ACC. If compliance is not achieved during the previous ACC, the ACC assessment period coming immediately after the failure to achieve compliance shall be of three months. This arrangement shall continue until compliance is achieved, whereupon the assessment will be resumed at 12-month intervals. 12 Definition: 24/7 continuous drinking water supply for the customers. 35

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). complaints. Apa Nova Bucharest is required to examine these breakdowns within 2 hours and the ones with confirmed interruptions of over 6 hours are shown in the Register found at Apa Nova Bucharest.

The records in the database are kept by the Concessionaire in accordance with the format approved by ARBAC by way of Decision no. 16/2003 and the reports of Apa Nova Bucharest contain summary tables presented in the format approved by ARBAC Decision no. 11/2004. The Level of Service is monitored by Apa Nova Bucharest which draws up the register detailing the failure to achieve continuity. The register includes a database and a summary table.

The table with the database records contains information about the location of the problem, its details and the actions taken, including the date of interruption and re-running of the service and the summary table presents data for each reporting year.

MARPS analyzes the reports of Apa Nova Bucharest and checks the register with the basic records filled out by Apa Nova Bucharest and the assessment is based on the records from the summary table.

The types of Permissible Exclusions (PE) specified in the Concession Agreement are as follows:

 Planned and warned interruptions provided the interruptions do not exceed the time stated in the warning to the customers.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Unplanned and unwarned interruptions in the supply that should not last more than six hours. Alternative drinking water supply must be made available to the customers within 24 hours of the start of the interruption (e.g. a tanker).

 Incidents caused by a third party (e.g. fire fighting, another action by a third party).

Apa Nova Bucharest asked ARBAC to approve additional Permissible Exclusions as a result of certain events and/or incidents that occurred independently of the will of the Concessionaire. They concern the extension of the period of interruption by the time needed for blocking the intervention on the element that prompted the interruption of the water supply, which is approved subject to the terms of ARBAC Decision no. 23/2005. These types of events are as follows:

 The lack of access to the damaged item.

 The existence of constructions, equipment, trees etc. in the vicinity of the water supply networks.

Detailed procedures for the identification, registration and subsequent verification of PE cases, including the content of the supporting documentation for each type of PE, were approved by ARBAC after the issue of the reports from the Panel of Experts.

The Objective Standard Level (OSL) of the Concession Agreement states

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). that at least 98% of the connections should be supplied with drinking water 24/7, including those with a disruption of the supply lasting less than 6 hours. All interruptions exceeding 6 hours on top of the 2% negatively affects the Objective Standard.

In terms of monitoring and assessing the Basic Standard level (BS), ARBAC decision no. 31/2002 stipulates as follows:

 70% of the connections for which the duration of the interruption was < 6 hours;

 17% of the connections for which the duration of the interruption was between 6 and 12 hours;

 10% of the connections for which the duration of the interruption was between 12 and 24 hours;

 3% of the connections for which the duration of the interruption was > 24 hours.

Between 2008 and 2012, based on the analysis of the reports and verifications made, MARPS issued decisions on compliance certification, and the values presented by Apa Nova Bucharest were above the levels specified in the Concession Agreement (of 98%) (Figure no. 5)

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 5 Evolution of the compliance of A3 Level of Service – continuity of services in 2008 – 201

A4 Level of Service – drinking water coverage13

The technical regulator, MARPS, found that although the obligation of the Apa Nova Bucharest Concessionaire stipulated in the Tender Book (Appendix A, Part I, “Service Area”) was to cover the total length of the

13 Definition: 100% of existing streets at the time of the tender will have adequate capacity distribution pipelines placed so that the distance from the pipeline to the boundary of any household on the street or near the street would be less than 50 m (according to the Tender Book – Appendix A – Part I – Service Area). The concept of “adequate capacity” means that any pipe must have adequate size and condition and must be served by a network with such size and condition as would enable the transport of water to all households on or near the street, at the flow rates and pressures required in the Concession Agreement. The concept of “Street” means any road, avenue, boulevard or thoroughfare of any kind that is on the public domain and has a postal code and is mentioned on the official maps of the municipality as at the tender date. The concept of “household” means a building of any kind, regardless of its use, for which there is water supply and which may be found and is represented on the official municipal maps available by the tender date. 39

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). streets lacking water supply and sewerage networks, they were not explicitly mentioned in a list of streets included in these areas.

The deadline for compliance (DC) was the 10th year of the concession (17.11.2010). The A4 Level of Service is measured by calculating in percentages the length of the streets fitted with distribution pipes out of the total length of the streets existing by the tender date.

Between 2008 and 2012, MARPS examined the reports of Apa Nova Bucharest on a regular basis and checked the accuracy of registration of the information contained in the records of the Concessionaire’s databases. This information relates to the list of existing streets by the date of the tender and the implemented expansions along with all the documents, designs, plans, minutes and other records of the investments.

The Objective Standard Level (OSL) specifies that 100% of existing streets by the date of the tender will have adequate capacity distribution pipes.

The Concession Agreement specifies the following Permissible Exclusions (PE) for the A4 Level of Service:

 Streets lacking firm connection commitments for over 50% of the households found on said street;

 Unpaved streets.

These Permissible Exclusions were reviewed and approved by MARPS at

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). the time of the evaluation of the achievement of the Level of Service. According to the provisions of the Concession Agreement, a Permissible Exclusion may be approved by MARPS if the procedures necessary for a certain ascertaining of the Permissible Exclusions are found to have been observed in accordance with the requirements of good faith, reasonableness and best industrial practices. It is worth mentioning that these procedures must also be observed by any other investor extending the water networks in the area under concession. Therefore, in view of an economical and efficient management of the concession and capitalisation on the provisions of the Concession Agreement by the Municipality, it is necessary for the people involved in the implementation of the water network extensions to know the contractual provisions on them.

In 2010, the Panel of Experts believed that among its obligations Apa Nova Bucharest also had the obligation to develop a list of streets to be fitted with water and sewerage pipes, grouped according to the administrative districts and to have access to the correct list of paved and unpaved streets in late 2007, grouped according to the administrative districts. The Panel of Experts also specified the method of collaboration between the Mayoralty of Bucharest and Apa Nova Bucharest in terms of the roadway systematization and the extension of the public water and sewerage networks, urging the Parties to show flexibility and efficiency in performing these works.

The conclusions of the Panel of Experts were consistent with the provisions 41

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). of the Decision of the General Council of Bucharest no. 106/1997 and the Report from the Panel of Experts of January 2009 stating that “the list of streets in the areas with no networks to be fitted with water and sewerage pipes by Apa Nova Bucharest with a total length of 246 km for water and 210 km for sewerage, respectively” would replace the “Lists” previously submitted and would underlie the monitoring of the A4 and B2 Levels of Service, according to the Concession Agreement. This Report of the Panel of Experts has become an integral part of Addendum no. 6/2009 to the Concession Agreement.

Consequently, the obligations of Apa Nova Bucharest on the A4 and B2 Levels of Service are as specified in the Report from the Panel of Experts of January 2009, for both the eligible and ineligible streets. These obligations were undertaken by Apa Nova Bucharest and approved by the General Council of Bucharest by Decision no. 358/03.11.2009. Unfortunately, the obligations of Apa Nova Bucharest to achieve the A4 and B2 Levels of Service were affected by the Force Majeure Event the Concessionaire faced in 2009. It was the violation by RADET of the contractual commitments to Apa Nova Bucharest. The failure on part of the former to pay the invoices issued by Apa Nova Bucharest continued to be in effect during the first part of the contract year of 2010, particularly affecting the obligations of Apa Nova Bucharest to achieve the A4 and B2 Levels of Service. Apa Nova Bucharest notified the occurrence of the event of Force Majeure by letter no. 55628/28.11.2008, and its termination was notified by letter no.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

78296/28.12.2009. Therefore, pursuant to the provisions of the Concession Agreement, Clause 45.12, the deadline for compliance for the N4 and B2 Levels of Service was extended until 30.06.2012 due to the period of 593 days of lost services.

A5 Level of Service – time between the notification of the explosion/leak and the repair14

The calculation formula is based on the number of notified cases solved within the time specified in the Concession Agreement out of the total number of cases notified as explosions/leaks.

The deadline for compliance under the Concession Agreement was the 5th year of concession (17.11.2005).

The Level of Service is measured by the number of complaints from customers, whether made in writing or by telephone, and the records found in a register of all the incidents. It is monitored by MARPS that analyses the reports of Apa Nova Bucharest and checks the records of the registers on all explosions/leaks in the drinking water system and the summary tables.

The Concession Agreement stipulates no Permissible Exclusions.

14 Definition: the time between the notification of the explosion/leak and the repair, i.e. the resuming of the provision of the drinking water supply services.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The Objective Standard Level (OSL) for A5 Level of Service specifies the following requirements:

- Repairs within 24 hours of the reporting for at least 80% of the incidents;

- Repairs within 48 hours of the reporting for at least 90% of the incidents;

- Repairs within 72 hours of the reporting for at least 97% of the incidents;

- Repairs of the road up to the restoration to the condition before the work within two months of the notification for 97% of the incidents (additional regulatory specification established by ARBAC Decision no. 31/2005).

Apa Nova Bucharest asked for Additional Permissible Exclusions for A5 Level of Service.

Given the talks with Apa Nova Bucharest, and the opinion of the Panel of Experts expressed in the Report of 02.06.2005, the Executive Council of ARBAC issued Decision no. 23/25.07.2005 generally regulating the method of identification, registration, calculation, reporting, verification and approval of Permissible Exclusions and Decision no. 24/25.07.2005 on the regulation of the identification, registration, calculation, reporting, verification and approval of Permissible Exclusions for A5 Level of Service. Apa Nova Bucharest appealed Decisions no. 23 and 24/2005 calling for the exclusion of the cases approved as Permissible Exclusions from the calculation of the Level of Service. ARBAC rejected the appeal of Apa Nova Bucharest as unsubstantiated, and maintained its position so that, upon

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). the assessment, the temporary delay times for which Apa Nova Bucharest submitted the request and the supporting documents were excluded.

In terms of the monitoring by ARBAC of the Basic Standard Level (BSL), the ARBAC Decision no. 12/2002 specifies as follows:

- Repairs within 24 hours of the reporting for at least 30% of the incidents;

- Repairs within 48 hours of the reporting for at least 40% of the incidents;

- Repairs within 72 hours of the reporting for at least 55% of the incidents;

- Repairs within more than 72 hours of the reporting for at least 45% of the incidents.

In accordance with the Concession Agreement, Apa Nova Bucharest submitted the Report on the Continued Compliance Assessment for the 10th year of concession by means of letter no. 81927/07.10.2010. The assessment period for the Annual Report was 17.09.2009 – 16.09.2010 and the data reported by Apa Nova Bucharest were as follows:

- Repairs within 24 hours of the reporting, for 88.07% of the incidents;

- Repairs within 48 hours of the reporting for at least 96.48% of the incidents;

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

- Repairs within 72 hours of the reporting for at least 99.085% of the incidents;

- Repairs within over 72 hours of the reporting for at least 0.92% of the incidents;

- Repairs of the road to its initial condition in less than two months for 99.69% of the incidents.

The action programmes for the repair of notified explosions/leaks increased in terms of quality so the time for solving them was about 15 hours (Figure no. 6). The roads were restored to their original condition after the repairs up to 99.63% within two months of the notification.

The experience of previous years and the results of the analyses of the information found in the databases for this Level of Service have allowed substantiating the action plans for repairing notified explosions/leaks. The actions taken continued to lead to a decrease in the number of damages, and Apa Nova Bucharest maintained the performance of A5 Level of Service (Figure no. 6), and the achieved percentages were higher than those established by the Objective Standard. The average time for solving notified cases of explosions/leaks was approximately 12 hours.

The Municipal Authority for the Regulation of Public Services certified the continuity of the A5 Level of Service on an annual basis.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 6 Evolution of the A5 Level of Service – time between the notification of the explosion/leak and the repair in 2008 – 2012

A6 Level of Service – alternative drinking water supply15

For this Level of Service, the calculation relationship is given by the number of cases where the supply interruption lasted more than 24 hours and alternative supply was ensured out of the total number of cases in which the drinking water supply interruption lasted over 24 hours. The Level of Service is measured by the complaints registered from the customers, in writing or by telephone, and through a register of all the incidents lasting more than 24 hours. The deadline for compliance set out in the Concession Agreement was the 2nd year of concession (17.11.2002).

The Level of Service is primarily monitored by MARPS by regularly analysing the reports of Apa Nova Bucharest and checking the registers with records

15 Definition: the time needed to ensure alternative drinking water supply within 24 hours of having discontinued the supply (the delivery of the drinking water in tankers or other similar equipment), so no customer would be more than 200 m from the tanker.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). of all interruptions in the drinking water supply and summary tables.

As regards the Permissible Exclusions (PE), they are not specified in the Concession Agreement and the Concessionaire has not requested any additional Permissible Exclusions so far.

The Objective Standard Level (OSL) stipulated in the Agreement: ensuring alternative supply in 99% of the cases where there was a drinking water supply interruption that lasted more than 24 hours.

Following the analysis of the presented database, it was found that there were no cases of water supply interruptions lasting more than 24 hours which required an alternative arrangement. The maximum drinking water interruption lasted 23h and 30min.

The analysis showed that in 2008-2012 the A6 Level of Service was maintained above the Objective Standard Level and there was no case of water supply interruption lasting more than 24 hours.

The Continued A6 LOS Compliance was certified by MARPS by way of the annual decisions.

A7 Level of Service – water charged and metered as a percentage of the volume of produced water16

16 Definition: the ratio between the quantity of charged and metered drinking water and the produced drinking water. 48

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The calculation formula for this Level of Service is based on the ratio between the total volume of drinking water charged by the operator to all its customers who are supplied from the water supply system of Bucharest and the total volume of drinking water produced by Apa Nova Bucharest, regardless of the source, which was introduced into the water supply system of Bucharest (ARBAC Decision no. 10/2003).

The A7 Level of Service regarding the deadline for compliance has a peculiarity: every five years of concession (when another Objective Standard has to be met) there is a deadline for compliance. The compliance of the Level of Service is assessed in a period ending 50 days prior to the Deadline for Compliance.

The Level of Service is measured by Apa Nova Bucharest which prepares reports with records of the measured volumes of produced drinking water and records of the charged volumes.

The Level of Service is monitored by MARPS which analyses the reports of Apa Nova Bucharest and mainly checks the basic register filled out by the Concessionaire with records of the produced water volumes and charged volumes.

As regards the Permissible Exclusions (PE), the Concession Agreement does not stipulate any event or incident that could be classified as PE.

For the Objective Standard Level (OSL) of this Level of Service, the

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Concession Agreement specifies an Objective Standard for every five years of the concession, which represents a certain percentage increase from the baseline value. The Baseline Value or Basic Level, as defined in the Concession Agreement, “will be determined after the first annual review of the performances that will take place after the first 12 months of concession. The level will be determined by the Technical Regulatory Authority after having discussed it with the Concessionaire, based on data available at the time, provided by the Concessionaire”.

The five Objective Standards established for the term of the concession are as follows:

 Baseline Value (as at 17.11.2001) + 7% for the 5th year (17.11.2005).

 Baseline Value (as at 17.11.2001) + 16% for the 10th year (17.11.2010).

 Baseline Value (as at 17.11.2001) + 21% for the 15th year (11.17.2015).

 Baseline Value (as at 17.11.2001) + 22.5%, for the 20th year (17.11.2020).

 Baseline value (as at 17.11.2001) + 23% for the 25th year (17.11.2025).

By Decision no. 147/2006 the General Council of Bucharest approved the Addendum to the Concession Agreement, which required rescheduling the yield increase from the 5th to the 25th year of concession and the OSL obligations established by the Panel of Experts in November of 2005, as follows:

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Baseline Value (as at 17.11.2005) + 7% for the 5th year (17.11.2010).

 Baseline Value (as at 17.11.2005) + 16% for the 10th year (11.17.2015).

 Baseline Value (as at 17.11.2005) + 21% for the 15th year (17.11.2020).

 Baseline Value (as at 17.11.2005) + 23% for the 20th year (17.11.2025).

Since the 10th year of concession was the year when, according to the Concession Agreement, the first Objective Standard for A7 Level of Service had to be met, Apa Nova Bucharest sent the letter no. 820/06.01.2011 with the Initial Compliance Assessment Report for A7 Level of Service and additional information requested by MARPS (by letter no. 58/14.01.2011), sent by letter no. 2343/25.01.2011.

It was found that in 2010 there was a decrease in the volumes of drinking water produced by ~8.09% compared to 2009, while the volume of charged water in 2010 was 142,823,000 million cm, and in 2009, 150,228,508 million cm, with a resulting decrease of ~5%. Given the fact that for the 10th year of concession the obtained value still related to the basic Standard value of 51%, there was no question of non-conformity due to obtaining the value of 57.86 on 30.11.2010, when the information for the Annual Report was assessed. However, an increase of the A7 Level of Service was noted, resulting in a value of 57.86%, higher than the one obtained in the previous year of 55.47%.

In 2012, the yield of the drinking water supply system was assessed for a

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). period of 12 months from 27.12.2011, and the evolution was increasing. The Continued Compliance of A7 LOS was certified by MARPS by Decision no. 2 of 26.01.2012.

A8 Level of Service – invoices issued based on the individual or shared customer connection meter readings as a percentage of the total invoices17

A8 Level of Service is given by the ratio between the sum of all invoices issued based on readings of the meters installed on each connection and the sum of all invoices issued by Apa Nova Bucharest for all connections, whether metered or unmetered, within the water supply system of Bucharest.

The deadline for compliance was the fifth year of concession (17.11.2005), noting that the Compliance had to be evaluated for a period of 2 months from 27.07.2005 until 26.09.2005.

A8 Level of Service is measured by the Concessionaire through invoices and is monitored by MARPS which analyzes the reports of Apa Nova Bucharest and mainly checks the basic register that must contain details on the value of the invoices issued based on meter readings and the total value of the issued invoices.

17 Definition: the total value of the invoices issued based on meter readings and the total value of issued invoices.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

In relation to the Objective Standard Level (OSL) the Concession Agreement specifies that 99% of all issued invoices must be prepared on the basis of meter readings.

As regards the Permissible Exclusions (PE), the Concession Agreement does not stipulate any event or incident that could be classified as PE.

During the 4th and 5th year of concession, Apa Nova Bucharest presented a list of possible events that could be classified as Permissible Exclusions. ARBAC, as the technical regulator, ruled on several occasions in previous years on the proposals of Apa Nova Bucharest, taking Decision 23/2005 on the principle regulation and then Decision no. 5/2006 of accepting or rejecting certain cases of PE.

Following this decision, the General Council of Bucharest adopted Decision no. 69/2006 based on which Apa Nova Bucharest sent ARBAC only Permissible Exclusions related to the “telescopic pipe networks” and “shared meters”. The provisions of Article 7 of the Decision of the General Council of Bucharest no. 69/2006 state that “until the completion of the compliance works, Apa Nova Bucharest may not be penalized for failing to meet the C1, A5, A7, A8 Levels of Service for non-compliance in relation to the Telescopic Pipe Networks which are considered Permissible Exclusions”. Since the General Council of Bucharest approved the PE for the “telescopic pipe networks” by way of Decision no. 69/2006, ARBAC applied these provisions in the calculation for assessing the Level of Service.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

As regards “shared meters”, as they are not part of the “telescopic pipe networks” ARBAC systematically rejected the proposals of exclusions made by Apa Nova Bucharest for this category of invoices, and assessed the A8 Level of Service accordingly. Taking into account the recommendations of the International Technical Expert made in the Report of 12.10.2008, on the dispute over how to assess the A8 Level of Service, by Decision no. 55/27.02.2009 the General Council of Bucharest approved the measures for reaching compliance for the connections supplying several consumers implemented before the end of the Concession Agreement. The decision specifies in Article 5 that “until the completion of the works for reaching compliance for the shared connections equipped with shared meters, the nonconformities related to shared telescopic pipe networks and connections shall be deemed ‘Permissible Exclusions’”.

In 2009 Apa Nova Bucharest continued its efforts of maximal correlation between the quantities of charged water and the quantities of water supplied to customers. Compared to the objective standard of 99%, Apa Nova Bucharest achieved the values shown in Figure no. 7.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 7 Evolution of the compliance of A8 Level of Service – invoices issued based on meter readings as a percentage of the total invoices in 2008-2012

MARPS approved the continued compliance of A8 Level of Service annually.

1.6.2 “Sewerage” Levels of Service

B1 Level of Service – effluent water quality18 The method of calculation of this Level of Service is derived from the ratio between “successful” tests (exceeding the standard values as per the definitions and procedures specified in the Concession Agreement for the B1 Objective Standard) and the total number of tests. As regards the deadline for compliance, the Concession Agreement specifies as follows:

 It will be of 6 years after the European Union has allocated a total capital subsidy or grants for the project and if these grants represent at

18 Definition: household and industrial wastewater must undergo a treatment process as per the EU standard.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

least 75% of the investment costs required to achieve the standard. The standard is subject to meeting the provisions of Clause 20.2 of the Concession Agreement.

 By the end of the 15th year unless subsidies or grants are allocated for the project, subject to the approval of an Extraordinary Pricing Adjustment, in accordance with Clause 12.6 of the Concession Agreement.

The Level of Service is measured by mixed samples taken from a suitable site at the points of entry and discharge of the treatment plant in order to make comparisons. The following procedure is used at least for a week, once every 4 weeks:

 24 hour mixed samples using a collection tool that can provide refrigeration (to preserve the samples in hot weather);

 A 500 ml sample every 3 hours;

 8 mixed samples over a period of 24 hours;

 A mixed sample sent for analysis to the laboratory on the same business day.

The Level of Service is monitored by means of the following:

1) A register kept by the Concessionaire, which contains:

 A summary of all the tests.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Full details of the “failures”.

2) Standards expressed as maximum concentrations upon discharge that must be checked for compliance by comparing the results of the tests of the individual samples with the standards.

3) Standards expressed as annual discharge averages which are verified in terms of compliance by comparing the annual average values with the standards.

4) Regular and random audits of the laboratory testing procedures and records made by the Technical Regulatory Authorities.

As regards the Permissible Exclusions (PE), the Concession Agreement stipulates that they are unsuccessful because of the following incidents:

 An incident of industrial pollution that causes the wastewater treatment plant to not be able to work efficiently. The Concessionaire will explain the Technical Regulatory Authority why the former believes that the failure was due to that incident provided the Technical Regulatory Authority always considers an incident caused by industrial discharges that do not comply with the Romanian regulations on industrial discharges into the sewerage system as valid.

 An accident/a structural damage to the Cassette interpreted as a Force Majeure event so as to influence the quantity and quality of the wastewater beyond the level of treatability.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The failure to ensure the energy from the major source of the treatment plant.

 Exceptionally abundant showers (any water flows in the plants exceeding 6 times the Dry Weather Flow (DWF) may be discharged into the emissary provided they go through a 6 mm screen). If the water flow in the plant is less than 3 DWF, sufficient stormwater storage capacity shall be ensured for accepting an inflow of 6 hours. The rainfall exceeding this storage capacity may be discharged into the emissary provided it goes through a 6 mm screen. The stored stormwater shall be treated as soon as possible to achieve the Objective Standards.

The achievement of the “European Union Standard – Full Treatment” for the maximum concentration at discharge means:

(a) BOD5 (20°C) – the maximum concentration on discharge of 25 mg O2/l without nitrification.

(b) COD (the potassium dichromate method) – the maximum

concentration on discharge of 125 mg O2/l.

(d) Total phosphorus – the maximum concentration on discharge of 1 mg P/l.

(e) Total nitrogen – the maximum concentration on discharge of 10 mg/l.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

By way of the Addendum no. 9/2011, this LOS suffered changes both in terms of the value of the Objective Standard and the Deadline for Compliance.

By the end of 2012 the conditions for starting the monitoring period for initial compliance assessment had not been met and the performance was related to regulation NTPA 002/1997 for wastewater discharged into the emissary. All tests/analyses confirmed the full compliance with the maximum permissible concentrations indicated by NTPA 002/1997.

Comments on the Completion of the Wastewater Treatment Plant (WWTP)

The Glina Wastewater Treatment Plant (WWTP) was designed in 1970- 1980 and the construction works took place in 1980-1990 and were resumed in 1993-1996. The Plant was designed for three process lines, of which the works on two lines currently in different stages of performance were started:

- Treatment line 1: approximately 90% completed;

- Treatment line 2: approximately 35% completed;

- Sludge line: approximately 60% completed.

The originally planned treatment technology was the traditional 1970s technology with a mechanical stage and a biological stage, and for sludge treatment sludge concentrators, methane-tank digestion and mechanical 59

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). dewatering drying by filter presses were used. Each process line was designed for a capacity of 7.5 to 15 cm/sec depending on the degree of dilution during rain. Since 1997, RGAB has reconsidered the problem of the Glina WWTP with the Mannesmann/PROED/SETA companies, noting several deficiencies and damages to the existing supporting structures and mechanical installations and equipment provided prior to the 1980s, and low yields and high electricity consumptions of the installations in the original design.

On this occasion an updated study was developed based on existing structures and concepts and two process lines were proposed followed by an application for ISPA funding worth approximately USD 184 million, which has not been completed. Given that the pollution from the wastewater of Bucharest represents approximately 20 – 25% of the total pollution produced by Romania, the WWTP was declared a priority of the National Environmental Protection Action Plan. In this case, in 2000 – 2001, the problem of the completion of the Bucharest WWTP was resumed. Therefore, a new study was developed that took over and developed the proposals of Mannesmann and added a third treatment line by taking into account additional dry weather flows, spread over two stages, totalling EUR 429 million. The reached requirement may be presented as follows:

 2004 – 2015: two 15 m3/sec treatment lines, worth EUR 293 M;

 2015 – 2020: one 7.5 m3/sec treatment line, worth 146 M.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The main conclusion of the EU funded study was the need for a technical assistance contract for additional details on the flows and loads reaching Glina, the upgrade of the treatment technologies and mechanical, electrical and automation components and the impact of the industrial discharges on the proposed treatment process in order to develop technical and environmental protection studies and prepare Feasibility Studies and Tender Documents. The main guidelines of this upgrade are:

Stage I:

 The renovation and completion of line 1 (existent) to achieve a constant flow of 10 cm/s for estimated pollutant concentrations with 2008 as the deadline;

 The renovation and completion of existing facilities (for sludge digestion, stabilization and biogas production) and the provision of the capacity required for thickening and dewatering the estimated amount of sludge produced in line 1;

 The completion of the project and the construction of a new wastewater treatment line with a minimum design flow of 10 cm/s for the pollutant concentrations estimated for 2015;

 The construction of additional sludge digestion capabilities and an incinerator for the entire quantity of produced sludge;

 The development of a stormwater management solution.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Stage II:

 The construction of a new line – Line 2 based on the performances of Line 1 and taking into account the relevant statutory provisions;

 A solution for the management of the sludge arising from the wastewater treatment process in both lines and the construction of an incinerator to process the entire sludge production.

The funding of Stage II through SOP ENV mainly requires complying with the following conditions required by the representatives of the European Commission agreed in previous meetings with the management of the Bucharest Mayoralty the performance of which requires combined funding from the European Commission and the Romanian authorities:

 Conducting an extensive measurement campaign to determine the wastewater flows and loads in order to obtain accurate information and conclusions on the process performance of Line 1, for sizing Line 2; the measurement campaign will be conducted in the first 12 months of operation of Line 1.

 Performing works to reduce groundwater seepage into the sewerage system of Bucharest and the Cassette of the Dâmboviţa River so as to prevent achieving treatment plant overcapacity by:

a. The rehabilitation of the sewers located in the groundwater layer along approx. 30 km to increase tightness;

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

b. Emergency and background works needed to increase the tightness of the wastewater Cassette associated with the Dâmboviţa River.

In order to perform the aforementioned works, the following investments are necessary:

 The construction of a new wastewater treatment plant – Line 2 starting from Line 1 performances, including the completion of the incinerator for the management of the sludge arising from the treatment process;

 The rehabilitation of the sewers with a length of approx. 30 km;

 The rehabilitation of the Cassette of the Dâmboviţa River – emergency and background works, including unclogging along a length of 17 km;

 The consultancy, management, supervision of the works.

After the end of the warranty period for the Glina WWTP, a number of non-conformities remained unremedied, which is why Apa Nova Bucharest launched a comprehensive investment programme to make Stage I compliant covering:

 The rehabilitation of raw water pumps;

 The supplementing of the mechanical stage equipment;

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The supplementing of the apparatus of the plant;

 The provision of a primary sludge fibre separation station;

 The compliance with the safety standards of the desulphurization station;

 Road construction and rehabilitation;

 The rehabilitation of the perimeter enclosure;

 The enhancement of access security and the construction of guard towers;

 The development of green spaces.

During the course of 2012 Apa Nova Bucharest worked closely with the Mayoralty of Bucharest for finding the best technical solutions for the design of Stage II of the Glina WWTP.

B2 Level of Service – sewerage coverage19

19 Definition: 100% of existing streets at the time of the tender will have adequate capacity sewerage pipes placed so that the distance from the pipeline to the boundary of any household on the street or near the street would be less than 50 m (according to the Tender Book – Appendix A – Part I – Service Area). “Adequate capacity” means that the pipeline must have adequate size and condition and must be served by a network with such size and condition as would enable the transport of the wastewater to all households on or near the street, at the parameters required in the Concession Agreement. “Street” means any road, avenue, boulevard or thoroughfare of any kind that is on the 64

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

MARPS, as the technical regulator, found that although the obligation of Apa Nova Bucharest specified in the Tender Book – Appendix A – Part I – Service Area included the total length of the streets lacking water and sewerage networks, they were not detailed in a list of streets included in these areas. The calculation formula for the Level of Service is derived from the ratio between the length of the streets equipped with sewerage networks and the total length of the streets by the tender date. The deadline for compliance for the B2 Level of Service was the 10th year of concession (17.11.2010).

According to the Concession Agreement, this Level of Service is measured by calculating the percentage of the length of eligible streets fitted with sewerage network out of the total length of streets found at the time of the tender.

The monitoring of the B2 Level of Service is made by MARPS which analyzes the reports of Apa Nova Bucharest and checks the accuracy of registration of the information from the records of the operator’s databases in the form of reports that contain the list of streets as at the date of the tender and all updated information on the extensions, together public domain and has a postal code and is mentioned on the official maps of the municipality as at the tender date. “Household” means a building of any kind, regardless of its use, for which the connection to the sewerage system is made and which may be found and is represented on the official municipal maps available by the tender date. 65

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). with all the documents, designs, plans, minutes and other records of the investments. The Objective Standard Level (OSL) of the Concession Agreement specifies that 100% of the streets available at the time of the tender will have adequate capacity sewerage pipes. The same as for the A4 Level of Service, Permissible Exclusions for the B2 Level of Service are tests, events or incidents that are beyond the will of the Concessionaire and that may cause a breach or non-compliance with the Objective Standards of the Levels of Service if they are not excluded from the assessment. The Concessionaire shall present the events or incidents the same considers to be Permissible Exclusions to the Technical Regulator, for approval by the latter. The Concession Agreement shall specify the following Permissible Exclusions (PE) from the Concessionaire’s obligations in connection with the B2 Level of Service:

 Streets lacking firm connection commitments on more than 50% of existing households on the street;

 Unpaved streets.

These Permissible Exclusions are analyzed and approved by MARPS at the time of the assessment of the achievement of the Level of Service. A Permissible Exclusion may be approved by MARPS if, after the verification of the documents and activity of the Concessionaire, the procedures necessary for certain ascertaining of the Permissible Exclusions are found to have been observed in accordance with the requirements of good faith, 66

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). reasonableness and best industrial practices. The procedures must also be observed by any other investor extending the sewerage network in the area under concession. In view of an economical and efficient management of the concession and capitalisation on the provisions of the Concession Agreement by the municipality, it is necessary for the people involved in the implementation of the sewerage network extensions to know the contractual provisions on them.

B3 Level of Service – time between the notification of a clogged outlet and its emptying20

The calculation formula for this Level of Service is derived from the ratio between the number of notified cases resolved within the periods specified in the Concession Agreement and the total number of cases notified as outlet clogging.

The deadline for compliance for the B3 Level of Service was the second year of concession (17.11.2002).

The deadline for compliance by which the Compliance with the Objective Standard Level was achieved was 24.01.2003. Since the Concessionaire failed to achieve the Compliance of the Level of Service by the Deadline for Compliance, ARBAC notified Apa Nova Bucharest for the remedy within three months according to the Concession Agreement, Appendix A, Tender

20 Definition: time elapsed between the notification of an outlet clogging and its emptying.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Book, Part III – Levels of Services, Clause 1.4. Following the remedies made by Apa Nova Bucharest and the verification of the 2nd Initial Compliance Assessment Report for the new ongoing assessment period of 04.10.2002- 03.12.2002, by Decision no. 1/03.01.2003, the Executive Council of ARBAC approved the certification of the Levels of Service for Indicator B3. The Deadline for Compliance for the Continued Compliance Assessment is 24 January of each year.

The Level of Service is measured by the complaints recorded from the customers in writing or by telephone and a record of all the incidents related to the outlets and is monitored by MARPS based on the reports of Apa Nova Bucharest.

MARPS checks the accuracy of the registration of the information from the records of the database of Apa Nova Bucharest on all notified cases of clogged outlets and the summary tables for each reporting year.

The types of Permissible Exclusions specified in the Concession Agreement stipulate clogging occurring in the following cases:

 The existence of excessive amounts of gravel etc. entering the outlet due to adjacent construction works if the Contractor responsible for the construction must keep the outlet clear and in good condition.

 The snow blocking the outlet.

 Extensive rainfall causing street outlets and channels to be unable to

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

cope with the stormwater flow. In such circumstances several clogged outlets and household flooding with dirty water may be reported. Priority should be given to the cases of household flooding and the standard on clogged outlets may be “relaxed” to “cleaning within 48 hours”. The Concessionaire is required to prove that the rainfall in question falls within the required criteria.

 The failure to clean the roads to reasonable standards by other parties.

 The sand overload of the roads in winter.

By Decision no. 23/25.07.2005 ARBAC regulated the general method of identification, registration, calculation, reporting, verification and approval of Permissible Exclusions.

The Objective Standard Level (OSL) specifies the following for this Level of Service:

 Removing the clogging within 24 hours of the reporting for at least 75% of the incidents;

 Removing the clogging within 96 hours of the reporting for at least 98% of the incidents.

Apa Nova Bucharest has met its contractual obligations for this Level of Service in full. The results certified by annual decisions passed by MARPS are shown in Figure no. 8.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 8 Evolution of the compliance of B3 Level of Service – time between the notification of the clogging of an outlet and its emptying

B4.1 Level of Service - time between the notification of the collapse of a sewer and the pipe replacement21

This Level of Service is determined as the ratio between the number of notified cases solved within the periods specified in the Objective Standard and the total number of notified cases of sewer collapse.

The Deadline for Compliance set out in the Concession Agreement was the 5th year of concession (17.11.2005).

This Level of Service is measured by the number of complaints registered from the customers in writing or by telephone and through a register of all the incidents related to collapses.

21 Definition: the time between the notification of the collapse of a sewer and the repair of the collapse, including the filling and restoration of the pavement.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The B4.1 Level of Service is monitored by MARPS that analyzes the reports of Apa Nova Bucharest and checks the accuracy of the records of the information in the operator’s databases on all the notified cases of sewer collapses and the summary tables for each reporting year.

The Permissible Exclusions are not specified in the Concession Agreement. By Decision no. 23/25.07.2005 ARBAC regulated the general method of identification, registration, calculation, reporting, verification and approval of Permissible Exclusions.

The Objective Standard Level (OSL) is based on the following requirements:

 Repairing the collapse, performing the filling and restoring the pavement within 2 days of the reporting for at least 30% of the incidents.

 Repairing the collapse, performing the filling and restoring the pavement within 7 days of the reporting for at least 75% of the incidents.

 Repairing the collapse, performing the filling and restoring the pavement within one month of the reporting, for 100% of the incidents.

The field teams had prompt intervention between 2008 and 2012, so the values achieved (Figure no. 9) show that Apa Nova Bucharest met its contractual obligations. Consequently, MARPS approved the continued compliance for this Level of Service by annual decisions.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 9 Evolution of the compliance of B4.1 Level of Service – time between the notification of a sewer collapse and the pipe replacement

B4.2 Level of Service – time between the notification of a channel clogging and the clearing of the clogging22

It is determined as the ratio between the number of notified cases solved within the time specified in the B4.2 LOS Objective Standard and the total number of cases notified as sewer clogging.

The deadline for compliance for this Level of Service was the 5th year of the concession (17.11.2005). Its measurement is made by the complaints recorded from customers, whether in writing or by telephone, and the register of all clogging related incidents.

The B4.2 Level of Service is monitored by MARPS which analyzes the

22 Definition: the time between the notification of a sewer clogging and the clearing of the clogging.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). reports of Apa Nova Bucharest and checks the accuracy of the registration of the information from the records of the operator’s databases on all cases of sewer clogging and the summary tables for each reporting year.

The Concession Agreement does not specify types of Permissible Exclusions for this Level of Service. By Decision no. 23/25.07.2005 ARBAC regulated the general method of identification, registration, calculation, reporting, verification and approval of the Permissible Exclusions.

The Objective Standard Level (OSL) sets the following requirements:

 Removing the clogging within 24 hours of the reporting for at least 75% of the incidents;

 Removing the clogging within 48 hours of the reporting for 100% of the incidents.

Between 2008 and 2012, the sewerage network was subjected to preventive maintenance, and Apa Nova Bucharest met all its contractual obligations (Figure no. 10) although this process was hindered by the rehabilitation and upgrading of the road system.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 10 Evolution of the compliance of B4.2 Level of Service – time between the notification of a channel clogging and the clearing of the clogging

The good organization of the activity and the maintenance of a timely response of the intervention teams have led to a steady decrease of intervention times and, for example in 2010 an average service channel and/or channel connection unclogging time of 8 hours and 30 minutes was recorded from the time of the receipt of the complaint, and in 2012, it was approximately 6 hours and 30 min.

The results obtained during the Continued Compliance Assessment (CCA) show that Apa Nova Bucharest has met its contractual obligations.

The compliance with the B4.2 Level of Service was certified annually by MARPS as the technical regulator.

B4.3 Level of Service – elimination of the wastewater following a sewer

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). collapse/clogging23

The calculation formula is based on the ratio between the number of cases of clogging/collapse emptied within 6 hours and the number of notified cases of clogging/collapse where there is a risk of flooding and/or extension of the flooding.

The deadline for compliance for EIC was the 2nd year of concession (17.11.2002) and the deadline of compliance by which the compliance with the Objective Standard Level was achieved was 24.01.2003.

However, it was not reached by the Deadline for Compliance, which is why ARBAC requested improvement plans. Following the remedies made by Apa Nova Bucharest and the verification of the Initial Compliance Assessment Report for the new period of ongoing assessment, 04.10.2002 - 03.12.2002, by Decision no. 2/14.01.2003, ARBAC approved the Certification of the B4.3 Level of Service.

The Level of Service is measured through complaints made by customers in writing or by telephone and a register of all incidents related to clogging or collapse.

23 Definition: time needed to provide “alternative arrangements” for eliminating the wastewater in the pipe upstream of the sewer clogging and/or collapse for when the clogging or collapse cannot be repaired at once.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

At the same time, it is monitored by MARPS which analyzes the reports of Apa Nova Bucharest and checks the accuracy of the registration of the information from the records of the databases of Apa Nova Bucharest on all incidents concerning the disposal of wastewater caused by sewer clogging or collapses and the summary tables for each reporting year. The Concession Agreement specifies no Permissible Exclusions. By Decision no. 23/25.07.2005 ARBAC regulated the general method of identification, registration, calculation, reporting, verification and approval of Permissible Exclusions. For the B4.3 Level of Service, the Objective Standard Level (OSL) is: eliminating wastewater within 6 hours of the reporting for 100% of incidents.

Apa Nova Bucharest installed an alternative arrangement in all notified cases that posed a risk of flooding or flooding expansion, thus maintaining the compliance of the B4.3 Level of Service at 100%.

The Continued Compliance of the Level of Service has been certified annually by the technical regulator MARPS.

B5 Level of service – eliminating household wastewater flooding and cleaning24

24 Definition: the time needed to eliminate the household wastewater flooding and to clean it. Calculation formula: the number of notified cases solved in the periods specified in the Concession Agreement out of the total number of notified cases of household wastewater 76

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The deadline for compliance for this Level of Service was, according to the Concession Agreement, the 3rd year of concession (17.11.2003).

The Level of Service is measured by the number of registered complaints and the register recording all the accidents. It is monitored by MARPS that analyzes the reports of Apa Nova Bucharest and checks the accuracy of the registration of the information from the records of the databases of Apa Nova Bucharest with details on all the cases of household wastewater flooding and the summary tables for each reporting year.

The Permissible Exclusions specified in the Concession Agreement stipulate the following requirement:

 If the flooding is due to a non-return valve/part of the connection belonging to the household that is poorly maintained, the flooding will be treated as exclusion.

By Decision no. 23/25.07.2005 ARBAC regulated the general method of identification, registration, calculation, reporting, verification and approval of Permissible Exclusions.

The Objective Standard Level is subject to incident solving within 48 hours of the notification for 95% of the incidents.

flooding.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Between 2008 and 2012, Apa Nova Bucharest experienced a large number of flooded basements. These incidents were caused by improper equipment of the installations inside the buildings with non-return valves and/or a malfunction of the already mounted ones. This occurred although Apa Nova Bucharest showed the obligation and usefulness of equipping the installations inside the buildings with non-return valves, and the importance of maintaining those already installed in operating condition, through its information campaigns. Although these disturbances could be interpreted as cases of “Permissible Exclusion”, Apa Nova Bucharest managed to eliminate the flooding and clear it in less than 48 hours in 100% of the cases.

Annually, upon the Continued Compliance Assessment, the percentage of achievement of the B5 Level of Service was 100%, as certified by MARPS.

1.6.3 “Customer” Levels of Service

C1 Level of Service - connections metered as a percentage of the individual or shared connections of customers available at the time of the tender25

In accordance with the applicable laws in force (the Decision of the General

25 Definition: the ratio between the number of metered connections and the total number of connections. The calculation formula of this Level of Service is derived from the ratio between the number of metered connections and the total number of connections by means of which Apa Nova Bucharest supplies drinking water to its customers. 78

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Council of Bucharest no. 157/2005) and the provisions of the Tender Book of the Concession Agreement on the C1 Level of Service “an apartment building may have one or more connections” and the customer is only deemed connected if a meter has been mounted on the customer’s connection.

According to the Concession Agreement, the Deadline for Compliance (DC) was the 3rd year of concession (17.11.2003). The Initial Compliance Assessment according to the Concession Agreement was performed on 02.09.2003, 75 days prior to the DC.

The C1 Level of Service is measured by the Concessionaire who records and prepares reports with records of the number of metered connections and the billing records.

The services are monitored by MARPS via the following two ways:

 The register kept up to date by the Concessionaire where there are full details on the percentage of metered connections.

 The annual inspection by the technical regulator of the register and, if necessary, the records of the bills.

As an Objective Standard Level (OSL) of the service, the Concession Agreement specifies connection metering of 99 %.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The achievement of this Level of Service is shown in Figure no. 11. MARPS approved the continued compliance for this Level of Service annually.

Figure no. 11 Evolution of the compliance of the C1 Level of Service – connections metered as a percentage of the individual or shared connections of several customers

The degree of connection metering was maintained between 2008 and 2012 close to the maximum value.

C2 Level of Service – time for completing new connections to the water network and sewerage connections26

The Deadline for Compliance by which OSL compliance was achieved was 17.08.2004, and the continued compliance assessment period was between 28 June of the previous year and 27 June of each year (as MARPS

26 Definition: The time needed for fitting new connections for the drinking water pipes and/or sewerage connections. The calculation formula is derived from the ratio between the requests handled within 3 months or 3 weeks or 1 week, respectively, and all the requests, and the deadline for compliance is the 3rd year of the concession (17.11.2003). 80

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). found that by the time the compliance was supposed to be met it had not been met).

The C2 Level of Service is measured by a register kept by the Concessionaire which includes a detailed database and is monitored by MARPS which analyzes the reports of Apa Nova Bucharest and checks the accuracy of the registration of the information from the databases of Apa Nova Bucharest with the data on new connections and the summary tables for each reporting year.

The Concession Agreement specifies the following Permissible Exclusions:

 For drinking water connections, a connection application will only be considered if the following conditions are met simultaneously:

a. There is a water pipe at a distance of up to 50 m from the property boundary;

b. The drinking water system has available capacity.

 For sewerage connections, a connection application will only be considered if the following conditions are met simultaneously:

c. There is a sewer at a distance of up to 50 m from the property boundary;

a. The sewerage system has available capacity.

 For drinking water and sewerage connections, a connection application will not be considered if the connection faces one of the following 81

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

situations:

a. It should cross land belonging to a third party and the permission is not obtained;

b. It should cross a very busy road and the road closure cannot be achieved within the time required;

c. It should pass under a tram line;

d. It should pass under other major service networks and their deviation would be required;

e. It would be too low to be able to connect to the existing system by gravity (applicable only for sewerage connections).

Apa Nova Bucharest identified and requested the approval of the following Permissible Exclusions in addition to those provided for in the Concession Agreement:

 If the total time needed to obtain all the permits and licenses, other than those of Apa Nova Bucharest, and used by the customer for the payment of the down payment for the conclusion of the execution contract or delays in the final payment exceed 45 days, provided a register is kept containing the dates of the application and obtaining of each permit and/or license.

 Road blocked by third parties.

 Illegal customers/waivers/postponements. 82

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

All these types of additional Permissible Exclusions were checked and approved by MARPS according to the general provisions for the approval of Permissible Exclusions defined by ARBAC Decision no. 23/2005.

The Objective Standard Level of C2 Level of Service specifies the following restrictions depending on the two possibilities of performance of the works for which the customer may opt:

 If all the work is done by the Concessionaire, then 99% of the cases of performance of the connection must be solved within 3 months of making the application.

 If parts of the work are performed by other economic operators than the Concessionaire, then 99% of the cases of performance of the project must be solved within 3 weeks of the receipt of the application and the inspection of the works by the customer’s contractor within 1 week of the receipt of the application. Between 2008 and 2011, the provisions of the Objective Standard of 65 business days (3 months) for achieving a new connection were far exceeded by Apa Nova Bucharest that came to achieve an average time of 22 business days for this type of work. In 2012, the average time (time spent on the activities of ANB) for a new connection was 24 business days. Between 2008 and 2012, the C2 Level of Service Compliance was maintained up to 100% and was certified annually by MARPS as the technical regulator.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

C3 Level of Service – time for handling the billing information requests27

The deadline for compliance according to the Concession Agreement was the 3rd year of concession (17.11.2003). The Level of Service is measured by means of a register kept by the Concessionaire that must include a detailed database.

The C3 Level of Service is monitored by MARPS that analyzes the reports of Apa Nova Bucharest and checks the accuracy of the information in the records of the databases of Apa Nova Bucharest with data on the billing information requests. The register contains the database and summary tables for each reporting year.

The Concession Agreement does not specify Permissible Exclusions for this Level of Service. As regards the Objective Standard Level, it provides answers sent by mail within 5 days for 90% of the cases.

The operator continued the customer information campaigns, using various materials/sources of information (leaflets, brochures, webpage, etc.) for them. Customers have found a great deal of information on the services (including payment, disconnection, Levels of Service, water conservation and environmental issues) in the materials provided by Apa

27 Definition: the time needed for handling billing information requests. The calculation formula is derived from the ratio between the number of complaints received and handled within the time specified (< 5 days and > 5 days) and the total number of received complaints.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Nova Bucharest. These materials have helped improve the relationship between Apa Nova Bucharest and its customers so the Level of Service recorded an average of 99.26%, while the Objective Standard Level was 90% (Figure no. 12). These information campaigns have had a positive influence on the relationship between Apa Nova Bucharest and its customers, as the latter have found much information on the services (including payment, disconnection, Levels of Service, water conservation and environmental issues, etc.) in the materials provided by Apa Nova Bucharest.

Figure no. 12 Evolution of the compliance of C3 Level of Service – time for handling billing information requests

Over the last 3 years of the analysis, C3 Level of Service recorded a value of 100%. The continued compliance of C3 Level of Service was certified by MARPS as the technical regulator annually.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

C4 Level of Service – time for handling written complaints28

The deadline for compliance set out in the Concession Agreement was the 3rd year of concession (17 November 2003).

The Level of Service is measured by recording all written complaints. The services are monitored by MARPS that analyzes the reports of Apa Nova Bucharest and checks the registers with records on all written complaints and summary tables. The Concession Agreement specifies no Permissible Exclusions. For this Level of Service, the Concessionaire has not identified any additional Permissible Exclusions so far. The Objective Standard Level requires the answers to be mailed within 10 business days for 90% of the cases.

Apa Nova Bucharest answered the customers’ written complaints in the course of 2012, during the term of the Agreement and the performance was far superior to the objectives of the LOS (Figure no. 13). The provisions of the protocol concluded with ARBAC on 23.10.2006 on the method of answering customer complaints were applied.

28 Definition: The time needed for handling written complaints. The calculation formula is derived from the ratio between the number of answers to written complaints sent by post within 10 business days and the total number of written complaints recorded by Apa Nova Bucharest during the assessment period.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure nr. 13 Evolution of the compliance of C4 Level of Service – time for handling written complaints in 2008-2012

The continued compliance of C4 LOS was certified annually by MARPS by the decisions issued.

C5 Level of Service – time for answering customers’ phone calls

The evolution of the number of customer phone calls made to Apa Nova Bucharest at the Technical Call Centre during 2008 – 2012 is shown in Figure no. 14. The customers’ preference to communicate with Apa Nova Bucharest by phone also manifested itself during this period, as the number of phone calls also increased because of the easy access to the unique number 021.207.77.77 (or * 7777).

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 14 Evolution of the number of phone calls from customers

The analyses show a substantial exceeding of the Objective Standards (OS) (Figure no. 15), namely:

 Answers in less than 15”: 50% OS

 Answers in less than 30”: 75% OS.

Figure no. 15 Evolution of the C5 compliance – time for answering the customers’ phone calls

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The continued compliance of C5 Level of Service was certified annually by MARPS.

C6 Level of Service – time for handling customers’ visit requests

This Level of Service was achieved at a rate of 100% because in 2008 – 2012 all the visits occurred within 2 hours of the agreed time compared to the 12 hours stipulated in the Concession Agreement. MARPS certified the continued Certification of this Level of Service annually.

C7 Level of Service – time for checking the meter accuracy (upon customers’ request)

In the period under review (2008 – 2012) Apa Nova Bucharest received over 1,200 requests for checking the meters. Please note that, based on an agreement between Apa Nova Bucharest and the Romanian Bureau of Local Metrology (RBLM), all customers requesting the metrological inspection who paid the prescribed fee for this operation could be assisted by a RBLM inspector.

The compliance of the C7 Level of Service (Objective Standard 95%) was maintained each year at a rate of 100%, with the exception of 2010 when the compliance was 99.57%. The continued compliance of C7 LOS was certified annually by MARPS by the decisions issued during this period.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

1.6.4 Industrial Water Levels of Service

D1 Level of Service – pressure at the connection for industrial water

In 2008 – 2012 there were no notifications of low pressure at the industrial water connections, except one notified case which was not confirmed on ascertaining. Apa Nova Bucharest has provided its customers with industrial water at the parameters listed in Supply Agreements, thus meeting the contractual requirements relating to this Level of Service.

The continued compliance of D1 LOS was certified annually by MARPS by the decisions issued.

D2 Level of Service – continuity of industrial water services

In 2008 – 2012 there were 56 notified cases of lack of water and two cases of industrial water supply interruption resulting from interventions by Apa Nova Bucharest. The service was resumed within the time established in the Supply Agreement with the customers, and the continued compliance of the Level of Service was certified by MARPS by the decisions issued annually.

* * *

The conclusions of the analysis conducted for the four categories of existing Levels of Service in the Concession Agreement highlight the

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). compliance with and often exceeding by Apa Nova Bucharest of the Objective Standard Level for each Level of Service and the Concessionaire received the approval of continued compliance for each Level of Service annually from the technical regulator MARPS.

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2 DYNAMIC ANALYSIS OF THE OVERALL PERFORMANCE OF APA NOVA BUCHAREST (2008 – 2012)

2.1 GENERAL CONSIDERATIONS ON THE PERFORMANCE OF THE WATER SUPPLY AND SEWERAGE SERVICES

Analysing and measuring performance is not an easy thing, especially seeing as the concept of performance itself is difficult to define and explain. Within an economic entity, achieving performance means first and foremost being effective and efficient. The organization is effective if it reaches its goals and it is efficient if it maximizes the results (physical or value results) using a given amount of resources (means). In other words, an organization is effective if it manages to implement a strategy defined in advance and is efficient if it improves the cost-value relation at all times. And all this given that reaching a certain level of productivity is not enough and the resources must be allocated or the costs must be incurred mainly in order to create value perceived by the shareholders, customers or other stakeholders.

Performance can be defined as the achievement of organizational goals regardless of their nature and diversity. Ensuring the durability of the undertaking designed as a general strategic objective of all businesses can no longer be achieved only by ensuring its financial viability. Financial performance thus becomes just one facet of such a conglomerate of issues

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). that define an organization as efficient and effective. Social and environmental demands raised by new categories of stakeholders (customers, NGOS, employees etc.) requiring a certain method of doing business have quickly led to a shift from mere financial representation of performance to a complex representation that incorporates the social and environmental dimension in terms of corporate social responsibility. Protecting the environment and ensuring long-term economic growth are complementary and mutually dependent thus ensuring the operationalisation of the concept of sustainable development.

Thus, the concept of sustainable development involves ensuring a steady, constant development based on the following strategic pillars: a) economic growth; b) social equity; c) a healthy environment, plus the following dimensions: d) cultural identity and e) institutional or partnership development for sustainable development.

People recognise that nowadays the overall development depends on the health of the ecosystems, on social equity and good organizational governance. In the long run, all activities carried out by the undertaking depend on the health of the world’s ecosystems. The undertaking comes to be a subject of interest for an increasingly wider range of stakeholders: environmental organizations, human rights organizations etc. The perception and materialization of organizational performance in terms of social responsibility can influence: competitive advantages, reputation and the ability to attract and retain employees, consumers, customers or users, 93

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). maintaining a moral, engaging and productive work environment, a better appreciation from the investors, shareholders, donors and financial communities in general, and creating better relationships with the media, suppliers, governmental and non-governmental authorities and, in general, with the community in which it operates29.

We conclude that within an undertaking social responsibility is materialised by mixing the three dimensions of sustainable development, given that overall development is ensured by reaching three major objectives (Tabără, Horomnea, Nuţă, Dincu, 200730):

 In economic terms: creating wealth by using sustainable methods;

 In environmental terms: responsible resource management and conservation;

 In social terms: involvement and equality for all social groups.

The interaction between the three dimensions of sustainable development drives the overall performance of the undertaking.

29 The guidelines for the operationalisation of social responsibility within the organisations from the public and private sectors are set out in the international ISO standard 26000: Guidance on social responsibility; see http://www.iso.org/obp/ui/#iso:std:iso:26000:ed- 1:v1:en 30 Tabără, Horomnea, Nuţă, Dincu (2007): Consideraţii privind performanţa globală a întreprinderii, “Contabilitatea” Magazine. Business Expertise and Audit no. 8/2007, CECCAR Publishing House Bucharest, ISSN 1454-9263, p. 49. 94

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

If in terms of the definition of the concept of performance for an undertaking things are somewhat clarified and explained, the definition of the concept of performance for public water supply and sewerage services gains a series of specific meanings, based on the purpose and aim behind the provision of such services.

The organization, operation and management of water supply and sewerage services the same as all the categories of public utilities must ensure: a. The accomplishment of the users’ quantity and quality requirements, according to the contract provisions; b. The health of the population and the quality of life; c. The economic, legal and social protection of users; d. An optimal operation subject to the safety of the people and the service, return and economic efficiency of the constructions, installations, equipment and facilities, in line with the design process parameters and in accordance with the Tender Books, the operating instructions and the service regulations; e. The introduction of modern management methods; f. The introduction of modern methods of development and implementation of the strategies, policies, programmes and/or projects in the domain of public utility services;

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). g. The protection of the public and private domain and the environment in accordance with the specific regulations in force; h. The information and consultation of local communities that are the beneficiaries of these services; i. The compliance with the principles of the market economy to ensure a competitive environment, the limitation and regulation of the areas of monopoly31.

The requirements for such a service, as noted, are numerous and cover a very wide range of interests: from meeting the users’ quantity and quality requirements to complying with the principles of the market economy and ensuring a competitive environment. It is difficult to assess, in such a case, if all these requirements occupy the same place on a scale of assessment of their importance and relevance in direct relation with the recipients of these services. And obviously it is all the more difficult to determine which of these requirements may be a criterion for assessing the performance of the service or not.

In Bucharest, the General Council of Bucharest has jurisdiction in terms of the organization, regulation, management, coordination, monitoring and control of the operation of the water supply and sewerage services by virtue of the provisions of the laws in force and the terms of the

31 legenet.indaco.ro – the law of community public utility services, law 51/2006, published in the Official Gazette, Part I no. 254 of 21/03/2006, art. 7, paragraph (2)

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Concession Agreement between the Bucharest Municipality and Apa Nova Bucharest.

The Regulation of organization and operation of water supply and sewerage services in Bucharest also states that the local government authorities of Bucharest seek to meet the following objectives by organizing and performing these services: a. Improving the living conditions of the citizens of the city; b. Sustainable development of the services; c. Completing a modern city infrastructure as a basis for economic development; d. Environmental protection32.

One may thus interpret that the purpose of the water supply and sewerage services is precisely achieving the four goals although, in our opinion, improving the citizens’ living conditions should have been emphasized as the key objective that can be achieved by reaching the other three objectives.

Reaching this key objective, improving the citizens’ lives and the other objectives related to the sustainable development of the services themselves, the environment, as well as the overall economic development

32 http://www1.pmb.ro/pmb/primar/regulament_ac/Regulament%20_ac-lucru.pdf, accessed on 13 September 2012 97

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). is the core of the performance of the public water supply and sewerage services. And achieving said performance depends on the management of this service which requires the coherent involvement of three main categories of stakeholders: the local government authorities, the service operator and consumers enjoying this service and paying its equivalent value.

In Bucharest, the management and monitoring of water supply and sewerage services involve a much wider range of parties, deemed to be representative stakeholders: the National Authority for the Regulation of Public Utility Services – NARCS33, the Municipal Authority for the Regulation of Public Services – MARPS34, the National Administration Apele Române – NAAR, the Ministry of Environment and Climatic Change, the Panel of international35 Experts, the World Bank, the Autonomous Administration for the Distribution of Thermal Energy – RADET. Each of them has particular interest in relation to the water supply and sewerage service.

33 It ensures the economic regulation of the service, manifested particularly in the field of tariff adjustment approval. 34 Authority responsible for the technical monitoring and assessment of the degree of achievement of the performance indicators (Levels of Service) for the public water supply and sewerage services in Bucharest. 35 It is specially empowered with the extraordinary adjustment of the tariffs and is made up of a water engineer, an economist and a financial analyst, accepted both by S.C. Apa Nova Bucureşti S.A. and by the Municipality. In order to ensure the neutrality and equidistance of the experts, they have the nationality of neither the grantor (Romanian), nor the Concessionaire (French). 98

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Obviously, the greatest expectations are those of the service beneficiaries, and those enjoying drinking water and sewerage services, as well as those who still have no access to the water supply and/or sewerage services. Industrial and household consumers, homeowners' associations are virtually those who pay for these services. These groups are most entitled to assess whether the public service they receive is satisfactory or not and can judge whether the service actually works, is efficient and of high quality. However, they do not always have all the information needed to assess the efficiency or durability of the performance of this service.

The performance of a water supply and sewerage service can be considered satisfactory if three conditions are met (Payen et Roche, 2012)36:

 The governance of the sector is good, which means that each party/stakeholder can meet the role thereof in full and in such a way as to be of use to the service, with no external interventions or obstacles considering the multitude and diversity of particular situations and by optimizing the costs in the consumers’ interest at all times;

36 Gérard Payen & Pierre-Alain Roche (2012): Performance Is a Matter for All, Improving th Performance of Water and Sanitation Public Services, Edited for the 6 World Water Forum in Marseilles 2012, ASTEE, France 2011 99

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Each party/stakeholder meets the role thereof effectively, which means contributing to the collective effort in an optimal manner (including economic contribution);

 The service is delivered efficiently in accordance with the users’ expectations (consumers) and the social and environmental requirements.

Please note that the system of regulations in force for the water supply and sewerage services in Romania explicitly considers that the general interest of the local communities is a priority in the management and development of the public utility services37. The provisions of Law no. 51 of 8 March 2006 of public utility community services aim at meeting the users’ requirements to the greatest extent reasonable, and protecting their interests, strengthening economic and social cohesion within the local communities and obtaining sustainable development for the administrative and territorial units.

Thus it is stated that local authorities are at the heart of performance issues because they are fully responsible for both making decisions on meeting community interests and for organizing, operating and developing the water supply and sewerage services. Moreover, one may talk about

37http://www.anrsc.ro/documents/biroul_resurse_umane/instruire_profesionala_operatori/S R%20pentru%20serviciul%20de%20alimentare%20cu%20apa%20si%20de%20canalizare. pdf accessed on 13 September 2012 100

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). public social responsibility in terms of the operationalisation of the notion of sustainable development for the local government authorities.

The General Council of Bucharest has exclusive jurisdiction in all matters relating to38: a. The approval of the local strategies for the establishment, organization, management and operation of the water supply and sewerage services; b. The approval of the investment programmes for the establishment, development, upgrade and rehabilitation of the technical and urban utility infrastructure associated with the service; c. The approval of the regulations and Tender Books of the service; d. The use of the method of management and approval of the documentation for the organization and development of the management delegation procedures; e. The approval of the performance indicators for the services (article 10 paragraph (1) of Law no. 241 of 22 June 2006 of water supply and sewerage services).

38http://www.anrsc.ro/documents/biroul_resurse_umane/instruire_profesionala_operato ri/SR%20pentru%20serviciul%20de%20alimentare%20cu%20apa%20si%20de%20canalizar e.pdf accessed on 13 September 2012

101

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The General Council of Bucharest prepares its own short, medium and long-term development and operation strategy for the water supply and sewerage, services considering the town planning and territory development plans, the city economic and social development programmes and the international commitments in terms of environmental protection (article 11 of Law no. 241 of 22 June 2006 of water supply and sewerage services). Thus, by virtue of its duties and powers, the General Council of Bucharest is the guarantor of the citizens’ welfare, based on the clear and definite expression of a strategic vision to achieve this goal.

Unfortunately, the problem of the efficient management of such a service is a difficult mission for the local government authorities in general. In Bucharest, the inability of the local and central public authorities to provide their own funds for the rehabilitation and development of water supply and sewerage services for ensuring adequate quality indicators for meeting the consumers’ needs and environmental protection has been the key argument in favour of the concession of the service.

The Public – Private Partnership has become one of the major challenges of public management at the start of the third millennium. The use of the Public – Private Partnership is made legitimate by the objectives of both the local government authorities, and the private operators. The former have the obligation and responsibility to identify how the services provided to the population can be implemented according to the needs expressed 102

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). by society, and the latter, the private operators, have the responsibility to ensure services subject to the best cost/benefit ratio. The Public – Private Partnership allows harmonizing the two aforementioned roles. But before resorting to such a partnership, the local government authorities must understand and identify the advantages it may have, the potential risks they take on and they must master the process enabling a successful operation of the partnership (Radu et al., 2008)39.

The performance of Public – Private Partnerships in the field of water supply and sewerage services is a complex concept. The most obvious benefit of a PPP is enhancing the efficiency of the services and improving the technical performance of the system, with direct implications on improving the service quality.

One may conclude that the consumer (

Figure no. 16) must be at the heart of the objective of performance of the water supply and sewerage services. The consumer’s requirements, irrespective of the category of consumer: household or industrial, can be analyzed from three major perspectives: the access to the service, the quality of service and the pricing40. The local authority is in the interest and

39 Radu, I. Lefter, V. Şendroiu, C. Ursăcescu, M. Cioc, M. (2008): Efectele parteneriatului public-privat în serviciile de alimentare cu apă și de canalizare, Experienţa municipiului Bucureşti, ASE Publishing House Bucharest, 2008, ISBN 976-606-505-121-8, p.123 40 The three dimensions of performance, alongside a fourth dimension, operational efficiency, were presented and used to assess the performance of PPP projects for emerging countries by Philippe Marin, in the work: Public-Private Partnerships for Urban 103

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). on the side of the consumers and, through an efficient handling of public management at local level, it implements the mechanisms of regulation, monitoring and control of the public services provided by the operator. On the other hand, the operator falls within the three dimensions of development: economic, environmental and social that require achieving the objective of overall performance and improving and upgrading the delivered services subordinated to meeting consumers’ needs.

Water Utilities. A Review of Experiences in Developing Countries, The International Bank for Reconstruction and Development / The World Bank, PPIAF, 2009 104

SYSTEM OF RELATIONSHIPS BETWEEN THE CRITERIA MAIN STAKEHOLDERS OF WATER SUPPLY SERVICE FOR ASSESSING AND SEWERAGE SERVICES PERFORMANCE SERVICE PERFORMANCE OBJECTIVES

DEGREE OF SATISFACTION:  Steady drinking water supply and wastewater CONSUMER and stormwater collection and treatment in ■ ACCESS TO THE SERVICE SERVICE acceptable economic and social conditions ■ QUALITY OF SERVICE PROVISION ■ PRICING

RESPONSIVENESS

■ ACCOMPLISHMENT OF SOCIAL AND  Improving and upgrading the delivered INFORMATION, ENVIRONMENTAL OBJECTIVES services to meet consumers’ needs. CONSULTATION & ■ FINANCIAL SUSTAINABILITY  Obtaining overall performance (durable OPERATOR DIALOGUE ■ CONSUMER SATISFACTION performance).

DELEGATION

LEVELS OFLEVELS ANALYSIS PERFORMANCEOF THE SERVICEOF THE

(a) Improving the citizens’ living conditions; (b)

REGULATION, MONITORING AND sustainable development of the services; (c) ACCOMPLISHMENT CONTROL OF THE PUBLIC SERVICES completing a modern utility infrastructure as a basis OF OBJECTIVES BY THE OPERATOR LOCAL for economic development; d) environmental AUTHORITY* protection.

Figure no. 16 System of performance of the water supply and sewerage services

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* In the case of Bucharest, MARPS is the authority responsible for the technical monitoring and assessment of the degree of achievement of the performance indicators (Levels of Service) of the public water supply and sewerage services in Bucharest.

2.2 CRITERIA FOR MEASURING PERFORMANCE

In the case of public water supply and sewerage services, given its multi- dimensional nature, performance assessment is carried out by using various measurement criteria according to the aim and objectives of the analysis for which they are used.

It is difficult to present a set of indicators that would enable the assessment of the overall performance for water supply and sewerage services, especially since, unlike the financial performance component, which is strongly quantifiable and easy to measure, the other dimensions, the environmental and social ones, rely more on categories of non-financial indicators that are harder to assess.

As part of the benchmarking41 analyses for the water supply and sewerage services, IBNET uses three categories of performance indicators: operational efficiency, financial sustainability and consumer reaction.

41 Caroline van den Berg et Alexander Danilenko (2011): The IBNET Water Supply and Sanitation Performance Blue Book: www.ibnet.org 106

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The operational efficiency assesses how production factors are used during the course of the current activity and depends not only on the quality of the current management, but also past practices and decisions, including the decisions on the investment. The social and economic environment has major influence on the level of efficiency since local prices and specific regulations on the environment or work relationships critically influence this level among other factors. One may assess this level of efficiency (IBNET, 2011) by means of two indicators: non-revenue water42 and staff productivity.

Financial sustainability is a key indicator in assessing the performance of the water supply and sewerage services. If the service cannot cover at least the operation and maintenance costs from the income derived from operation, it is in a difficult situation in terms of maintaining the infrastructure in working condition and, therefore, a continuous deterioration of the quality of delivered services occurs. On the other hand, even in conditions of sufficient operating income, the problem of the lack of liquidity can manifest itself acutely due to delayed payments of the bills by the customers/consumers. Thus, the rate of coverage of the operating costs and the bill collection period are two representative indicators in assessing financial sustainability. Thirdly, customers’ reaction can be

42 IBNET: Nonrevenue water (NRW) is calculated as the difference between water produced and water billed per kilometre of water network per day. This measure captures both physical and commercial losses. The latter result from inefficiencies in billing, illegal connections, and theft. High NRW levels indicate poor management, in the form of either poor commercial practices or poor infrastructure maintenance. 107

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). assessed using the service affordability indicator which, when analysed, can also lead to the assessment of the long-term sustainability of the service.

The development of a framework for analysing the overall performance in the case of water supply and sewerage service operators involves taking into account in an integrated manner both the conditions that determine the performance of water supply and sewerage services and the performance goals that every economic organization must achieve in order to guarantee its survival and development. In these conditions, the analysis of the operator’s overall performance must consider assessment criteria that entail several assessment levels/perspectives, as shown in Figure no. 17.

Analysis criteria ↓ Analysis perspectives Economic Social performance Environmental ↓ performance performance Perspective of internal a. Financial balance f. Working j. Level of processes b. Return conditions greenhouse c. Investment g. Social dialogue emissions d. Water which h. Professional k. Consumption generates no development of natural income (non- i. Organizational resources revenue water) culture l. Protection of e. Financial natural sustainability resources – reducing pollution Perspective of  Provision of top  Service  Increasing the customers quality services affordability public’s  Levels of  Participation in environmenta Service projects for l awareness protecting the historical and 108

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

cultural assets Perspective of  Reaching the  Patronage  Environmenta stakeholders objectives of the  Know-how l partnerships Concession transfer and actions Agreement 43  Meeting tax obligations  Meeting reporting obligations Figure no. 17 Framework for analysing the overall performance of the water supply and sewerage service operator

Obtaining economic performance is a prerequisite for achieving social and environmental performances. However, sustainable development is leverage for improving organizational performance. This long-term approach enables it to better control risks due to the extended approach to the overall strategy in managing relationships with stakeholders. In fact, it is the driving force of economic growth by stimulating innovation which always generates competitive advantages. Sustainable development is ultimately the source of progress and value for the undertaking.

43 On November of 2000, S.C. Apa Nova Bucureşti S.A. became and, for 25 years will continue to be, the Concessionaire of the water supply and sewerage services of Bucharest. The concession of these services was awarded after an international tender under the patronage of the World Bank. The specific nature of the concession consists of ensuring the lowest average tariff for a time horizon of 25 years, which forces the Concessionaire to reach, in stages, 25 levels of technical and commercial services. The Concession Agreement is result-oriented and the Concessionaire has the freedom to act as the same sees fit to meet the obligations in the Agreement.

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Next, we will present in detail the analysis of the overall performance of Apa Nova Bucharest for the period from 2008 to 2012 taking into account its assessment criteria set out in Figure no. 17.

2.3 ANALYSIS OF THE PERFORMANCE OF APA NOVA BUCHAREST IN 2008 – 2012

During the considered period, Apa Nova Bucharest had a double mission. On the one hand, ensuring the proper implementation of the provisions of the Concession Agreement and, on the other hand, getting in line with the general policy of the Veolia Group since Veolia Eau – the former Compagnie Générale des Eaux – is the majority shareholder.

The considered period overlaps with the period of the financial crisis which started in 2008 and spread rapidly in the increasingly global world economy. It soon became the most serious post-war economic crisis, as well as the first crisis showing signs of a reshaping of the world economic order. In Romania, it’s obvious effects consisted of a decrease in production and an increase of unemployment, a deterioration of the living standard and an increase of uncertainty and instability.

Against this adverse economic backdrop, Apa Nova Bucharest managed to successively conclude positive balances and achieve its goals set by the Concession Agreement. These major accomplishments held even during the steady decrease of the volume of sold water, as shown in Table no. 2.

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Table no. 2 Evolution of the volume of sold water 2008 – 2011

2008 2009 2010 2011 Volume of sold water 154.1 150.53 142.5 136.0 (million m3) Variation from the previous -2.46% -5.3% -4.5% year

In these conditions, the overall turnover remained constant, RON 441 million (2009, 2010), and increased in 2011 by 12% compared to 2010 (RON 494 million).

The decrease of the volumes of sold water consistently manifested itself between 2008 and 2009 and was influenced by the impact of the economic crisis on all the categories of users. In 2009, compared to 2008, the specific water consumption decreased from 190 litres/capita/day to 185 litres/capita/day, which meant a decrease in the total quantity sold in 2009 by 2.5% over the previous year. One must, however, note that the volume of water sold over the course of 2009 was also influenced by the 7,000 new users. In 2010, this decrease was more strongly felt (sold quantities were 5.3% lower than in 2009) and in 2011 the decrease was 4.5% compared to 2010. The decrease in the volume of sold water was maintained in 2012 as it was determined by the impact of the economic crisis on the business/budgets of all the categories of users. The specific water consumption in 2012 compared to 2011 decreased, which resulted in a

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). decrease in the total volume of water sold in 2012 by 3%, compared to 2011. As a matter of fact, this decrease trend is felt at the level of all water and sewerage service operators in Romania, as follows:

 In 2008, the total quantity of water distributed in the country was 1,074,795 thousand m3 and 1,064,858 thousand m3 in 2009, and the difference of 9,937 thousand m3 is a decrease of 0.9% in the volume of water distributed to consumers in 2009 compared to 2008.

 In 2010, the quantity of distributed water was 1,024,239 thousand m3, i.e. 40,619 thousand m3 less than in 2009.

 In 2010, out of the total quantity of drinking water for household use 689,395 thousand m3 were distributed, i.e. 8,314 thousand m3 more than in 200944.

Thus, over the past 10 years a decrease in the total quantity of water distributed in the network may be noticed due mainly to the reduction of the industrial activities and the metering process.

2.3.1 Analysis of the Performance in terms of Internal Processes

The reviewing criteria for assessing performance are analyzed in relation to the three components: economic, social and environmental.

44 www.anrsc.ro: the condition of water supply and sewerage services 2010 112

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

A first path of investigation consisted of diagnosing the financial position by way of structural ratios and the financial balance, a diagnosis which was subordinated to the aim of emphasizing the financial stability, and the financial autonomy and the degree of indebtness of the Company between 2008 and 2011, on the one hand, and the policies adopted by the operator in the financial field.

2.3.1.1 Economic Performance in terms of Internal Processes45

Structural Ratios

Asset structural ratios may be synthetic (fixed asset ratio, current asset ratio) and analytical (tangible asset ratio, financial asset ratio, stock ratio, receivable ratio, cash ratio etc.). These ratios reflect the economic nature of the corporate assets rather than financial issues, and are closely related to the nature of the activities carried out by the operator.

The status of the asset structural ratios is shown in Figure no. 18.

45 In the analysis of the operator’s economic performance the time horizon of 2008 – 2011 was used since, by the date of completion of the study, the annual financial statements for 2012 had not been approved yet. 113

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Figure no. 18 Share of fixed assets and current assets out of the total assets of the operator in 2007 – 2011

The fixed assets ratio reflects the share of sustainable resources controlled by the Company and measures the degree of investment of the capital and illustrates the relative importance of the sustainable assets in the total assets. One may note that within the period under review, the fixed assets ratios record high values of the fixed assets in terms of their share out of the total assets, which shows a consolidation of the infrastructure and significant technical equipment based on which the operator aims at increasing the level of quality of the services and the credibility thereof before creditors (Figure no. 18). By analysing the evolution of the fixed assets ratio, one finds that it meets the optimality condition and is over 60% for the whole period under review.

The evolution of the current assets ratio and its share out of the total assets (Figure no. 19) shows a decrease in 2008 compared to 2007 and in 2010 compared to 2009 of the temporary uses out of the total assets of the 114

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). operator, particularly in terms of the commercial receivables (when the commercial receivables are reduced, the current assets ratio improves). The decrease in the value of the current assets is also justified by the increase in the stock turnover and the turnover speed for customer debit items, given the increase of the volume of fixed assets. One may note that the current assets ratio meets the optimality condition and is below the 40% level considered normal throughout the period under review.

Figure no. 19 Evolution of the operator’s current assets ratios in 2007 – 2011

The structural ratios of fixed assets measure the degree of investment of the capital and represent the share of the asset elements serving the unit at all times. The status and evolution of the structural ratios of fixed assets is shown in Figure no. 20.

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Figure no. 20 Evolution of the operator’s structural ratios of fixed assets in 2007 – 2011

In the case under review, one may notice that the largest share of the total assets on the balance sheet asset side belongs to intangible assets. The ratio of intangible assets reflects the share of intangible assets (patents, licenses, trademarks, goodwill) out of the total assets of the operator. As suggested by the evolution in Figure no. 20, the share of intangible assets exceeds 50%, and one may say that the recorded values are similar to the values of companies in the U.S.

The tangible assets ratio reflects the share of the fixed capitals out of the total assets of Apa Nova Bucharest and its value depends on the specific activity and its technical characteristics. In this context, one notices the low value of the tangible assets and the high level of the risks. A decrease in the tangible assets may be noticed from 16.74% in 2009 to 9.69% in 2008. The specialists say that this ratio represents an organization’s ability to withstand an economic crisis since high capital immobilization entails a 116

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). high risk of failing to turn it into cash. The investment was financed using both own funds and loans.

The financial assets ratio reflects the intensity of the financial connections and relationships the operator establishes with other economic operators as a result of the financial investment policy. The external financial and patrimonial relationships of Apa Nova Bucharest in the period under review are at an acceptable level. Thus, the financial assets ratio has a share of over 1% of the balance sheet total, except in 2007 when the value of this ratio was less than a unit. The status of the structural ratios of current assets is shown in Figure no. 21.

Figure no. 21 Evolution of the structure of the operator’s current assets in 2007 – 2011

The evolution of the structure of current assets – cash, commercial receivables, stocks – reflects a balanced level of the share of the components out of the total current assets throughout the period under

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). review (Figure no. 21). Between 2007 and 2009, one may notice a slight increase of the commercial receivables reflecting customer relationships and influencing the operator’s immediate liquidity. Its high level may create difficulties by generating financial blocking.

In 2009 Apa Nova Bucharest faced the consequences of a Force Majeure event that was first notified to the Grantor back in 2008. The event consisted of the violation by the Autonomous Administration for Thermal Energy Distribution of Bucharest (RADET) of the commitments made in the Agreement to Apa Nova Bucharest, namely the commitment to pay the payable bills issued by Apa Nova Bucharest46. In 2011 the receivables of RADET worth RON 51 M for sewerage services were cancelled (the equivalent of approximately EUR 12 M, charged to RADET between March of 2003 and October of 2006). Although there is a signed agreement between the Parties, the value of these sewerage services was not collected from RADET. The dispute started for recovering these amounts was finally lost by Apa Nova Bucharest on 19 February 2009. The corresponding amount was provisioned back in 2006 and the related expense was considered non-deductible permanent difference. The Company management decided to cancel the debts of RADET after having received an official response from the Ministry of Finance in relation to the tax effect.

46 This event fell in the category of Adverse Force Majeure Events specified by Clause 45.4, letter g), of the Concession Agreement. 118

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In order to reflect the general financial policy adopted by the organization, we proceeded with analyzing the dynamics of the economic and financial indicators reflecting the structural ratios of the liabilities. They allow an assessment of the operator’s financial policy by highlighting certain aspects regarding the financial stability and independence thereof, as well as the degree of indebtness. The main structural ratios of the corporate liabilities under review are as follows:

The financial stability ratio (fsr) is a global financial stability indicator and reflects the share of the sources held by the operator for more than one year out of the total sources for covering the economic means, i.e. the link between the operator’s readily available capital and the total assets thereof ( Figure no. 22).

Figure no. 22 Evolution of the operator’s financial stability ratio in 2007 – 2011

By analyzing the dynamics of this indicator in 2007 – 2011, the following conclusions were reached:

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Between 2009/2008 the condition of inequality fsr1>fsr0 was met, reflecting an increase of the permanent capital out of the total financing sources, expressed as relative values, i.e. the stable sources in relation to the cyclical ones. This trend is justified by: the increase in the amount of non-distributed profit, the size of the reserves, the establishment of provisions, the new medium and long-term loans, the recovery of certain short-term debts.

 Since the inequality fsr1>fsr0 (financial years: 2008/2007, 2010/2009, 2011/2010) is observed, one may notice a decrease of the permanent capital out of the total liabilities, expressed as relative values, i.e. the stable sources in relation to the cyclical sources. This decrease occurred mainly by sharing the profit by way of dividends, by reducing or cancelling provisions, and by repaying medium and long-term loans.

The evolution of the financial stability ratio indicator reflects the general trend whereby Apa Nova Bucharest was concerned with repaying medium and long-term loans, particularly between 2007 and 2011.

The financial autonomy ratio reflects the degree of financing of the asset elements through personal resources. This indicator was broken down into two instalments to give a clearer picture of the situation:

. The global financial autonomy ratio (gfar), which expresses the share of the equity out of the total sources of financing

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of the economic means and has different values depending on the operator’s financial policy and the return. The evolution of this indicator in 2007 – 2011 (Figure no. 23) reflects an increase in the global financial autonomy of Apa Nova Bucharest due to changes in the equity greater than the total resources.

Figure no. 23 Evolution of the operator’s global financial autonomy ratio in 2007 – 2011

. The term financial autonomy ratio (tfar), which expresses the structure of the permanent capitals ensuring long-term financing, and is much more relevant than the previous one. By analyzing the evolution of this ratio, as shown Figure no. 24, one can see that Apa Nova Bucharest has the permanent sources for financing the activity, which can be considered to be very significant, especially in terms of the investment policy.

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Figure no. 24 Evolution of the operator’s term financial autonomy ratio in 2007 – 2011

The total debt to equity ratio (tder) reflects the share of the operator’s long, medium and short-term debts to third parties, regardless of their nature, in the total resources (assets) thereof. Selecting this indicator for analysis aimed at determining the extent to which investment processes developed by the operator were supported by external financial resources and at determining the extent to which the operator’s activity was carried out subject to a high degree of financial autonomy. The evolution of this ratio in 2007 – 2011 (Figure no. 25) indicates its decrease from one year to the next, as an expression of the growth of the financial autonomy at the same time as the decrease of the degree of indebtness.

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Figure no. 25 Evolution of the operator’s total debt to equity ratio in 2007 – 2011

As a general conclusion of the analysis of the overall situation of the operator one may say that for the period under review the financial and economic situation thereof is favourable and improved considerably, mainly due to the steady decrease of its level of indebtedness, which allowed a much more effective support of the investment processes subject to complying with an appropriate balance in terms of the Company’s financial autonomy. This should be interpreted with adequate fine distinctions as the national and international external environment had a considerable influence.

2.3.1.2 The Analysis of the Financial Balance (Financial Position) of Apa Nova Bucharest

The analysis of the financial position (analyzed based on the financial and the operational balance sheet) seeks to highlight the status of financial

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). balance (imbalance) of the operator in terms of allocations, and financing resources, respectively, namely to highlight the relationship between the long and short-term assets and liabilities. The analysis of the financial balance aimed at sizing the undertaken financial risks as an expression of the level of management performance. The analysis of the financial balance focused on the analysis and interpretation of three indicators in relation to the evolution of the equity (Figure no. 26) and the level of the financial balance: the working capital, the working capital requirement and the cash level.

Figure no. 26 Evolution of the operator’s equity in 2007 – 2011

The analysis of the Permanent Working Capital (PWC) reflects the evolution of the financial balance in the long term (Figure no. 27) by comparing the permanent resources with the permanent uses.

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Figure no. 27 Evolution of the operator’s working capital in 2007 – 2011

The analysis of this indicator has allowed making the following assessments:

The Permanent Working Capital increased (PWC1>PWC0) considerably in 2008 – 2009, which may be viewed as a positive thing since an increasingly greater part of the current assets is financed using the permanent capital.

The Permanent Working Capital decreased (PWC0>PWC1) in 2007 – 2008 and 2009 – 2010. Although the value of the working capital decreased, by correlating it with the positive evolution of the equity, one may assess this as an improved financial situation.

The positive values of the PWC indicator in 2007, 2009 and 2010 certify a status of financial balance in the long term. The existence of capital with chargeability of over one year confirms the full funding of the assets from long-term resources (equity and long-term loans) due to their slower

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). rotation. A positive PWC can also be approached as a reserve fund which may be used to finance deficits from cyclical allocations (current assets) and short-term resources to finance (short-term debts). Analyzed from this point of view, the operator’s permanent sources exceed the permanent needs of cash fund allocation, which means that Apa Nova Bucharest has a safety financial margin, through which it can react to unforeseen events. However, an efficient financial management requires the sizes of the PWC not to be excessive seeing as the costs of the procured capital are higher in the long term than in the short term.

The negative value of the PWC recorded in 2008 reflects the operator’s impossibility of enjoying excess financial resources in the long term for covering short-term financing needs, too.

The Permanent Working Capital observes the correlations PWC > 0 and current assets > debts in the short term, except in 2008, which reflects a surplus of permanent sources which can be allocated to the funding of the operator’s operating cycle. The existence of this positive working capital reduces the liquidity risk in the case of disorders in the cycle of receipts and payments.

The analysis of the Working Capital Requirement (WCR) reflects the short- term financial balance as an expression of the ratio between the temporary resources (resources of current capitals) and temporary uses. On analyzing the evolution of this indicator (Figure no. 28), it is clear that the conditions

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WCR<0 and current assets < current liabilities are observed, which suggests a surplus of temporary (cyclical) resources in relation to cyclical assets (temporary needs). The operator thus manages to cover the deficit between short-term assets (excluding cash assets) and short-term liabilities (except cash liabilities) from the Permanent Working Capital. One may assess that the situation is positive seeing as it represents the result of the acceleration of the turnover of stocks and receivables, on the one hand, and the creation of operating debts with acceptable payment deadlines, on the other hand.

Figure no. 28 Evolution of the Working Capital Requirement

The analysis of the Net Cash (NC) level reflects the current financial balance (Figure no. 29) and is determined by comparing the cash assets (cash) and the cash liabilities (temporary bank loans).

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Figure no. 29 Evolution of the operator’s net cash in 2007 – 2011

The positive values of the net cash recorded in 2007, 2009 and 2010 reveal a state of financial balance within the operator. If the existence of the negative working capital requirement is due to the improvement of the management of current assets and current debts, then, within the operator, there are additional resources that have a positive effect on the financial balance, which is reflected by the compliance with the correlations NC > 0, WCR < 0 and PWC > 0, for each of the years under review, with the exception of 2008.

2.3.1.3 The Analysis of the Liquidity and Solvency of Apa Nova Bucharest

The second objective of the financial position analysis methodology aims at investigating the financial creditworthiness through liquidity and solvency indicators, in order to reflect the operator’s ability to cover long, medium and short-term obligations using its current assets. In order to characterize

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). liquidity, defined as the property of patrimonial items to turn into cash, short-term liabilities are compared with the available resources for the same period. Thus, in terms of liquidity the overall liquidity ratio and the reduced liquidity ratio were analyzed.

The overall liquidity ratio expresses the operator’s ability to meet the short-term obligations thereof using operating assets. The overall liquidity situation is considered favourable if the values of this indicator are in the range of 1.2 and 1.8, according to some authors or 2 and 2.2 according to other ones. The evolution of the overall liquidity ratio in 2007 – 2011 (Figure no. 30) reveals that the values of this indicator generally exceeded the lower limit of 1.2, except in 2008 when the value was below one unit. This trend indicates an overall positive situation because, at least in the short term, due to the current assets higher than current obligations, it has the ability to pay off the exigible debts. The difference between the value of the current assets and short-tem debts may counterbalance the appearance of certain unforeseen events in the movement of current assets.

The reduced liquidity ratio or the “acid test” according to the North- American theory reflects the operator’s ability to meet the short-term obligations thereof from those current assets which can be turned into cash relatively fast, thus eliminating the influence of stock liquidity. In analyzing the evolution of this indicator (Figure no. 30) the optimal value was considered to be 1 and the values included in the range [0.6 ÷ 1] reflect 129

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). better management of the receivables and obligations in the short term, and better ability to pay the latter. The optimal level is exceeded due to taking over the debts.

The immediate liquidity ratio is also known in economic theory under the name of immediate solvency ratio. Since current debts are not completely characterized by an immediate maturity, one may use the level of 0.2 as a reference point. The analyzed evolution shows elevated values of this indicator (above 0.2) indicating a high degree of solvency, but this may also be the consequence of a less efficient use of available resources (Figure no. 30).

Figure no. 30 Evolution of the operator’s liquidity ratio in 2007 – 2011

In terms of the solvency, defined as the operator’s ability to meet the payment obligations thereof, the patrimonial solvency and term patrimonial solvency have been addressed.

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The patrimonial solvency ratio (Figure no. 31) reflects the extent to which the share capital ensures the coverage of medium and long-term obligations. The trend of steady improvement of this indicator reflects the operator’s increasing payment ability.

The overall solvency ratio (term) quantifies the risk that the operator might be unable to repay the debts, even if all the available assets were used for this purpose. The evolution of this ratio in the period under review reflects an improvement in the operator’s financial situation (Figure no. 31) because the higher the ratio value is higher than 1 the better the operator’s overall financial situation gets.

Figure no. 31 Evolution of the operator’s patrimonial solvency in 2007 – 2011

As a general assessment, one may notice a trend of improvement of the financial balance during the period under review, materialised in both the major increase of the equity and the compliance with the optimal correlations between the working capital, the working capital requirement

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). and the cash. This positive trend is reflected by a low liquidity risk, a high turnover of the stocks and receivables and high solvency, which caused the acceleration of the investment processes with impact on the increase in the service quality.

2.3.1.4 The Analysis of the Investment Policy

The positive evolution of the overall economic and financial status is reflected mainly by the operator’s investment policy. Having reviewed the annual financial statements for 2007 – 2011, a decrease in the value of the investments was noticed, due to the completion, on the one hand, in 2007 of an extensive programme of investments in both the public and the private domain (computer technology) which started in 2001 and, on the other hand, the emergence of the economic and financial crisis in 2008 (Figure no. 32).

Figure no. 32 Evolution of the value of the operator’s investment in 2007 – 2011

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

In 2008 – 2010 a constant level of the values of intangible fixed assets and a decrease of the value of tangible fixed assets in the balance sheet were noticed, as shown in Figure no. 33.

Figure no. 33 Evolution of the value of the operator’s fixed assets in 2007 – 2011 (values expressed in Euros)

The Description of the Investment Process for 2009 – 2012

In 2009 the investment policy was based on three major requirements:

Harmonizing the investment with the street rehabilitation plan.

Complying with the protocols concluded between Apa Nova Bucharest and the Bucharest Mayoralty.

The consequences of the RADET Force Majeure Event.

Based on the requirements above, the investment policy in 2009 covered the main fields of business (Table no. 3).

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Table no. 3 Fields of investment

2009 A1. Drinking water production A1.1 For water • The rehabilitation of the filters (Roşu Plant); treatment plants • The rehabilitation of the filter washing station; • The rehabilitation of the 10kV power stations at the Roşu Plant; • The completion of an autonomous power supply facility (Roşu Plant); • The start of the rehabilitation of the Brezoaiele- Arcuda open channel by performing the Feasibility Study; • The completion of changes to the chlorine dosing facilities at the Roşu and Crivina Plants; • The increase of the degree of safety in operation and damage intervention on the Arcuda-North aqeduct; • The increase of the degree of safety in operation and damage intervention on the Arcuda-North aqueduct; • The completion of the project of upgrading of the filter washing station at Roşu ; the new pumping sets have modern drives, two of which have variable speed and the operation is automatic; the repair of valve no. 1 at the Crivina dam; • The obtaining of the official approval from the National Administration Apele Române for starting the installation of the pollution allert station upstream of the Ogrezeni dam. A1.2 For water • The securing of the access to the drinking water transport and tanks; pumping • The marking of the sanitary protection areas of drinking water aqueducts; 134

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• The rehabilitation of the sluice on the Roşu-North aqueduct (Griviţa pumping station); • The completion of the project of VPN Orange solution remote management for all the pumping stations; • The increase of the operational safety during hot weather by completing the installation of ventilation and air conditioning systems for the variable speed converters at the Drumul Taberei and Precizia stations; • The rehabilitation of the 20 KV station at Grozăveşti and the installation of an adequate AAR system; • The rehabilitation of the variable speed converter in Drumul Taberei and the launch of the installation of a variable speed unit at the same station for increasing the level of safety and elasticity in operation. A1.3 For other • The performance of construction and hydro- categories of insulation rehabilitation works; investment from the • The preparation of a study for finding a solution field of drinking for the project of rehabilitation of the Brezoaiele- water production Arcuda channel; • The completion of a connection of the road system in the Sabar siphon area. A2. Drinking water, • The completion of new structures (the wastewater wastewater and pumping stations at Dobroieşti, Sighet, Fundeni), industrial water for shaping the sewerage system on the streets of pumping stations Băneasa, Ancuţa, Atleţilor, Saltului, Minerilor, Ziduri între Vii etc. • The start of the project for the replacement of a fixed pumping set with a variable speed pumping set at the Drumul Taberei pumping station. • The upgrade of the wastewater pumping stations 135

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

(Dunărea, Obor and Pantelimon 2). • The start of the actions for the replacement of the power measurement system for approx. 30 SRPs. • The completion of the upgrade works on the industrial water pumping station at Pantelimon. A3. The rehabilitation • 35 streets (Viitorului, Tunari, Metalurgiei Blvd., of the drinking water Rotundă, Calea Moşilor, Mărăşeşti Blvd., Bachus, network Şos. Nordului, Pieptănari Blvd., Regiei Blvd.), and the value of the investment for 2009 in this field was approx. 11.8 million. A4. The rehabilitation • Viitorului, Cornelia, Spartachiadei, Tunari, of the sewerage Mărăşeşti Blvd., Băniei, Mavrogheni, Competiţiei, network on several Intrarea Rocilor, Aleea Ţibles, Eşarfei, Colţei, streets in Bucharest Timişoara Blvd., Doctor Brânză etc.) with a total value of the investment for 2009 of approx. RON 4 million. A5. The metering • The works for achieving the conformity of programme connections (replacement of measurement loops) for 437 thermal subs-stations, worth RON 0.805 million. • Works for resizing, replacing and/or installing drinking water meters worth RON 4.6 million, the equivalent of over 26,700 meters. A6. Achieving the • The completion and acceptance of 6.2 Km of conformity of network, which was completed in 2010 due to the telescopic pipe late issue of the building permits (in the final networks quarter of 2009). The value of the investment for this was over RON 5.2 million A7. Investment in the • Studies and other works for the private domain private domain and the procurement of furniture, air conditioning systems, etc. worth over RON 0.5 million; • Extensions and rehabilitations of buildings in the private domain, worth over RON 1.7 million; • The procurement of machinery worth over RON 136

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

3.8 million; • The procurement of vans and trailers, worth over RON 0.8 million; • The procurement of computer equipment and projects, worth over RON 2.2 million; • The procurement of occupational safety equipment, water loss detection equipment, sewerage network cleaning equipment etc., worth over RON 2.1 million. A8. Achieving the • 100 connection separations were made at design conformity of shared level, of which 20 were performed. connections in Bucharest

The following major requirements were at the basis of the substantiation of the investment policy for 2010, worth approximately RON 74 million:

The harmonization with the street rehabilitation plan for Bucharest;

The compliance with the protocols concluded with the local government (Bucharest Mayoralty, and the district mayoralties);

The stringent needs of the water supply and sewerage system.

The representative fields to which the investment for 2010 was directed are shown in Table no. 4.

Table no. 4 Fields of investment 2010 A1. Drinking water • The automation of the pumping set and the production rehabilitation of the frequency converter modules 137

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

– Drumul Taberei Pumping Station; • The replacement of the pumping set at the Drumul Taberei Pumping Station (PS) with a variable speed pumping set; • The alteration of the chlorine dosing plant at the Roşu and Crivina Plants; • The compensation of the power factors – Roşu Plant; • The rehabilitation of the sluice on the aqueduct at the Griviţa Pumping Station – North Pumping Station; • The covering of the double box channel at Crivina Roşu in the areas for crossing under Sabar and Ciorogârla; • The Ethernet communication support remote management – North Pumping Station; • The works for preventing the intrusion in the polymer/soda station (Roşu Plant) and coagulant/acid station (Arcuda Plant); • The securing of the access to the drinking water tanks; • The continuation of the complex works for the “rehabilitation of the inlet channel at Brezoaiele – Arcuda” and the ”management of the sludge coming from the Arcuda sedimentation tanks” – works in the tendering phase with major impact on environmental protection; • The performance of other construction and hydroinsulation rehabilitation works. A2. Drinking water, • The completion of the works in this field which wastewater and started in 2009; industrial water • Works for the upgrade of certain existing pumping stations wastewater pumping stations (Dunărea, Obor, 138

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Pantelimon 2); • The supplementing of the wastewater collection and pumping system in sector 2 by building new pumping stations; • The completion and acceptance of three wastewater pumping stations: Sighet, Fundeni and Dobroieşti; • The completion of the coverage with a sewerage network of two major thoroughfares in Bucharest, Fundeni and Dobroieşti roads, by completing two stormwater pre-treatment plants, in Fundeni and Dobroieşti; • The continuation of the replaement of the power measurement systems for the boosting stations; • The start of the actions for replacing certain pumping sets or retrofitting existing rotors (Grozăveşti Pumping Station) for the North and South Pumping Stations in view of reducing specific consumption reported by each pumping station with implications for the growth of the network efficiency. A3. The rehabilitation • On approximately 30 streets in Bucharest of the drinking water (Gutemberg, Calea Moşilor, Renaşterii, Anghel network Saligny, Cremeniţa, Ţesătoarelor, Cavafii Vechi, Viitorului, Anul 1864, Câmpul cu Narcise, Padeşu, Murguţa, Cernişoara etc.), with a resulting rehabilited drinking water network of approximately 16.5 km with a value of the investment of RON 9.4 million. For achieving this, operating areas with a high risk of damages correlated with areas of rehabilitation of the road system were considered. A4. The rehabilitation • In the areas of Competiţiei, Băniei, Aurel Botea, of the sewerage Lacul Ursului, Cavafii Vechi, Mărăşeşti, Grigore network on several Marin, Vânători, Viilor – Constantin Istrati etc.,

139

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). streets in Bucharest with a resulting sewerage system rehabilitated on a length of 2.5 km, with a value of the investment of approximately RON 3.9 million. In 2010, in the same field, a series of large scale works were also performed on the chamber of intersection of the Ao sewer with the Regina Maria sewer. A5. The metering The investment in this field for 2010 totalled RON 3.5 programme million and mainly covered: • The resizing of the measurement loops depending on the consumptions; • The installation of 19,000 meters in network extension areas and beyond. A6. Achieving the • On approximately 12.7 km of network with a value conformity of of the investment of RON 11.9 million. For telescopic pipe achieving this, the following projects were networks completed for achieving the conformity of the telescopic pipe networks: Cosmonauţilor Water Booster Station (WBS), Olteniţa North WBS, Perla WBS, Vergului WBS, Dimitrov A1 – B1 WBS, Judeţului WBS, Almo WBS, PT4 Pantelimon WBS, PT5 Pantelimon WBS, Baba Novac U1 WBS, Giurgiului 12 WBS, Ferentari School WBS, etc. A7. Investment in the • The procurement of computer equipment and private domain projects – worth RON 9.3 million; • The extension and upgrade of buildings in the private domain – worth approximately RON 3,7 million; • The procurement of equipment (occupational safety, laboratory equipment, water loss detection and sewerage network cleaning equipment etc.) – worth RON 1,8 million; • The procurement of vehicles (vans and trailers) – worth approximately RON 2 million; • The procurement of machinery – worth approximately RON 0,9 million. 140

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

A8. Achieving the • In 2010 the programme which started in 2009 for conformity of shared this field continued and 139 separations were connections in completed, worth a total of approximately RON Bucharest 3.2 million. One may state that, in 2010, there were 174 shared connections for which conformity was achieved, out of a total of 229. A9. Extensions of the • The value of the investment for this field in 2010 water and sewerage was approximately RON 6.7 million. networks

The same as during the previous years, the investment plan for 2011 (Table no. 5) was based on a series of premises related to:

The harmonization with the street rehabilitation plan for Bucharest;

The programmes and protocols concluded with the local government (Bucharest Mayoralty, and the district mayoralties);

The Levels of Service.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Rehabilitation works on the Crivina dam Track of the sedimentation tank

Source: ANB Contractual Report. 12th contract year\ 16 January 2013

Table no. 5 Fields of investment for 2011 2011 A1. Drinking water • The start of the rehabilitation works on the quick production screens at the Roşu Plant; • The update of certain pumping sets at the Grozăveşti Pumping Station; • The completion of the complex works for the ”Rehabilitation of the Brezoialele - Arcuda inlet channel”; • The commissioning of certain pumping sets at the South and North PS. A2. Drinking water, • The completion of the work for building the wastewater and drinking water pumping station within the industrial water Dragomireşti hydrotechnical node, to ensure the pumping stations water supply of the Portland Industrial One, Polo Occidentale, Quadrant Amroq Beverages industrial platform – commune of Dragomireşti 142

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Vale; • The completion of two household wastewater pumping stations on the Bucharest – Măgurele Road which will serve both the buildings on this road and those of the 32 adjacent streets; • The building of the wastewater pumping stations in Răsadniţei, Montana, Chefalului, Zăgazului, Liniei streets. A3. The rehabilitation • Downtown, in the Historical Centre by the full of the drinking water replacement of the networks associated with the network streets of Stavropoleus, Poştei, Nicolae Tonitza, Franceză, Şepcari, Soarelui, Pasajul Francez. In order to perform this investment, Apa Nova Bucharest rehabilitated approximately 20 km of drinking water network in operating areas with a high risk of damages correlated with areas of road system rehabilitation. A4. The rehabilitation • On a length of approximately 5 km. In this sense, of the sewerage the investment performed in 2011 aimed at: network on several • Rehabilitating the sewerage network associated streets in Bucharest with the streets in the Historical Centre, namely Nicolae Tonitza, Şepcari, Şelari, Soarelui, Stavropoleos, Poştei, Pasajul Francez; • Building new paths of access to the BO sewer, on Mihail Kogălniceanu Blvd., to allow the cleaning of the sewer in this area. A5. The metering • In order to continue the metering programme programme which started in the previous years, in 2011, works were performed for the resizing/replacement/installation of approximately 23,500 meters. A6. Achieving the • In 2011, the works for achieving the conformity of conformity of the telescopic pipe networks were completed and telescopic pipe the total built water network length was networks approximately 67 km. 143

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

A7. Investment in the • The investment performed to that effect totalling private domain approximately RON 4 million in 2011 aimed at: • Improving the working conditions. • Assessing and managing the risks of occupational accidents and illnesses. • Performing the ongoing staff training in Occupational Health and Safety. • Upgrading the protective equipment and the equipment for the monitoring of the maintenance obligations at all times; • Upgrading the sites of Apa Nova Bucharest. A8. Extensions of the • In order to perform this investment, in 2011, 20.5 water and sewerage km of public water network (12.6 km taken over networks and 7.9 km commissioned) and 19.4 km of public sewerage network (15.2 km taken over and 4.2 km commissioned) were built. A9. The replacement • In 2011, the project of replacement of the lead of lead connections connections officially started. To that effect, approximately 5,000 connections on approximately 40 streets were replaced. A10. The upgrade of • It was taken under concession by Apa Nova the wastewater Bucharest on 17 May 2011 after having signed the collection Cassette Addendum no. 7 to the Concession Agreement for under the Dâmboviţa maintaining and upgrading the Cassette by way of River a major investment plan worth EUR 39,270,000 and lasting three years. The paths of the investment in this field are reflected by: o The completion of the fitting out works for the discharge of the Cassette into the Dâmboviţa River and the Glina Treatment Plant; o The completion of the works aiming at unclogging the Cassette and eliminating the major bottlenecks;

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o The implementation by Apa Nova Bucharest of a uniform development strategy by an efficient management of the wastewater collection and transport system. A11. The quality of • Monitoring the water quality for each treatment the produced drinking stage with the help of online analysers tracking water each stage in real time; • Upgrading the Arcuda laboratory; • Placing the Pollution Alert Station at Km 36 A1, the town of Bolintin - Vale, Ogrezeni Dam, Giurgiu County; • Upgrading the Crivina microbiology laboratory; • The participation of the process laboratories of Roşu, Arcuda, Crivina and the Pilot Laboratory within the Production Department in the intercomparison with the Environnement Test Centre alongside 49 laboratories from other countries where the Veolia Group operates, obtainining very good results; • Performing over 18,000 tests/month on the drinking water (treatment plants and pumping stations); • Registering the laboratories for monitoring the drinking water quality with the Ministry of Health, for control monitoring and sampling; • Procuring new portable apparatus for tracking the quality parameters monitored by online analysers. 12. Glina WWTP The first stage of financing of the Wastewater Treatment Plant at Glina involved grants from ISPA (Instrument for Structural Policies for Pre-Accession) given by the European Commission, loans taken from the European Bank for Reconstruction and Development by the Bucharest Mayoralty and guaranteed by the Romanian Government. 145

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Once the operation of the Plant was actually taken over on the 11th of July, Apa Nova Bucharest saw to: . Providing staff for the Plant operation; . Providing the facilities for the safe operation and maintenance of the Plant; . The practical training of the operating and maintenance staff by a team of experts from Veolia Viz Budapest and Aquiris Brussels; . The technical assistance of the Plant operation by specialists from VWST Romania; . The specific training of the operating staff in terms of work safety, emergency situations, hygiene, working in confined spaces, working at heights, psychological testing, etc.; . Drafting and implementing the pre-elimination operating procedures; . Conducting its own tests for checking the Plant treatment capacity.

For 2012 the investment plan was developed so as to comply with the Levels of Service, the programmes and protocols concluded with the local government (Bucharest Mayoralty and the district mayoralties), and harmonize with the street rehabilitation plan for Bucharest. The value of the investment works performed in the 12th year was approximately RON 227 million (Table no. 6).

Table no. 6 Fields of investment for 2012

A1. Drinking water The maintenance of the distribution network was production performed by carrying out the following actions:

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• Eliminating any detected anomalies by replacing the defective or oversized components (the replacement of valves, fire hydrants, the shutdown of the links between the high and the low pressure networks, etc.); • Implementing a thorough programme of review of the network using special equipment (CORRELUX, HYDROLUX and LOGGERI), in view of detecting the hidden losses (approximately 3,650 “checked” km); • Optimizing the network operation by detecting and isolating the unnecessary sections; • Manually/automatically washing the network to avoid the deterioration of the drinking water quality parameters as a result of the increase of the transit time, caused by the reduced water consumption; • Monitoring the activity on the distribution network, by using an online computer software and by updating the ARCGIS application at all times, thus ensuring the necessary information support for learning the updated technical condition of the network in order to establish and implement the actions required to eliminate/avoid failures; • Providing the necessary material resources by purchasing efficient equipment and materials in order to perform quality maintenance works. A2. Drinking water, The upgrade works covered stations located as wastewater and follows: Madrigalului, Chefalului, Liniei, the Bucharest industrial water – Măgurele area, Dragomireşti HN, Răducanu Cristea, pumping stations the Drum la Roşu area. A3. The rehabilitation The operating areas with a high risk of damages, of the drinking water correlated with road system rehabilitation areas were network considered. Thus, the drinking water networks from all 147

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

the administrative districts of Bucharest were rehabilitated, on a length of 24.2 km, of which 17.7 km were taken over. The countless rehabilitated streets/areas include: Ilie Pintilie, Avrig, Herţa, Socului area, Berindei area, Barajul Cucuteni, Barajul Sadului, Văcăreşti, Zlătunoaia, Mişcă Petre, Ilie Mihail, Ghirlandei, and Cernişoara. A4. The rehabilitation In view of a steady improvement of the wastewater of the sewerage collection, transport and disposal, ANB took the network on several following steps: streets in Bucharest • Providing the necessary material resources for performing quality maintenance works; • Identifying and replacing sewerage networks with a high degree of wear; • Monitoring the activity carried out on the wastewater collection, transport and disposal network by using an online computer software and by updating the ARCGIS application at all times, thus ensuring the necessary information support for learning the updated technical condition of the network in order to establish and implement the necessary actions for eliminating/avoiding failures; • Identifying the polluting economic operators by regularly checking the installations for the discharge into the public sewerage and the quality of the discharged wastewater; • Verifying the network by using video investigation media to identify the degree of clogging and the obstacles that hinder the optimal use of the network (sewerage sections affected by the roots of trees, the presence of foreign bodies, inadequate connections etc). • Continuing the monitoring of the depression areas/areas with water accumulations during rain. In view of improving the situation, a series of 148

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

works of building additional outlets were performed according to the needs and the possibilities of connection to the site of the existing network. Such works were performed on streets such as: Splaiul Dudescu, Mihai Bravu Road, Fundeni Road, Avrig St., Maica Domnului St. x Alexandru cel Bun St. etc. The sewerage network was rehabilitated in 2012 on a length of 3 km, of which 2.6 km were taken over. In preparing the rehabilitation programme, the following issues were considered: the number of failures occurring on the same network section within a set time, network sections with a high degree of wear and clogging, and channels affected by tree roots. Of the rehabilitated sewerage networks we will list the networks on the following streets: Crinului, Matei Millo, Avrig, Măgura Vulturului, Decebal, Despot Vodă, Mitropolit Nifon, Gramont, Dragalina, Pretorienilor. A5. The metering The metering programme aimed, on the one hand, at programme resizing the measurement loops depending on the consumptions and, on the other hand, at installing meters in the service extension areas. Resizing/replacement/installation works were performed for approximately 27,000 meters. A6. Investment in the The investment focused mainly on improving the image private domain of ANB, on the efficiency and work safety, on improving the computer systems. The capacity of monitoring and functional analysis of the Company remote management system (SCADA) was extended from 12,600 parameters to almost 16,400 parameters. Thus, data and information are sent and recorded on the flow processes starting with the collection of the water from the Argeş and Damboviţa Rivers up to the discharge of the stormwater downstream of Bucharest into the Damboviţa River or the entrance of the wastewater 149

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

into the Glina. WWTP. A7. Extensions of the 25.1 km of public water network (of which 16.47 km water and sewerage were taken over) and 20.8 km of public sewerage networks network were performed (of which 12.6 were taken over). As special water/sewerage extension works for this year, one may list the following: • Undercrossing the aqueducts on Ghidigeni- Dantelei Street and extending the network all along Dantelei Street with 1,000 mm ND concrete sewerage by adopting the pipe jacking technology, thereby allowing the access to the sewerage system of all the streets perpendicular to Dantelei Street (36 streets); • Completing the public water and household sewerage network extension works on the streets in the Bucharest – Măgurele area, in the Drumul la Roşu area and in Garoafei Street; • Performing 70% of the public water supply and household sewerage network in the Petricani area. • Starting the works for supplementing the water supply and sewerage network in Alexandriei Road. In terms of percentages, the length of the network rehabilitated/expanded in 2012 is 20% higher than in 2011. A8. The replacement In 2012 the project of replacement of the lead of lead connections connections continued and the works were on schedule. Up to the completion of the project, there are still approximately 10,000 connections to replace. A9. The upgrade of Major and extensive works were performed on the the wastewater collection Cassette Wastewater Cassette: under the Dâmboviţa River 150

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• The removal of 23 of the 25 identified major bottlenecks along the Cassette; • The clearing in the area of Chambers 1 and 2 for the connection of the Cassette to the Glina WWTP; • The clearing of the link of 6 major sewers with CAU; • The connection of the Cassette with the Dâmboviţa River; • The installation of flow meters on all the sewers connected to the Cassette; • The installation of flow meters, including Cassette water quality measurement systems; • SCADA works for the integrated control of the Cassette - sewers; • The connection between the Cassette and the stormwater tanks; • The performance of a new path of access to the Cassette (in the Coşbuc area); • The rehabilitation of the access to the Cassette in the Unirii area; • The rehabilitation of the chamber of connection of the B6 sewer to the Cassette; • The hydraulic model of the sewerage system (sewerage network and Cassette), a model which enables checking the solutions specified for improving the operation of the system both during dry weather, and especially during special storm events. Likewise, works or project such as the following were started and are underway: • The project of installation of piesometers for monitoring the groundwater level, a project which

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was implemented in collaboration with the Technical University of Civil Engineering of Bucharest (18 piesometers out of 50 were implemented); • The equipping of the open Cassette channel; • The rehabilitation of the fence adjacent to the Dâmboviţa River, including the green space between it and the bank of the Dâmboviţa River (with the related irrigation system); • The dredging of the river bed of the Dâmboviţa River in the area of the Glina WWTP. A10. The quality of • Monitoring the water quality on each treatment the produced drinking stage using online analysers tracking the physical water and chemical parameters in real time: temperature, pH, conductivity, turbidity and free chlorine; • Performing over 15,000 monthly tests for the produced water; • Recording the laboratories at Roşu, Arcuda and Crivina for a period of 2 years in the Register of laboratories for monitoring the drinking water quality at the Ministry of Health for control monitoring and sampling; • The participation of the process laboratories in the intercomparison of 2012 with the Environnement Test Centre; • Purchasing new measurement and control apparatus for tracking the quality parameters namely: - As part of the laboratory at the Roşu Plant, the following were purchased: a laboratory pH meter, a laboratory oxygen meter, a laboratory UV-VIS spectrophotometer, an analytical balance, a deionizer and an autoclave;

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- As part of the laboratory at the Crivina Plant, the following were purchased: a laboratory pH meter, a laboratory oxygen meter, a laboratory UV-VIS spectrophotometer, a magnetic stirrer, a deionizer and an autoclave; - As part of the laboratory at the Arcuda Plant, the following were purchased: a portable pH meter, a portable turbid meter, a portable colorimeter for determining the free and total chlorine, a portable conduct meter and a deionizer; - As part of the laboratory at the Pilot Station the following were purchased: a deionizer, an analytical balance and a rotary evaporator • Purchasing new portable devices for tracking the quality parameters monitored by the on-line analyzers; • Mounting a camera obscure at the biology laboratory within the laboratory at Roşu for reading the samples of Cryptosporidium & Giardia under fluorescent light. A11. Glina WWTP After the end of the warranty period for the Glina WWTP, a series of non-conformities were still to be remedied, which is why ANB launched a comprehensive investment program for reaching the conformity for Phase I, targeting: • The rehabilitation of the raw water pumps; • The supplementing of the equipment in the mechanical stage; • The supplementing of the apparatus in the Plant; • The provision of a primary sludge fibber separation station; • The compliance with the desulphurization station safety standards; 153

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

• Road construction and rehabilitation; • The rehabilitation of the perimeter enclosure; • The securing of the access and the construction of guard towers; • The creation of green spaces.

Cassette discharge into the Dâmboviţa River

Source: ANB Contractual Report. 12th contractual year\ 16 January 2013

In Table no. 7 we present a summary of the investment implemented by Apa Nova Bucharest in 2009 – 2012 (thousand RON) to prove the extent and size of the investment policy of Apa Nova Bucharest.

Table no. 7 Summary of the investment implemented by Apa Nova Bucharest in 2009 – 201247 (thousand RON)

Year of the investment Thousand RON 2009 2010 2011 2012 I – The field under concession 49,473 56.104 206,246 I-1 Replacement/rehabilitation 35,050 30.151 In 2011 the 34,686

47 Annual reports of Apa Nova Bucharest for 2010 – 2012 154

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). projects investment Construction rehabilitation 570 349 totalled EUR 2,238 Renewal/rehabilitation in the field of 987 248 30.7 million drinking water production including (approx. Crivina RON 137 Renewal/rehabilitation in the field of 2,250 2.308 million). 791 water pumping Drinking water network 11,809 9,426 The value of 11,639 replacement/rehabilitation the Valve replacement 1,968 4,180 investment is distributed 3,771 Sewerage network 4,014 3,928 among the 3,429 replacement/rehabilitation investment Meter replacement/resizing 5,400 3,529 in the public 5,653 Other replacement/rehabilitation 8,052 6,183 domain 7,165 works including drinking water and worth EUR sewerage connections 26 million I-2 Extension projects 9,345 10,745 and the 34,182 Construction extension 129 27 investment 314 in the Extension in the field of drinking 1,346 3,993 1,229 private water including Crivina domain Extension of the drinking water and 7,870 6,725 32,639 worth 4.7 sewerage networks million. I-3 Achieving the conformity of 5,238 15,108 telescopic pipe networks and the In 2011 the separation of the shared financing of connections the

investment I-4 Investment in environmental 110 100 21,425 was ensured protection using only I-5 Investment in the sewerage 115,953 the funds of network Apa Nova Glina Bucharest 25,899 The Cassette 90,054 II – Private domain (including 11,298 17,747 20,899 construction rehabilitation/extension) Total 61,041 73,851 ≈137 .000 27.145 155

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2.3.1.5 The Analysis of the Return

In terms of the quantity, the operator’s economic return was analysed by means of the operator’s ability to attract income and generate economic results. In this context, the most relevant reviewed indicators are the turnover (Figure no. 34) and the net profit/loss of each year (Figure no. 35).

Figure no. 34 Evolution of the turnover

Figure no. 35 Evolution of the net profit/loss

156

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

On analysing the evolution of these indicators, one finds a considerable increase they showed starting from 2004 proving the ability of Apa Nova Bucharest to generate its own resources required for both the proposed investment, and for the payment of the dividends.

As regards the quality assessment of the economic performances, it was conducted by means of four rates of return, the evolutions of which are detailed below. a. The economic rate of return (Figure no. 36) expresses the total asset performance, without taking into consideration the method of procuring the capital – equity or capital borrowed/allocated to establish the asset. Thus, the indicator expresses the economic performance of the enterprise, regardless of the method of funding and the tax system, with a special significance for investors. Since it reflects the operated result obtained for RON 100 total assets, this indicator follows a positive trend due to a steady decline in the volumes of sold water due to the general trend of reducing the consumption of the population. The positive trend is also explained by the implementation of the tariff adjustment mechanisms, in addition to the adjustments dependent on the inflation.

157

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 36 Evolution of the economic rate of return

Figure no. 37 reflects the factorial representation of the economic rate of return based on the fact that it represents the product between the margin rate and the operating asset turnover. The current asset turnover reflects the operator's ability to use the economic resources thereof as part of the core business thereof. The upward trend of this rate during the period under review shows an increased return of the assets.

Figure no. 37 Factorial analysis of the economic rate of return

158

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). b. The financial rate of return measures the economic performance and the extent to which the equity brings profit, as well as the convenience of remaining on the market. This indicator reflects the satisfactory remuneration of the owners by way of dividends and equity growth, and is also a means of stimulating the participation in the increase of the share capital. On analysing the evolution of the financial rate of return (Figure no. 38) one notices that its values are higher than those of the interest rate, which proves the ability of the Company’s capital to produce profit.

Figure no. 38 Evolution of the financial rate of return c. The asset rate of return reflects the ratio between the net profit and the total value of the assets, and measures the degree of return of the entire invested capital and thus the investors’ interests. A significant improvement of this indicator may be noticed (Figure no. 39) during the period under review, which reflects higher return on the capital invested in the Company. 159

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 39 Evolution of the asset rate of return

2.3.2 Operational Costs

The quality of the delivered services and the maintenance of the water supply and sewerage system in good technical order largely depends on the level of the operator’s operational costs. This level of the costs directly affects the financial performance thereof and, therefore, the resources available for the investment. In order to minimize the operation costs of a water supply and sewerage system, the correct management of current and capital expenses, assets and debts is a key condition that is just as important as the reducing and prevention of the water losses in the system. The recovery of the related costs by way of the tariff ensures the resources needed for the system operation and maintenance and for covering the debt service. Generally speaking, in the sector of water supply and sewerage services the main objective is to increase the degree of expansion and service coverage and, in this respect, as a result, there is a shift of the investment towards the creation and development of the 160

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). system to the detriment of maintaining its operation and routine maintenance at an acceptable level. Especially against the background of the financial crisis, and the budgets of these activities are the first to be limited.

In order to be sustainable, an operator must be financially viable. Ever since the first years of the concession Apa Nova Bucharest has proved that the efficient and effective management of the resources it controls could be the premise to ensuring financial viability. The coverage of the costs of the services provided by the tariff, while maintaining it at a bearable level for the consumers, was the result of the implementation of an efficient and effective management system. Since 2002, the average of the combined tariff for water and sewerage has exceeded the average operation costs. In Figure no. 40 one may notice that, for all the four years considered for the review (2008 – 2011), the turnover exceeded the value of the operating expenses.

161

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 40 Evolution of the turnover compared to the operating expenses (Euros) 2008 – 2011

Source: Annual reports of Apa Nova Bucharest 2008 – 2011

This allowed the surplus created by Apa Nova Bucharest to support a complex investment process48. The assessment of the financial sustainability can also be achieved based on the rate of coverage of the operating expenses, by assessing the extent to which the income covers the costs related to the current operation activities.

Figure no. 41 Evolution of the turnover indicator for 1 Euro operating expenses 2008 – 2011

In 2008 – 2012 Apa Nova Bucharest achieved a satisfactory level of income enabling it to cover the operating and maintenance costs, and to implement the investment programmes designed primarily for reaching

48 ”Water in Bucharest - A Utility’s Efficiency Gains under a Concession”, NOTE NUMBER 326, FINANCIAL AND PRIVATE SECTOR DEVELOPMENT VICEPRESIDENCY published by THE WORLD BANK GROUP 162

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). the Levels of Service, as obligations undertaken in the Concession Agreement (Figure no. 41).

The IBNET analyses for 2000 – 2008 reveal that worldwide the level of this indicator shows that the income obtained by the operators of the water supply and sewerage services barely covers the operating and maintenance costs, weighing on the possibility of such operators to create the resources required for the expansion and upgrade investment processes. It was found that the share of operators who cannot cover the operating and maintenance costs from the income increased from 35% in 2000 to 43% in 2008, a phenomenon which was felt especially at the time of the fuel crisis49. It is worth mentioning here that in 2008, worldwide, there was an unprecedented global crisis, characterized by the triangular relationship between water, food and fuel: three fundamental variables that together affect human survival means50 (Figure no. 42 shows the evolution in dollars of the crude oil price between 1996 and 2008).

49 IBNET: The IBNET Water Supply and Sanitation Performance Blue Book 2011, p. 23 50 Chossudovsky, M, Global Research, June 05, 2008: The Global Crisis: Food, Water and Fuel. Three Fundamental Necessities of Life in Jeopardy, http://www.globalresearch.ca/

163

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 42 Evolution of the crude oil prices

Source: NYMEX, quoted by Chossudovsky (2008) http://www.globalresearch.ca/

The high cost of gasoline at retail level results in the disappearance of local savings, the increase of the industrial concentration and a massive centralization of economic power in the hands of a few global corporations. This increase in fuel costs inevitably causes a rebound on the urban transport system, the intercontinental maritime transport, the airlines, the tourist and leisure industry as well as all the categories of public services. At the same time, the water price which is crucial element in all life support processes (farming and industrial production, social infrastructure, public sanitation and household consumption) increased suddenly due to a global trend of privatization of the water resources.

In this context, in 2009, Apa Nova Bucharest recorded a decrease in the level of investment, and, therefore, there was a decrease of the operating 164

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). expenses (denominated in Euros) associated with the sold quantities (Figure no. 43).

Figure no. 43 Evolution of the annual operating expenses (Euros) per sold m3 indicator

The increase of these expenses in 2010 and 2011 was the result of the increase in size of the operator’s activity by the taking over of the treatment plant operation. This indicator must, however, be interpreted in correlation with the level of efficiency of the operating expenses (Figure no. 44), which was lower in 2011 than in 2008 and 2010.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 44 Evolution of the operating expenses for 1 Euro income, 2008 – 2011

Please note that, in the 9th year of concession there was a series of major events leading to the amendment of the initial terms of the Agreement. The evolution of the Bucharest development policy triggered an accelerated pace of urban development in 2000 – 2009, which called for the development at an equal pace of the infrastructure of water supply and sewerage services. Thus, the local authorities extended the water supply and sewerage networks beyond the framework regulated by the Concession Agreement. Consequently, the related Levels of Service (especially those relating to the drinking water and sewerage service coverage) became maladapted to the urban development of Bucharest. This was also notified by the Panel of Experts in the Report of January 2009 recommending an agreement on “the logical development of the services in line with the needs of the customer”. As a result, the obligation of Apa Nova Bucharest concerning the extension of the water supply and

166

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). sewerage networks was supplemented – Bucur Programme consisting of implementing investment financed by the operator without increasing the tariff.

At the same time Apa Nova Bucharest also bears the expenses related to its involvement in the stage of completion of the works for PHASE I of the Project of the Glina WWTP, without requiring any compensation subject to a limit of RON 400,000/year (approx. 100,000 EURO/year).

At the same time, the activity of Apa Nova Bucharest was adversely influenced in 2009 by the operations of rehabilitation/upgrade of approximately 1,000 streets. Among the effects of these operations, we list the following:

 The appearance of approx. 800 damages in the water supply and/or sewerage network;

 The interference with the schedule of planned interventions on the water supply and/or sewerage network by disturbing, delaying or cancelling the performance of planned works;

 The increase of the number of unplanned interventions and their performance for the remedy of the damages;

 The allocation of approximately RON 1,000,000 for removing the damages and the degradation/deterioration caused by the builders.

167

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

These events had major effects on the economic and financial management of Apa Nova Bucharest as reflected in the level of the operating profit/loss (Figure no. 45).

Figure no. 45 Evolution of the operating profit/loss 2008 – 2011

The conclusions of the analysis of financial sustainability in 2008 – 2011 are mainly as follows:

 Even amid economic and financial constraints caused by the worldwide crisis, Apa Nova Bucharest manages to ensure financial sustainability thanks to its balanced management;

 The operator is unable to meet the new contractual obligations in terms of the investment programme without a significant increase in the tariff;

 One may notice optimal efficiency of the operating expenses seeing as the turnover related to 1 Euro operating expenses is also on the rise. 168

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2.3.3 Personnel Expenses and Productivity

Out of the total operating expenses, personnel expenses account for a share ranging from 26.19% in 2008 to 31.14% in 2009 (Figure no. 46). Between 2010 and 2011, this share remained almost constant, falling within the limit of 30% of the total operating expenses (26.84% in 2010 and 27.28% in 2011). Please note that, in 2008, for the operators providing both water supply services and sewerage services, this share was at an average of 38%51.

Figure no. 46 Evolution of the personnel expenses compared to the total operating income and total operating expenses (operation)

One may notice that in 2009 there was a sharp decrease in the total operating income compared to the level of the same indicator in other years, which is primarily due to the decreased turnover (denominated in Euros). However, that year, the operating income for 1 EUR operating

51 The IBNET Water Supply and Sanitation Performance Blue Book, 2011, p. 23 169

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). expenses exceeded the average of the steady evolution of this indicator calculated for other years. The decrease in the number of employees in 2009, correlated with a decrease in the volume of salary expenses during that year generated the lowest level of annual personnel expenses associated with a hired person (Figure no. 47).

Figure no. 47 Evolution of the annual personnel expenses/employee

Nonetheless, in this context, the indicator of the operating income obtained for 1 Euro personnel expenses in the four years under review had an almost constant level.

In 2009 Apa Nova Bucharest began a comprehensive operator restructuring and reorganization process with the main objective of optimizing the conduct of the business on all its levels. This reorganization resulted, on the one hand, in a reduced number of employees and, on the other hand, in a significant increase in work productivity. The increase in the number of employees in 2011 was due to the significant expansion of the operator’s

170

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). activity (for 2011 the value of the investment doubled compared to 201052), and, primarily, the taking over by Apa Nova Bucharest of the operation of Glina WWTP on 11 July 2011. In these conditions the personnel expenses increased for 1 m3 billed in 2011 as compared to 2009 when the lowest value for this indicator was recorded (Figure no. 48), while a constant ratio was maintained between salary costs and operating income (22.1 % for 2010 and 2011).

Figure no. 48 Efficiency rates

Figure no. 48 shows an improvement in the efficiency of the activity of Apa Nova Bucharest by reducing the rate of total operating expenses out of the total operating income and observing an optimal level of efficiency in terms of the labour costs.

52 Annual report of S.C. Apa Nova Bucureşti S.A. 2011, p. 65 171

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 49 Annual salary expenses for 1 m3 sold volume

It appears that during the time horizon under review 2009 is an unusual year compared to the other years53. We believe that this unusual nature is due to the impact of the economic crisis that created a rather strong shock economically and financially, both at the level of the operator and of the population. The strongest effect consisted of increasing the value of the customers’ outstanding bills and the commercial receivables of RADET. This led to the shrinkage of the activity of Apa Nova Bucharest, also reflected in the financial and operational results of that year (2009), although the end

53 On 1 January 2010 the Order of the Minister of Public Finance no. 3055/2009 came into force approving the Accounting Regulations in accordance with European Directives and repealing the Order of the Minister of Public Finance no. 1.752/2005 for the approval of the accounting regulations in line with European Directives, as subsequently amended and supplemented. This Order brought a series of major amendments to the company accounting policies such as: the monthly performance of the assessment of the monetary items denominated in foreign currency and the receivables and debts, denominated in RON, the settlement of which is performed depending on the exchange rate of a currency, subject to recognizing the recorded differences in the books and implementing the accounting principle of substance over form. 172

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). of that year recorded an increase by 16,40054 persons of the population served by the operator.

The increase in work productivity is assessed by way of the indicator of the number of employees per 1,000 connections55 (Figure no. 50) although one must note that, in the case of condominiums, through a single connection, a rather large number of consumers is served.

Figure no. 50 Evolution of the number of employees per 1,000 water connections

IBNET shows that, for 2008, this indicator varies as follows:

 20 employees per 1,000 connections for poor countries;

 Around 3 employees per 1,000 connections for average countries;

 Approximately 0.80 employees per 1,000 connections for developed countries.

54 Data of S.C. Apa Nova Bucureşti S.A. 55 IBNET 173

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Based on the results obtained for the indicator of the work productivity, we can conclude that Apa Nova Bucharest has recorded an upward trend in productivity (Figure no. 50 and Figure no. 51) although in 2008 the classification was made in the group of poor countries (this assessment should be made in light of the comment above in relation to the non- correlation between the number of connections and the actual number of consumers, which causes a distortion of the analysis).

One may also assess the work productivity based on the number of employees per 1,000 served people. As shown in Figure no. 51 the evolution of this indicator for Apa Nova Bucharest has an acceptable level seeing as IBNET reported a value of 1.9 for Eastern European countries in 2008.

Figure no. 51 Evolution of the number of employees per 1,000 served people 2008 – 2011

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Overall for 2008 – 2011 one notices an obvious improvement of the efficiency of personnel costs and work productivity. The operator’s economic, financial and management efforts for ensuring financial sustainability, on the one hand, and the fulfilment of the contractual provisions of the concession should be noted. It is worth noting that the remedy of the economic, financial and social degradation of the former operator – RGAB in terms of the quality of the water supply and sewerage services in Bucharest at the time of the concession was a tough mission for Apa Nova Bucharest.

2.3.4 Non-revenue Water

The quantity of water not generating income, in other words the quantity of non-revenue water is an indicator showing both the network losses and the commercial losses (lack of efficiency in the billing, illegal connections, and water theft). It is usually calculated56 as the balance between the produced quantity and the billed quantity (Table no. 8). A high level of the indicator shows a non-efficient management manifested in the form of both improper business practices and weak maintenance of the infrastructure.

Table no. 8 Evolution of the non-revenue water volume

56 IBNET 175

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

PRODUCED REVENUE WATER NON-REVENUE YEARS WATER VOLUME VOLUME WATER VOLUME [m3] [m3] [m3]

1 2 3=1-2 2008 288,416,410 154,648,553 133,767,857 2009 270,817,000 150,288,000 120,529,000 2010 246,839,298 142,823,000 104,016,298 2011 225,000,000 136,000,000 89,000,000

Figure no. 52 Evolution of the network loss indicators in 2001 – 2011

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

One may notice a durable downward trend (Figure no. 52) in terms of reducing water losses in the system. Apa Nova Bucharest has developed a clear strategy for reducing the quantities of non-revenue water, resulting in the decrease of these quantities from one year to the next (Table no. 8).

Since 2003, the Company has made efforts to meter consumers (Figure no. 53). Likewise, at the end of 2003, Apa Nova Bucharest finished mounting the flow meters on the main sources of drinking water production (the water treatment plants at Roşu and Arcuda), which enabled the development of a drinking water balance in 2004.

Figure no. 53 Evolution of the degree of metering 2000 – 2010

Source: MARPS - annual report of 2010

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

In 2011 about 23,500 meters were installed, replaced or resized so the C1 Level of Service – „connections metered as a percentage of the individual or shared customer connections” reached the value 99.99%57 in late 2011.

The decrease in process losses was based on the drinking water network rehabilitation works as a priority in the operation areas with high risk of damages. It is worth noting the volume of investment meant for rehabilitating the water supply networks: RON 9.4 million representing 16.5 km in 2010.

The decrease in commercial losses was achieved by identifying, and achieving the conformity for, illicit consumers and by optimizing the meter reading programme. On the other hand, in correlation with the consumption reduction trend, the meters were also adequately resized.

As a matter of fact, one of the priorities of Apa Nova Bucharest throughout the 12 years of concession consisted of “keeping the connection phenomenon under control”58. In 2009 and 2010 alone 7,354 and 5,300 illegal connections, respectively, were detected. In 2010, over 90% of the illegal connections came from areas where the water and sewerage networks had been extended by the Bucharest Mayoralty and the district mayoralties.

57 Annual Report of Apa Nova 2011, pag. 15-16 58 Report of APA NOVA 2010 178

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

All in all, we endorse the view of the Company's top management: the water losses were reduced by 150 million m3 between 2000 and 2010, and the target efficiency of the distribution system of 58% was reached in 2010 against a backdrop of reduced user consumption (the sold volumes were practically half what they were the start of the Agreement).

2.4 SOCIAL PERFORMANCE IN TERMS OF THE INTERNAL PROCESSES

2.4.1 Working Conditions

Apa Nova Bucharest focused on an efficient and effective management of the human resources. Human Resource management within Apa Nova Bucharest materialised as a transparent, competitive and performance generating system for all its coordinates: recruitment and selection, professional training, career development, performance assessment and remuneration of the personnel59.

The declared objectives of the Human Resource management within the Company were:

- Well trained and motivated employees;

- Optimal use of the personnel’s skills, professional knowledge and abilities;

- Increased employee job satisfaction;

59 Report of APA NOVA 2011 179

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

- Developing and maintaining a quality of the work environment that turns the status of employee for an organization into a personal and satisfactory affair;

- Implementing new strategies that lead to increased use of the maximum available time fund by stabilizing or even eliminating the causes behind an incomplete use of the normal working time.

In 2009 a major reorganization process began that ultimately led to improved working relations by helping the teams adapt to the new organizational structure. The taking over of the operation of the Glina Wastewater Treatment Plant and the Wastewater Sewer asked for an analysis of the expected positions and a process of employee recruitment and training since the two operating structures involved the creation of 130 new jobs.

Since 2009, improving the working conditions primarily by ensuring work prevention and occupational safety conditions has been a priority for the management of Apa Nova Bucharest. Within the Company in 2009 a process began in terms of implementing work prevention and occupational safety policy in line with the Veolia Group policy and the regulations of the International Work Office. In this respect, by way of the Decision of the Managing Director, in April of 2009 the Occupational Health and Safety – Emergency Situations Directorate was established. Its mission is

180

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). implementing the policies of prevention, safety and improvement of occupational safety in the Company.

The actions of Apa Nova Bucharest targeting the operationalisation of this objective consisted of:

 Personnel training programmes for developing the proper risk management skills (interventions in confined places, excavation and bank support);

 Modern individual and collective protective equipment fitting;

 The organization of information campaigns on occupational health and safety;

 The development and launch (September of 2009) of the Charter of Prevention, Health and Safety specifying each employee’s mission in terms of occupational health and safety;

 The securing of the 37 boosting stations (2008 – 2009) by fitting integrated access control, anti-theft and video surveillance security systems;

 The certification of the occupational health and safety management system in accordance with the OHSAS 18001 standard;

 The extension of the field of certification for the Glina WWTP in October of 2012;

181

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 In 2010, upon the initiative of the Security and Prevention Department, European grant financing was obtained for a project that aims at “ensuring the occupational health and safety for employees in the field of production and supply of drinking water and the collection/discharge of wastewater”. The positive effect of the project comes from the long-term provision of occupational health and safety for the employees. The total value of the project: RON 1,125,226, of which: RON 834,313 is the approved non- reimbursable financial assistance and RON 290,913 is the contribution of Apa Nova Bucharest. The project was completed in 2012, and all the set objectives were achieved.

 The introduction of Occupational Health and Safety and Emergency Situation responsibilities in the Job Descriptions of the employees of Apa Nova Bucharest.

 During the course of 2011 the in-house assessment of the risks of occupational accidents and illnesses was completed (a campaign which started in 2010) for all the jobs within Apa Nova Bucharest. The level of risk was calculated for each job and control measures were established for the assessed risks and booklets with the Risk Assessment Sheets were printed for each concerned structure. Please note that the investment implemented in 2011 in the field of occupational health and safety amounts to approximately RON 4 million.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The upgrade of the Apa Nova sites: new and efficient signalling and collective protective equipment was purchased;

 The monitoring of the contractors’ activity and the setting of the standards of Apa Nova Bucharest in the field of occupational health and safety;

 The constant upgrade of the protective equipment primarily by implementing new software tools – the “PROTEC” computer application – meant for the individual protective equipment (IPE) management and the maintenance of the safety equipment;

 The efficient coordination of the monitoring of the safety equipment and the maintenance obligations;

 The protection of the personnel working in isolation conditions. The fitting with equipment for indicating the loss of verticality – a project approved and implemented as part of the “IDEO” programme involving:

o The preparation of records for the personnel working in isolation conditions (60 people);

o The determination of technical specifications for the device indicating the loss of verticality ;

o The procurement of 22 ATI 2600 devices meant to forewarn the appearance of any problems;

o User training before delivery; 183

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

o The introduction of the new devices in the equipment and monitoring of the effective operation.

 During the course of 2012 the assessment of the risks of occupational accidents and illnesses was completed (a campaign which started in 2011) for all the jobs within the Company, including those within the newly established structures (Glina WWTP and DCAU). Likewise, determinations were made of the level of exposure of the personnel to physical emissions (measurement of the level of noise, vibrations, light and ionizing radiations), and the test and measurement reports issued by specialized laboratories of the National Institute for Labour Protection Research – Development were analyzed within the Directorate for Public Health and made available to the interested structures.

 During the course of 2012 efficient safety equipment was purchased, the same as collective protective equipment, premises and structure security systems, light LEGO armour systems, modular armour systems and other equipment to ensure the workers’ safety of on the job.

 In 2012 collective and individual protective equipment was also purchased for the new structures within the Sewerage Department, as well as for the new operational structures.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The organization in 2012 for the first time of the event called “Occupational Health and Safety Week” in partnership with Veolia Apa Servicii and Apa Nova Ploieşti.

IDEO is a continuous innovation and improvement project which aims at creating a system of accumulation, sharing and tracking of innovative ideas within the Company replicated within the Veolia Group and initiated in countries such as France, England, Morocco or China and, later, Romania through a pilot project of Apa Nova Ploiesti. In 2010 Apa Nova Bucharest started the implementation of the IDEO project. The key issue of this programme is getting the employees of Apa Nova involved through extensive participation and as many good ideas as possible.

During the first year of implementation of 2010 200 ideas were developed, of which nearly 40 were given awards and there were two participations in theme-based seminars:

 October of 2010 – SYNERGY – organized as a conference call on the visual support of the Internet connection;

 November of 2010 – a seminar of Apa Nova which was conducted as an open discussion among the participants, a genuine and friendly dialogue between those directly involved in the project, from the position of managers or correspondents of IDEO.

In 2011 the main achievements of the project were:

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 200 submitted proposals and 30 award winning ideas;

 An improved registration form;

 The sedimentation of the basic principles and the design of a regulation;

 The extension of the project in the customer area: IDEEA CUSTOMER.

One may thus say that this project is an effective means of promoting innovation and continuous progress in the Company through: the equal involvement of the management and the employees, the gathering of spontaneous ideas and the stimulation of creation, and the creation of a network of correspondents within the organizational structures, implementation and rewarding and dissemination.

For IDEO, 2012 may be presented in figures as follows:

. 95 submitted ideas,

. 81 participants,

. 18 award winning ideas,

. 21 employees declared winners.

In 2012 the “3 days in operation” programme was launched for getting the support department personnel acquainted with the atmosphere in the field

186

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). by visiting offices and presenting activities. The circuit starts with water treatment, through to the network areas, maintenance, dispatch and metrology and up to wastewater treatment allowing the operations employees to present and promote their work in real conditions.

2.4.2 The Social Dialogue

Maintaining a favourable and work inducing environment relies on good social dialogue. Social dialogue has lately become a strength of the efficient communication between the Federation of Independent Trade Unions of Apa Nova (FITU) and the management of Apa Nova Bucharest. This social dialogue has led to a better approach to all social aspects, with direct effects on the employees by protecting the jobs and mutually agreeing on the working conditions and social protection subject to the current legal conditions.

Annually there are negotiations between the social partners based on maintaining the contractual obligations and on both Parties’ committing to them. The Federation of Independent Trade Unions of Apa Nova (FITU) was directly involved and contributed in 2008 – 2011 to:

 The Company’s reorganization driven by the extension of the Company’s field of operation and the smooth operation throughout 2011 of the Committee of Occupational Health and Safety and the Consultation Committees.

187

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The update and improvement of the Collective Employment Agreement. As recognition of the professional experience and maturity, since 2011, the President of FITU has been a Member of the Executive Office of the European Committee of Enterprise and a Member of the Work Group for occupational health and safety within the Veolia Environnement Group.

 The development of the occupational medicine service agreement with the Medlife company as a result of the constant support of the president of FITU for protecting safety on the job.

 The monitoring of employees with special social problems. This programme which started in 2012 consists of identifying people facing excessive alcohol consumption, determining the pathology associated with it, treatment and psychotherapy, social and professional rehabilitation and re-training, including helping the families of those in question.

 The provision of accommodation in dormitories for unmarried young people and employees with special social problems and of decent living conditions.

Apa Nova Bucharest dedicated the organization of certain sports and cultural events solely to its employees, including the Fishing Competition organized in 2010 at the Professional Training and Physical Recovery Centre at Floreasca attended by 200 people and the photography

188

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). competition with the theme “Tu faci Bucureştiul!” (You are Bucharest!), dedicated to the employees’ children.

 The chess club which brought numerous awards and medals.

As shown in the Company’s Annual Reports, one can conclude that the actions constantly taken by the Federation of Independent Trade Unions of Apa Nova Bucharest (FITU) alongside the management of Apa Nova Bucharest served to maintain the social harmony and identify and open the channels of communication for better information on all social issues within the Company.

In 2012 Apa Nova Bucharest competed in the Gala of HR Excellence Awards60 in three categories – two human resource projects and an application in the category of Line Manager of the Year:

 The “T.I.S.A. – Integrated Employee Safety Training” Project got the finalist diploma in the “Most Valuable Human Training and Development” category, out of a total of 17 nominated projects.

 The Director of the Dispatch & Monitoring Department was appointed the winner of the “Line Manager of the Year” category, after having competed and surpassed 13 other managers from top

60 HR Club – the association of Human Resource professionals of Romania holds the annual Gala of HR Excellence Awards to encourage the development of Human Resources by supporting and promoting best practices in the field.

189

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

financial and banking and IT companies, with a participation file prepared along with the Skills and Training Service.

2.4.3 Professional Development

In terms of the improvement of Human Resources, with the start of the reorganization process in 2009, Apa Nova Bucharest developed and implemented a complex training programme focused on two strategic directions:

 The recreation of the teams, their consolidation and the learning of knowledge about the new IT & C processes and products.

 Training dedicated to occupational health and safety (including first aid courses).

We present the evolution of the statement of the total participants in the courses in 2000 – 2012, highlighting the considerable increase of the number of participants in at least one course starting from the second half of the interval (Figure no. 54).

190

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 54 Evolution of the number of people participating in the courses in 2000 – 2012

Figure no. 55 Evolution of the number of hours of the training programmes in 2000 – 2012

In 2012, 1,334 people participated in at least one professional training action with a total of 2,463 participations in the courses and 47,678 hours

191

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). of training. Figure no. 54 and Figure no. 55 show the dynamic evolution of the training at Apa Nova Bucharest61.

The training actions had the following goals:

 Developing a career management system;

 Enhancing the efficiency of the work, the organization and the working time;

 Increasing individual performance and, hence, collective performance;

 Building the employees’ loyalty and motivating them.

Training on the use of the hydro-cleaner Training on confined spaces

Source: Contractual Report of ANB. 12th contractual year\ 16 January 2013

61 Contractual Report of ANB. 12th contractual year/16 January 2013, page 39 192

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The training activity improves from one year to the next. Thus in 2012 programmes were organised which were adapted to current activities, from which the internal customers might derive as high a degree of satisfaction as possible in connection with the acquired knowledge and skills, the delivery of the programmes and their subsequent benefits. The innovations, interactive and creativity stimulating elements added by the tools allow carrying out such programmes in the future, too, and promoting the Company as a supporter of the increase of individual and team performance through skill development62.

Awards from the “Gala of Human Resource Excellence Awards”

Source: Contractual Report of ANB. 12th contractual year\ 16 January 2013

62 Contractual Report of ANB. 12th contractual year/16 January 2013, page 40

193

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2.5 ENVIRONMENTAL PERFORMANCE IN TERMS OF THE INTERNAL PROCESSES

Addressing the environmental protection problems by meeting the requirements of sustainable development has become a major concern for Apa Nova Bucharest by integrating them into the current management processes. The major climatic changes correlated with a number of economic restrictions (the sharp rise in fuel prices) require concrete measures to counteract the negative effects in the context of the global concerns for environmental protection and natural resource conservation. The performance of the water and sewerage services especially in terms of sustainable development cannot be assessed in isolation. By operating as a complex system interacting with a multitude of other sectors and services of the urban space it serves the water supply and sewerage service is a major factor in ensuring the premises for meeting the environmental protection conditions. The main paths of action of Apa Nova Bucharest for achieving environmental performance target: a. Reducing the consumption of natural resources and optimizing their use; b. Measuring the impact of discharging wastewater in Bucharest on the water quality and the ecosystems of the receiving rivers: Dâmboviţa and Argeş; c. Reducing greenhouse emissions. 194

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Against the backdrop of reducing drinking water consumption, in 2002 – 2011, the quantity of bought – used raw water dropped by 54% and the power consumption, by 71.5%63.

The decrease in the power consumption was the effect of increased performance of the networks and optimized operation of the pumping stations. As a matter of fact, within the operator, the annual power consumption dropped in 2000 – 2010 by over 60%64 proving constant and steady concerns for improving operational efficiency. The decrease in energy consumption also resulted in a significant decrease of indirect greenhouse gas emissions by 900,000 t (Figure no. 56).

Figure no. 56 Evolution of the power consumption and quantities of greenhouse gases

Source: AquaFed Private operators delivering performance 2012, p. 36

63 Annual Report of APANOVA 2011 64http://www.aquafed.org/pdf/AquaFed_Performance_PrivateWaterOperators_2012-03- 14.pdf: AquaFed Private operators delivering performance 2012 (adapted) 195

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2009 marked the start of a programme focused on reducing consumption within the operator. Consumption optimization began by reviewing the operation of the boosting stations and water booster systems. The points of consumption are analyzed at all times in order to detect any areas not operating at optimum parameters for specific consumption and efficiencies.

Figure no. 57 shows the evolution of the specific energy consumption in 2002 – 2012 evincing the fact that, following the actions taken by the operator, the specific consumption dropped considerably.

Figure no. 57 Evolution of the specific energy consumption

Figure nr. 58 and Table no. 9 show that Apa Nova Bucharest keeps the costs of raw materials, consumables and other operational services under strict control.

196

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure nr. 58 Evolution of the expenses on raw materials, consumables and other operational services in 2007 – 2011

Table no. 9 Statement and share of the expenses on raw materials, consumables and other operational services (Euros)

2007 2008 2009 2010 2011 Expenses on raw materials, consumables and other operational services Euros 38,363,680 38,150,131 34,585,667 41,917,299 48,157,189 Total operating expenses 116,243,377 115,532,380 85,293,447 104,964,612 130,752,175 Share of the total operating expenses 33.00 33.02 40.55 39.93 36.83

The mitigation of the environmental impact of its actions for compliance with the principle of sustainable development materialised in the form of:

 Mounting a sound absorbing panel on the blowers of the Roşu Plant;

197

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Eliminating the discharge of sludge resulting from dredging the pre- sedimentation tank directly into the Ciorogârla River, by reactivating the tailings;

 Procuring pumping sets for the North and South Plants, and retrofitting two sets at Grozăveşti, to reduce the power consumption.

In order to reduce Greenhouse Gas Emissions (GHG) generated by the activity, since 2010, Apa Nova Bucharest has been calculating the annual Greenhouse Gas Emissions (GHG) generated by the activity of production and distribution of drinking water and collection of wastewater using the carbon footprint method and the tool from Veolia Water EC’eau.

For example, in 2012 ANB emitted about 18,000 tons of carbon dioxide (equivalent) a year, corresponding to:

3  26 g CO2 eq (equivalent)/m of produced water

3  87 g CO2 eq (equivalent)/distributed m

 8.5 kg CO2 eq (equivalent)/capita.

People have noticed that, in terms of carbon dioxide emissions, the most polluting activity is the activity of intervention works and investment in the networks, far beyond the emissions generated by the energy consumption.

198

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The implementation of the sustainable development strategies within Apa Nova Bucharest has had visible results. As part of the extra-financial assessment of the Veolia Environnement Group, the operator’s corporate social responsibility (CSR) policy was audited by the independent agency BMJ Rating in 2011 and obtained an AA+ rating (global rating of 81/100). The AA+ rating is a high level of performance in terms of CSR, much higher than the sectoral standards; the agency could see in practice the paths taken by various fields of CSR (economic, social, environmental) and the use of appropriate means in place in terms of piloting within the Company65.

Given the commissioning of the Glina Treatment Plant, Apa Nova Bucharest wanted to be able to assess the impact of the discharge of wastewater in Bucharest on the quality of the water and ecosystems of the receiving water courses (Dâmboviţa and Argeş). To this end, Apa Nova Bucharest appealed to the Technical Department of Veolia Eau for a technical assistance mission aiming at:

 Defining a tracking system enabling the measurement of the effect of commissioning the Glina Plant on these water courses starting from the biological indicators;

 Determining the status of the water course quality.

65 Annual Report of APA NOVA 2011 199

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Safety equipment and systems Source: Contractual Report of ANB. 12th contractual year\ 16 January 2013

What is important is that Apa Nova Bucharest obtained the certification in 2011 of the triple integrated management system: quality, environment, operational health and safety. Thus, on the 28th of November, AFNOR decided to maintain the quality and environmental certifications and certify the third component of the management system within Apa Nova Bucharest – Occupational Health and Safety, issuing as follows:

200

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 AFAQ no. 2005/24997c and IQNet no. FR - 2005/24997c, for the Quality component;

 AFAQ no. 2009/33743a and IQNet no. FR - 2009/33743a, for the Environmental component;

 AFAQ no. 2011/41965 and IQNet no. FR - 2011/41965, for the Occupational Health and Safety component.

In 2012, AFNOR ROMANIA conducted the external audit for:

 Supervision (phase 1) in the Company structures that were recertified in 2011 for the quality – environment components and certified for the OHSAS 18001:2007 component and

 The extension of the field of certification within the Department of the Glina WWTP in accordance with the requirements of the ISO Standards 9001:2008, ISO 14001:2004 and OHSAS 18001:2007.

The main conclusions of the audit of AFNOR ROMANIA66 stated as follows:

 There is a strong direction, committed to improving the implementation, development and continuous improvement of the integrated quality/environment/safety management system;

66 Contractual Report of ANB. 12th contractual year\ 16 January 2013, pag. 77-78

201

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 ISO 14001: the requirements of the standard are met. The environmental management programme is adequate and followed accordingly;

 OHSAS 18001: the requirements of the reference standard are met, and the investment in improving the working environment has consolidated the management system. The OHS programme is adequate and followed accordingly;

 The implemented management system can provide the best framework for constantly improving the services, for increasing customers’ and other stakeholders’ satisfaction (business stakeholders, employees, subcontractors etc);

 The management system is able to evolve in order to achieve the quality, environmental and health and safety objectives proposed by the Company;

 The absence of major nonconformities.

IMS is pragmatic, especially in terms of the employed work procedures and methods;

The identified paths of progress and weaknesses do not endanger the capacity of the organization to provide services or the efficiency of the integrated quality/environment/safety management system;

202

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The identified paths of progress indicate an interest in a direction of progress, especially in terms of meeting the customers’ requirements at the highest level and the most suitable methods for stimulating direct customers and, last but no least, the employees.

Consequently, AFNOR ROMANIA took decision no. 756/19.11.2012 to maintain the certifications obtained for the quality, environment and OHS components and extend the field of certification within the Glina WWTP Directorate.

2.6 PERFORMANCE IN TERMS OF CUSTOMERS/CONSUMERS

2.6.1 The Profile of Consumers in Bucharest

Achieving consumer satisfaction in connection with the water supply and sewerage services is the main objective of Apa Nova Bucharest. In accordance with the provisions of the performance-based Concession Agreement, the operator is required to meet all the indicators related to the quality of the services (Levels of Service) which target:

1. Quality, pressure, working hours, the quantity produced and billed for water supply;

2. Effluent quality, treatment, channel clogging and ruptures;

3. The relationship with the customers;

4. Pressure, continuity and coverage in terms of the water provided to the industrial customers. 203

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The Structure of the Customers and Consumers

In general, the structure of the customers shows a decisive share held by homeowners’ associations in the turnover of Apa Nova Bucharest (Table no. 10), followed by trading companies and public institutions and, finally, household consumers. In terms of the share out of the total number of customers we find a reversal of the ratio between the three categories.

Table no. 10 Structure of the customers of Apa Nova Bucharest

Share of the Share of the turnover 2009 2010 2011 2012 total customers 2009 2010 2011 2012 (%) (%) Homeowners’ Homeowners’ 63 64 65 57 11 10 10 10 associations associations Trading Trading companies and companies and 27 26 25 29 10 10 10 10 public public institutions institutions Household Household 10 10 10 14 79 80 80 80 consumers consumers

Table no. 11 shows the population served in 2010 by Apa Nova Bucharest, as well as the delivered water volume in m3/day.

Table no. 11 Consumers and water volume delivered in 2010

Area Resident population Delivered water volume in m3/day Sector 1 238,217 80,754 Sector 2 362,609 123,008 Sector 3 395,565 134,020 Sector 4 325,000 110,175 Sector 5 270,000 91,530

204

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Sector 6 362,877 123,014

SOURCE: http://www.dspb.ro/informatiipublice/calitate-apa-potabila-2008-2009-2010.pdf

In terms of the speed of collection of the bills, one notices that the homeowners’ associations are the most “disciplined” ones when it comes to the payment of the bills within the shortest period of up to 3 months and, although they represent a low share of the total number of customers, they represent the largest share of the turnover (Table no. 12).

Table no. 12 Degree of collection of the bills

Homeowners’ associations Trading companies and Household consumers public institutions 3 6 12 3 6 12 3 6 12 months months months months months months months months months 92.5% 96.5% 97.4% 86.7% 92.6% 94.5% 78.1% 89.1% 93.8%

In 2012 the speed of collection of the bills recorded the values and evolution presented in Figure no. 59.

205

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 59 Speed of collection of the bills

Source: Contractual Report of ANB. 12th contractual year\16 January 2013

The level of customer satisfaction in terms of the services provided by Apa Nova Bucharest is determined based on the analysis of the key characteristics to be ensured by the water supply and sewerage service: a. The quality of the delivered services; b. The coverage of the services; c. The quality of the relationships with the customers and consumers. a. The quality of the delivered services

The provision of drinking water67 to ensure all the consumer health conditions is a complex process conditioned, on the one hand, by the raw water quality and, on the other hand, by the quality of drinking water treatment, the quality of the water networks68, and the compliance with

67 Drinking water is defined by the World Health Organization as: the water which, if consumed throughout one’s lifetime, does not pose a major health risk. 68 The materials from which the pipes are made: cast iron, steel, asbestos cement, PVC, premo etc. According to Apa Nova, before the concession of the services in 2000 there were asbestos cement pipes installed in all the districts of the capital city. The operator began replacing the pipes made from this material with iron or polyethylene materials, but “out of all 2,700 km of cold water network in Bucharest, 124 km are pipes made of asbestos cement, as revealed by Apa Nova Bucharest following a request made by B365.ro for this purpose”. See http://b365.realitatea.net/apa-potabila-din-bucuresti-curge-prin- 124-km-de-conducte-din-azbest-materialul-e-interzis-in-ue-fiind-cancerigen_28735.html. But there are no clear conclusions on the adverse effects of this material on human health several states have banned the use of this material. 206

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). the statutory quality standards69 and the standards specified in the Concession Agreement.

Drinking water quality monitoring is up to the Bucharest Directorate for Public Health (according to the Decision of the Government of Romania no. 974/15.06.2004 – regulations for the supervision, sanitary inspection and monitoring of the drinking water quality) that conducts daily tests on the water in the treatment plants and other fixed points which are mostly different from those of the operator. Apa Nova Bucharest issues monthly Analysis Reports published on the Company website. These reports contain all the parameters required by the regulations in force: bacteriologic, organoleptic and physical and chemical factors.

Along with the representatives of Apa Nova Bucharest, the Bucharest Directorate for Public Health set 49 fixed points within the Bucharest network of distribution for collecting and analysing the quality of the water distributed to consumers.

These fixed water sampling points are evenly distributed over the entire surface of Bucharest, with free access for the representatives of the water Analysis Laboratory within the Bucharest Directorate for Public Health and

69 www.dgspb.ro: the most significant legislative change in the field of drinking water is Law 458/2002 (Official Gazette no. 522/29.07.2002) supplemented by 311/2004 which represents the transposing of Directive 98/83/CE – the quality of the water for human consumption. The law regulates the quality of drinking water and its aim is to protect people’s health against the effects of any contamination by ensuring its quality of clean and sanogenetic water. 207

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). the water Quality Laboratory within the operator. The following are monitored70:

 The presence of free residual chlorine in the processed water distributed to consumers as this is an element that certifies the performance of the water disinfection and a backup for acting, if need be, on the route of the distribution network. The presence of chlorine in the drinking water is considered an “antibody” in the distribution system and provides a certain degree of protection against pathogens that might occasionally end up in the network and, thence, in the consumers’ glass.

 The alteration of the organoleptic, physical and chemical and microbiological parameters.

Please note that in 2011 all the samples indicated that the drinking water fell within the normal parameters71 although during the previous year a number of non-conformities had been found (Table no. 13) which had been solved by the intervention of Apa Nova Bucharest.

Table no. 13 Results of the tests of the DPHB 2010

Own water Treatment Fixed Water Wells, supply Springs Plants points networks fountains installations Total samples taken 309 1534 42 113 66 2 Samples with absent 34 0 0 FRC (2.22%)

70 www.dgsp.ro 71 www.apanovabucuresti.ro 208

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

272 5673 6474 Inappropriate samples 0 0 0 (4.76%) (49.56%) (96.97%) Samples with FRC > 267 0 0 0.50 mg/l (86.41%)

In the table above one should also notice the multiple non-conformities in the statistics of the DPHB for other sources of drinking water supply than the one of the centralized system.

On the other hand, the wastewater discharged into the sewerage network of the city is subject to tests conducted in the wastewater test laboratory within Apa Nova Bucharest, as well as other laboratories (by subcontracting), according to the standards in force. Wastewater quality control is required by the water management permits by the National Administration “Apele Române” both for Apa Nova Bucharest and for its customers. The physical and chemical indicators under review are those specified by the regulatory acts issued under the law: the environmental permit, the water management permit, the contracts between Apa Nova Bucharest and the National Administration Apele Române or between Apa Nova Bucharest and the customers. The frequency of wastewater sampling

72 www.dgsp.ro: samples with a bacterial load exceeding the permissible limit, announced by SC Apa Nova Bucuresti SA; the subsequent collections, namely 11 of the total 42, were made based on the complaints from the Administration of Cemeteries and Human Crematories = adequate samples. 73 www.dgsp.ro: inappropriate organoleptic characteristics. The samples collected after the disinfection and/or application of the filters complied with the standards. Out of the 113 collections from their own supply facilities, 6 were made based on the complaint regarding cemeteries (3 of them were bacteriologically or organoleptically inadequate). 74 www.dgsp.ro: bacteriologically and/or organoleptically, after the disinfection and/or filter application the samples subsequently taken complied with the standards. 209

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). is determined based on the profile of the unit, the provisions of the environmental permit and the discharge approval, the processes generating contaminants in the wastewater and the frequency of finding exceeded values noted in previous controls75.

Apa Nova Bucharest is carrying out a complex plan of actions to increase the quality of the delivered water, as follows76:

- 24/7 remote tracking of the water quality throughout the transformation of the raw water into drinking water by way of the remote management system;

- The use of the data supplied by the Pollution Alert Station along the Argeş River which features a complex system for measuring and monitoring 13 parameters;

- The performance of over 900 tests a day for producing and checking the drinking water quality;

- The monitoring of the water produced by way of multiple continuing services available 24/7 all year round;

- The improvement of the systems for measuring turbidity, pH and chlorine at the online analyzers for the produced water;

- The development of the laboratory and the commissioning of the system for determining Cryptosporidium oocysts and Giardia cysts;

75 www.apanovabucuresti.ro 76 Annual Reports of APA NOVA 2009, 2010, 2011 210

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

- The implementation of the method of determining Salmonella species;

- The upgrade of the gas chromatograph injection system used to determine organochlorine pesticides and trihalomethanes in the water;

- The upgrade of the biology laboratory at Arcuda;

- The development of taste and smell rooms;

- The implementation of the method of determining the absorbable Halogenated Organic Compounds (HOC);

- The cleaning of:

• The tanks for storing drinking water;

• The sedimentation tanks at the Roşu and Arcuda Plants;

• The tanks for dissolving the cake of alum at the Roşu and Arcuda Plants;

• The filtered water tanks at each plant;

- The checking of the quality of the treatment chemicals on purchase;

- The constant updating of the professional skills of the personnel.

In 2012 the water produced by the Roşu, Arcuda and Crivina Plants complied with the drinking water quality standards set by Law no.

211

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

458/2002, as subsequently amended and supplemented, and Apa Nova Bucharest acted for:

 The placement of the Pollution Alert Station at Km 36 A1, in the town of Bolintin – Vale; Ogrezeni Dam, Giurgiu County;

 The upgrade of the Arcuda laboratory;

 The upgrade of the Crivina microbiology laboratory;

 The monitoring of the water quality on each treatment stage using online analysers monitoring each phase in real time;

 The acquisition of new portable devices for tracking the quality parameters monitored by the online analyzers;

 The registration of the drinking water quality monitoring laboratories with the Ministry of Health, for control monitoring and sampling;

 The performance of over 18,000 tests/month for the drinking water (treatment plants and pumping stations);

 The participation of the process laboratories of Roşu, Arcuda, Crivina and the Pilot laboratory within the Production Directorate in the intercomparison with the Environnement Test Centre alongside 49 laboratories from other countries where the Veolia Group operates, thus obtaining very good ratings.

212

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The laboratories for checking the drinking water quality and analysing the wastewater were re-accredited in June of 2012, for a term of 4 years, by the National Accreditation Association of Romania – RENAR. During the internal audits, according to SR EN ISO/IEC 17025:2005, which were conducted in the Drinking Water Quality Control Laboratory and the Wastewater Analysis Laboratory no nonconformities were identified and the management system complied with the requirements of the SR EN ISO/IEC 17025:2005 standard. Both laboratories were involved in 2012 in performance intercomparison actions.

As a general conclusion, one may notice that Apa Nova Bucharest is making efforts to ensure adequate quality for the drinking water and sewerage services and insists on ensuring total transparency in terms of informing the public on the analysis reports. b. Access to the Services

Access to safe drinking water is a human right and a key element to ensuring public health and the quality of life. Worldwide the fundamental objective in water, known as the “millennium goal” is: “by 2015 the population living in extreme poverty, suffering from hunger and having no access to or not affording a safe water source will drop by half”. At the end of 2008, in Bucharest there was:

 No drinking water supply network for 21.03% of all the streets, which accounted for 4% of the population of the city. 213

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 No sewerage network for 24.40% of all the streets, which accounted for approximately 5% of the population.

Many old neighbourhoods in the capital city had only 45 to 50% coverage of the water supply and sewerage services (the neighbourhoods of Băneasa, Vatra Nouă, Chitila Triaj, Străuleşti (sector 1), Andronache, Ion Creangă (sector 2), Olimpia, Progresului and Apărătorii Patriei (sector 4), Bucharest Măgurele (sector 5) and Giuleşti Sârbi (sector 6))77.

Using the funds of Apa Nova Bucharest network expansion works were completed in all the sectors of Bucharest on approximately 70 streets totalling 25,000 m of public water supply network and 33,500 m of public sewerage network.

In 2011 – 2012 by way of the Bucur programme the works were completed on a number of 53 streets totalling 20 km of public water supply network and 14 km of public household sewerage network.

Although Bucharest still does not have 100% coverage in terms of the water supply and sewerage services, Apa Nova Bucharest actively participates alongside the Bucharest Mayoralty in the network extension works. Moreover, the operator is making investment in this sense using the funds thereof.

77 Sorin Oprescu: press conference in 2012: http://sorinoprescu.wordpress.com/2012/01/13/conferinta-de-presa-privind-reteaua-de- apa-si-canalizare-din-bucuresti-discursul-primarului-general-sorin-oprescu/ 214

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

In 2011, the Bucharest water distribution network covered a length of 2,444 km, and the sewerage network, a length of 2,120 km, and, over the past 11 years, it has required funds of over EUR 250 million invested in extensions and upgrades78. c. The quality of the relationships with customers and consumers

Since the customers and consumers are at the heart of the activity of Apa Nova Bucharest, promoting close relationships with them has become a priority for the operator.

The main actions taken aiming at always improving the interaction are:

1. Four correlated key communication paths adapted to the profile of each category of customers and consumers by integrating the Call Centre in the Commercial Directorate;

2. A friendly and modern receiving space;

3. Receiving all the opinions and points of view from the consumers;

4. Advising the customers in difficulty and providing them with the possibility of rescheduling outstanding payments so as not to restrict the access to the services;

5. Informing consumers in connection with the delivered services;

78 Annual Report of APA NOVA 2011 215

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

6. Organising theme campaigns according to the requirements of customers and consumers;

7. Conducting the ongoing employee training in customer relations;

8. Implementing the new customer relations management system (“SAP”);

9. Daily working hours for serving the public for customer relations offices and cashier’s offices, including on Saturdays, in a modern, elegant and open space;

10. Conducting surveys among the citizens for correlating the actions of Apa Nova Bucharest with the opinions and suggestions of consumers and customers.

Phone calls are the customers’ favourite method of interaction, which has required the upgrade of the technology for taking phone calls. The Call Centre has been equipped with a modern contact centre system which facilitates taking calls and providing the required information in a short period of time (Figure no. 60).

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 60 Methods of interacting

The development of new ways of communication can also be noticed in the preferences of consumers who want to get in touch with the Company in writing, especially via email.

The creation of a new webpage at www.apanovabucuresti.ro was very well received by those wishing to get information and answers as soon as possible.

Throughout 2012 Apa Nova Bucharest carried out continuous actions and theme projects meant to get close to its customers and consumers as follows:

 The new communication tools developed by mobile phone and IT providers made an impact on the relationship of ANB with its customers in 2012.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The online account. The online contact form and the email address [email protected] are closely connected with the development of the online services on the Company website of www.apanovabucuresti.ro, under the heading of “Customer area” where the customers can view contract information, payments made, bills issued for the water supply and sewerage services and can download them electronically. Thus, the constant requests received in previous years for sending duplicates of the bills or commercial information (contracts, outstanding payments) were compensated by the number of requests for online accounts by means of which so far approx. 6,800 customers can access the information on their contractual situation wherever they are and whenever they want to without coming to our head office. The customers who created an online account automatically joined the rewards programme “Contul on-line Apa Nova Bucureşti te premiază!” (the online account with Apa Nova Bucharest rewards you!), consisting of two raffles between September of 2012 and January of 2013. The communication channels used to promote this programme were diverse, from banners, countdown and electronic newsletters on the website to information on the envelopes containing the bills and notifications inserted in the body of any response to messages requesting information about the bills.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The new technologies also had an impact on the method of paying bills, by using the interbanking services of banks and starting the development of the online payment project by way of the online account which can be opened on www.apanovabucuresti.ro.

 The green bill. The good results obtained following the development of the online platform and the customers’ wish to gain possession of the bills as soon as possible triggered the start in the development of the project of sending bills electronically to the email addresses of the household customers to whom bills were issued in November and December. The results of the test for the services of replacement of the paper bill with the electronic bill will be the basis for its implementation for all the customers of ANB in 2013.

 SMS texting. Another method of customer information used in 2012 in connection with the value of the balance was the SMS text sent to customers exceeding maturity, thus stimulating the activity of recovery of the receivables, carried out until then by the sending of letters or campaigns over the phone.

 Newsletters on the scheduled suspensions. Another type of information regularly provided to the customers is the one related to the presentation of scheduled works on the public network of water supply by way of weekly electronic newsletters sent to the customers who signed up for said service. The information on the 219

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

scheduled works is supplemented by the information on damages to the telephone networks.

During 2012, Apa Nova Bucharest continued the developed and implemented communication programmes which, beyond the benefits related to information and image, are a genuine gain for both customers, and us as a society79. Of these programmes, we list:

 "Apa Nova Bucureşti te însoţeşte vara asta în concediu" (Apa Nova Bucharest is coming with you on holiday this summer) – a campaign which started in August, and aimed at rewarding the customers who paid bills for the water supply and sewerage services ranging from RON 5,000 and 8,000 within 5 days of the payment notice with a summer-specific gift.

 “Mulţumim că îţi plăteşti factura!” (Thank you for paying your

bill!) – a campaign which started in October, and targeting all the customers who record no balance and pay 5 consecutive bills within no more than 15 days of the issue at the Company cashier’s office.

 “Eşalonare respectată, atitudine premiată!” (Observed scheduling, award winning attitude!) – an action which was carried out in November and targeted all the customers who were in financial difficulty and whose balance was in excess of RON 2,000 and concluded a scheduling agreement with no more than 6

79 Contractual Report of ANB. 12th contractual year\16 January 2013, pag. 67

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

instalments. At the final paid instalment, the customers who had abided by the terms of the scheduling were rewarded.

 “Fii aliatul nostru pentru un mediu sănătos!” (Be our ally for a healthy environment!) – visits were organised for the managers of homeowners’ associations to the Glina WWTP. The attention paid to sewerage-related problems by taking part in this action changes people’s perception and behaviour by understanding that refuse does not belong in the public sewerage.

Each year Apa Nova Bucharest conducts surveys for learning the customers’ and consumers’ satisfaction. These surveys showed that for consumers the water quality was the key issue. For this information campaigns were created which presented detailed information on the quality of the water provided by Apa Nova Bucharest by publishing water analysis reports80.

The customers and consumers are informed of the services by holding theme-based campaigns, as follows:

The meter replacement campaign: the meter replacement provided the chance to disseminate clear information on the meters and metering, materialised in a single presentation folder;

80 Annual reports of APA NOVA 2009, 2010, 2011 221

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The campaign for contracting water supply and sewerage services in the community;

The information campaign on the possibility of paying the bill at the counters and ATMS of BRD: the customers were informed by distributing leaflets at all times and displaying a banner in the lobby of the cashier’s office located in the premises at Aristide Demetriade, by sending newsletters and creating stickers distributed to BRD branches in Bucharest where one could pay the water supply and sewerage service bills.

The IDEEA CLIENT programme for better communication with the customers and consumers: this is meant for all the residents of Bucharest who want to send proposals for improving the customer – supplier relationship, which might be implemented fast and have a positive impact on the provision of the services by Apa Nova Bucharest.

The results of the surveys conducted since 2002 are a confirmation of the customers’ appreciation of the activity of Apa Nova Bucharest. The surveys conducted since 2009 indicate a steady and continuous increase of the customers’ overall satisfaction from 76%81 in 2009 to 84% in 2012 (Figure no. 61), which proves that the operator addressed the customers’ grounds for insatisfaction in an organised and consistent manner.

81 idem 222

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 61 Evolution of the customers’/consumers’ degree of satisfaction (percentages)

Source: ANB Contractual Report. 12th contractual year \ 16 January 2013, pag. 68

2.6.2 Social and Environmental Performance from the Perspective of Customers/Consumers

In opposition to the policy of increasing economic efficiency to increase the profits to be distributed to the shareholders, within the water supply and sewerage service operators, there is the problem of ensuring tariffs that might be accepted by all social classes of the served community.

In 2009, an OECD82 study showed that for most developed, as well as emerging countries, the price of the water supply and sewerage services was below the level of economic efficiency so the operators of these services were financially non-sustainable: the operating income could not cover the costs of the service. Moreover, given the increasingly scarce

82 OECD (1999), The Price of Water: Trends in OECD Countries Paris, OECD. 223

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). water resources and their increasingly higher level of pollution, there was a worldwide problem of identifying new approaches to target, among others, a reform of the water supply and sewerage pricing. In 2010, a similar OECD83 study confirmed that for the most part of the OECD Member States who had undergone a pricing structure reform the service prices increased considerably.

A low level of the water supply and sewerage service prices, especially given the acute climate changes, may be maintained by the rationalisation of the quantities of delivered water. However, other experts prove that high economic efficiency while ensuring satisfactory social welfare may only be obtained if the prices and tariffs for the water and sewerage services increase. Raising prices may also result in a rational decrease in consumption.

Social equity has traditionally been one of the main objectives of the urban water pricing policy. Nowadays, these policies are increasingly focusing on different objectives: economic efficiency, financial sustainability, and cost recovery. Therefore, concerns for equity and affordability have declined in importance. The globally dominant opinion is that water prices should increase to fund the complex processes of expansion of the water supply and sewerage services. Therefore, in emerging countries, the expansion of

83 OECD (2010), Pricing Water Resources and Water and Sanitation Services Paris, OECD Publishing. 224

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). the insufficient infrastructure limiting the water supply and sewerage services for the poorest communities is a priority84.

The fourth principle of the Dublin Statement on Water and Sustainable Development (1992) states that water “has an economic value in all its competing uses and should be recognized as an economic good”. This principle is usually interpreted as a justification for the implementation of a tariff that might properly reflect the economic value of water. Likewise, the Dublin Declaration stresses that “within this principle, it is vital to recognize first the basic right of all human beings to have access to clean water and sanitation, at an affordable price”.

In 2000, the United Nations agreed on the Millennium Development Goals: “by the year 2015 [...] to halve the proportion of people who are unable to reach or to afford safe drinking water ” (UN, 2000).

In 2002, the UN Economic and Social Council once again promoted man’s right to water, so “the right of everyone to sufficient safe, acceptable physically accessible and affordable water for personal and domestic uses”85 (UN, 2002). These statements represent a formidable challenge for

84Noel Wai Wah Chan (2012): Urban water pricing: Equity and affordability, http://www.globalwaterforum.org/2012/03/12/urban-water-pricing-equity-and- affordability/ 85 UN, 2000. United Nations Millennium Declaration. United Nations (UN), New York. UN, 2002. Substantial Issues Arising in the Implementation of the International Covenant on Economic, Social and Cultural Rights. General Comment No. 15 (2002). The Right to Water (Arts. 11 and 12 of the International Covenant on Economic, Social and Cultural Rights). United Nations (UN) Economic and Social Council, New York. 225

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). developing the pricing policies. On the one hand, price is required as a tool for the limited use of the water resources. On the other hand, all water users should be able to meet their basic needs for water. Therefore, the water pricing systems must include some sort of subsidy (implicit), which means that water is provided at affordable prices for the underprivileged social categories. Please note that in EU countries, in recent years, the prices and tariffs of the water supply and sewerage services have increased considerably as they reflect in general the increasing costs of these services (BERD, 2012)86.

Next, we present a social and economic profile of the Bucharest Ilfov region including the capital city. Based on these economic considerations, we can also assess the affordability of the prices and tariffs for the consumers and customers of Apa Nova Bucharest.

According to the statistical data87, in 2010, the total stable population of the region of Bucharest – Ilfov was 2,265,034 people, representing 10.5% of the national population and 91.8% of the population lived in urban areas and 85.8% was concentrated in Bucharest.

Compared to other development regions of the country, in Bucharest – Ilfov:

 The rates of activity and employment are much higher;

86 http://www.ebrd.com/downloads/sector/mei/mei.pdf 87 http://www.stpbi.ro/Download/PRAOBI.pdf 226

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The unemployment rate is much lower;

 The labour resources have a higher average level of education;

 The density of the population is the highest one of the country, i.e. 1,244 inhabitants/km2, thanks to the urban density in Bucharest (a density of 8,161 inhabitants/km2).

The Bucharest – Ilfov Region is atypical in relation to the rest of the country as it has a different development structure. If nationally services generate approximately 39% of the total employment, in Bucharest the percentage increases to 64%, and the average is close to the one in Western Europe (Table no. 14).

In 2010 the contribution of Bucharest was the most significant one, of 21% of the GDP for the whole economy.

Table no. 14 Distribution of the GDP according to the economic sectors, % Bucharest – Ilfov (2006 – 2010)

Economic 2006 2007 2008 2009 2010 sector Industry 17 15.8 14.6 13.2 12.8 Agriculture 0.5 0.3 0.4 0.3 0.3 Constructions 8.9 10.7 12.5 13.2 13.7 Services 61.7 62.6 62.3 64.1 64.3 Total taxes 11.9 10.7 10.2 9.1 8.8 Source: INS, National Forecast Committee

227

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The average GDP/capita in the region (14,043 Euros in 2010) is double the country average, which calls for classifying the Bucharest – Ilfov Region as the region with the highest economic performance in the country.

The data of the study conducted in 2011 by the National Forecast Company show that the highest GDP per capita (Bucharest, 14,289 Euros) is almost three times the national average (5,600 Euros) and nearly six times the GDP of the last ranking county of Vaslui (2,500 Euros). The economy of the capital city experienced explosive growth in 2008, with an increase of 18.2%. However, since then, its economy has gone through a recession: 6.5% in 2009 and 2% in 2010.

This is the background of the evolution of the average daily drinking water consumption for home use (Table no. 15):

Table no. 15 Evolution of the average daily drinking water consumption for home use

Explanation 2008 2009 2010 2011 Average daily consumption of drinking water for home use, 127.7 litres Missing 126.6 124.9 litres per capita, in per capita data municipalities and towns +2.3% -1.3 % +2.2 % Variation compared to compared to compared 2007 2008 to 2009

In 2012 the average water consumption in Bucharest was 156 litres per person per day (Figure no. 62).

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 62 Evolution of the average consumption in 2008 – 2012

Please remember that in 2000, the year when the Concession Agreement came into force, the average consumption was ~ 410 litres per person per day.

As regards the pricing policy, Apa Nova Bucharest applies single tariffs for drinking water, industrial water and sewerage.

The tariff increases may be ordinary (“the tariffs are updated depending on the inflation rate and the RON/EUR exchange rate; these adjustments may only be applied when the inflation increases/decreases by at least 5%“88) and/or extraordinary (the tariffs are updated to compensate the customers/Apa Nova Bucharest, following the appearance of certain unforeseen events“). The evolution of the tariffs (less VAT) in 2008 – 2012 is presented in Figure no. 63.

88 www.apanovabucuresti.ro 229

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 63 Evolution of the tariffs (less VAT) in 2008 – 2012

Since 1 February 2009 the municipal wastewater tax (MWT) has been levied on a current basis and it is collected for the General Council of Bucharest for the repayment of the financing for Phase I of the project of rehabilitation of the Bucharest Wastewater Treatment Plant at Glina. Initially, in 2009 this tax was RON 0.1/m3 and for 2012 the General Council of Bucharest approved its decrease by RON 0.05/m3 of wastewater (sewerage and storm water discharge).

The latest pricing adjustments were required by:

 The commissioning of the Wastewater Treatment Plant at Glina following an investment of about EUR 108 million; Apa Nova will manage and maintain the plant at a cost of EUR 27 million a year (the plant was taken over by Apa Nova in July of 2011).

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The taking over under concession of the wastewater collection Cassette under the Dâmboviţa River. Therefore, Apa Nova Bucharest undertook to maintain and upgrade this structure by implementing an investment plan worth in excess of EUR 39 million for a term of three years.

The effectiveness of Addendum no. 6 of 14.12.2009 to the Concession Agreement forces Apa Nova Bucharest to undertake additional costs and/or income losses by:

 Extending the water supply and sewerage networks and financing this programme (RON 200 million for a period of 6 years, with no tariff increase);

 Financing and performing the specialty studies and inspections for taking over, rehabilitating and increasing the Cassette transport capacity (worth RON 6 million);

 Financing the studies and technical assistance for Glina WWTP P1 and P2 (RON 0.4 million/year);

 Waiving the application for extraordinary tariff adjustment for the income loss represented by the equivalent value of the sewerage services for the taking over and discharge of warm household wastewater into the sewerage system by 2006 by the customers of RADET (over RON 52 million);

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Waiving the claim to penalties for the drinking water debt of RADET for preparing warm household water (RON 16 million);

 Scheduling the debt of RADET for a period of 2 years;

 Waiving the application to extraordinary tariff adjustment for the additional costs not included in the tariff representing the central area access fee for heavy motor vehicles in 2006 – 2009.

The extraordinary tariff adjustments. The tariff increases by extraordinary adjustments were primarily motivated by the need for a comprehensive investment process.

 Following the completion of the Environmental Audit Report89 issued in April of 2008 by the Panel of Experts, Apa Nova Bucharest determined the responsibilities concerning the restoration of environmental risks with a total investment value of approximately EUR 27 million. In 2008, the operator had already invested EUR 504,000 within the limit of the tendered tariff (seeing as the investment in the tendered tariff was limited to EUR 500,000). Following this environmental audit, the Panel of Experts recommended:  The necessary investment for reaching the Levels of Service for ensuring the area of service coverage stipulated in the

89 Likewise, based on this Environmental Audit Report, S.C. Apa Nova Bucureşti S.A. obtained the necessary authorisations/permits/licences or extensions thereof from the relevant authorities for the legal operation of the public water supply and sewerage services. 232

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Concession Agreement had to be covered by the current tariff;  The stipulated investment beyond the investment required for meeting the obligations under the Agreement can be covered by an extraordinary tariff adjustment90. For example, the investment required for replacing the lead connections which does not devolve upon Apa Nova Bucharest beyond the Levels of Service if the Grantor does not finance it.

 In order to finance the expenses associated with the operation of the wastewater sewer. This extraordinary tariff adjustment is implemented in three stages for the average combined water and sewerage tariff. The first stage includes a tariff increase by RON 0.2540 per cubic meter from 1 August 2011 to 31 December 2014; the second stage includes an increase by RON 0.1846 per cubic meter from 1 January 2012 to 31 December 2014, and the third stage specifies an increase by RON 0.1603 per cubic meter from 1 January 2012 to 25 November 2025; the extraordinary tariff adjustment for the public drinking water supply and sewerage services was approved on 29 July 2011.

Tariff affordability. The effect of the economic and financial crisis also materialised in the form of negative effects on the salary earnings and, therefore, the total income of a family. In Romania, according to the results

90 www.pmb.ro 233

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). of the family budget investigation, in the third quarter of 2011 the cash income was, on average, RON 2012 per month per household (RON 700 per person) and the total expenditure was RON 2167 per month per household (RON 754 per person). The difference was covered by income in kind, of RON 390 per month per household (RON 135 per person), which increased the total monthly average income to RON 2,402 per household and RON 835 per person.

The average monthly household income in the third quarter of 2010 was almost RON 2,200, which means that the average income was RON 770 per month.

The average net monthly earnings in 2011 in Bucharest (RON 2,114) were 46.4% higher than the economy average. Therefore, the willingness to pay for the water supply and sewerage services is much higher in Bucharest than the rest of the country. However, in Europe, Romania ranks penultimate in terms of the minimum guaranteed salary income (EUR 162) before Bulgaria (Figure no. 64).

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 64 Minimum guaranteed salary income in European countries 2012

Map source: Eurostat, quoted by http://www.gandul.info/financiar/

The water and sewerage bill is about 3.4% of the average income per household, according to estimates of Apa Nova Bucharest. However, in view of solving social cases and cancelling bills for families with serious financial problems, Apa Nova Bucharest has committed to provide

235

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). funding91 throughout the concession. This means an estimated annual income loss of EUR 100,000.

In April of 2011, as shown in a study of NARCS92, the combined water and sewerage tariff charged by Apa Nova Bucharest was the third lowest tariff of all Romanian water and sewerage service operators.

Global Water Intelligence 2012 Water Tariff Survey93 reveals a level of 1.68 US$/m3 for the absolute average combined tariff for Bucharest, below the average combined water and sewerage level (of 1.98 US$/m3) of 2012 for the 310 cities included in the study. Nonetheless, Bucharest ranks 7th among the top 10 cities in terms of tariff percentage growth over the previous year with an increase of 45% seeing as the number one city is Buenos Aires with an increase of 290%. Although we have not reached the level of development of the countries in Western Europe yet, we do feel the need to point out that, in 2012, the average combined tariff in the country was 8.11 US$/m3 in Denmark, 5.51 US$/m3 in Germany, 4.33 US$/m3 in Great Britain and 4.08 US$/m3 in France (Figure no. 65).

91 The project for exemption from the payment of the water supply and sewerage services was initiated based on the Decision of the General Council of Bucharest no. 358/2009 regarding the approval of the Addendum no. 6 to the Concession Agreement of 29.03.2000 concluded between the Bucharest Municipality, as the Grantor, and SC Apa Nova SA, as the Concessionaire, and the Instruction of the General Mayor of Bucharest no. 1574 of 18.11.2010. 92 NARCS (2011): the condition of the water supply and sewerage services: http://www.anrsc.ro/documents/cabinet/rapoarte_de_activitate- ANRSC/2011/Stare%20servicii%20apa%202011.pdf pag. 32) 93 Global Water Intelligence 2012 Water Tariff Survey: Global Water Intelligence, volume 13, no. 9, September 2012, pages 37-41. 236

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 65 Average combined level of water and sewerage tariffs in 2012 for Europe94

All in all, we can conclude as follows:

 The tariff charged by Apa Nova Bucharest is one of the lowest in the country even if the living standard of the population in the capital city exceeds the country average.

 The aim is to reduce water consumption although in Bucharest for now the water and sewerage services are affordable for the vast majority of the population.

 The increase of the water and sewerage tariffs primarily stemmed from supporting the investment processes as well as the need to cover the costs and earn profit during the four examined financial years.

94 For Hungary and Romania, only the capital cities of Bucharest and Budapest were included in the study. 237

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 Apa Nova Bucharest also aims at protecting underprivileged families by granting certain facilities.

The level of the tariffs ultimately certifies the high degree of efficiency of the operational and investment processes.

Next we will present a few conclusions of the study commissioned by IFC for assessing the performances of the concession of the water supply and sewerage services in Bucharest, in the 10th year of the concession95:

- Apa Nova Bucharest improved the service considerably during the first 10 years of the concession.

- The water quality tests evolved from less than 70% conformity (before the concession) to 100% conformity in 2006, which was subsequently maintained.

- The water supply is continuous and has good pressure, and the water quality exceeds the standards of Romania and the European Union.

- The level of complaints dropped to less than 1/7 of their previous level, and the customers’ satisfaction concerning all the services grew from less than 50 % to 75 %.

95 MARPS activity report for 2010 238

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

- If, before the concession, the average combined tariff was around 0.18 USD/cm, by 2009 the average combined tariff became 1.08 USD/cm.

- Increasing the operational efficiency by:

 Enhancing the efficiency of the energy consumption (the water supply and sewerage service ranked second among the services with the lowest rate of increase of the cost of the energy per unit);

 Increasing the degree of collection (in 2007, the operator collected 98% of the bills compared to the average of about 95% for the other 10 public services);

 Encouraging water savings (by campaigns for raising the customers’ awareness, extending the metering and tariffs that best reflect the costs) Apa Nova Bucharest reduced consumptions to almost the level recorded in Western European countries. The water consumption recorded in 2009 was 40% compared to the consumption recorded in 1999;

 Considerably reducing the water losses (from 350 cm/km of network/day in 2000 to 176 cm/km of network/day in 2007).

- In July of 2012, the tariff for Bucharest (1.68 US$/m3) was far below the average tariffs of the main cities in Romania or the great

239

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

European capitals96 (Paris – 3.97 US$/m3, London – 3.64 US$/m3, Berlin – 6.03 US$/m3, Budapest – 3.32 US$/m3).

- Apa Nova Bucharest does not enjoy subsidies, and the tariff increases are implemented to increase the quality of the service.

96 Global Water Intelligence 2012 Water Tariff Survey, Global Water Intelligence Volume 13, Issue 9, September 2012, pag. 37-41 240

Figure no. 66 Tariffs and prices in April of 2011

241

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2.6.3 The Participation in Projects for protecting the Historical and Cultural Assets

Apa Nova Bucharest takes active part in the actions of rehabilitation and protection of the historical, cultural and religious assets. The actual actions taken by Apa Nova Bucharest since 2008 include97:

 Doamnei Church. The most enduring social responsibility project implemented by Apa Nova Bucharest is connected to the restoration of the mural at Doamnei Church in Bucharest. The project started five years ago and is still in progress.

 The recovery of 24 frescos of the Monastery of Văcăreşti (2008). Apa Nova Bucharest was the main financial supporter of the restoration of the fresco fragments of the former Monastery of Văcăreşti, and the project is performed in collaboration with the National Museum of Cotroceni, the Museum of the Bucharest Municipality, the National Art University of Bucharest and the National Institute of Historical Monuments. The whole of the 24 frescos aims at bringing back to life vestiges left behind for our mutual progress.

 The completion of the reconstruction of the Church at Cotroceni (2009). 330 years after the laying of the foundation stone for the Church at Cotroceni, upon the order of Cantacuzino, through its

97 www.apanovabucuresti.ro 242

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

support for the total reconstruction of the church, Apa Nova Bucharest once again contributed to capitalising on Romania’s cultural wealth and helping the tokens of the Romanian civilisation live on as landmarks of our national identity.

2.6.4 Raising the Public’s Environmental Awareness

Apa Nova Bucharest is involved in several projects aiming at raising people’s environmental awareness. Below are the most recent environmental projects implemented by Apa Nova Bucharest98:

 The Garden of the Romanian Peasant Museum (2008). The project proposes an adaptation of the model of rural and/or Bucharest garden on the premises of the Romanian Peasant Museum. By way of this project, Apa Nova Bucharest, the Association for Urban Transition (AUT), the students of the Landscaping Department of the University of Agronomic Sciences and Veterinary Medicine (UASVM) and the Romanian Peasant Museum aim at promoting local traditions and bring back the beauty of gardens to people’s attention.

 The World Environment Day (2009). “The World Environment Day concerns us all equally. It emphasizes the human dimension of environmental problems and offers the citizens opportunities to get actively involved in solving them”, according to Mr. Bruno Roche,

98 www.apanovabucuresti.ro 243

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Managing Director of Apa Nova Bucharest. In 2009, the event dedicated to the World Environment Day started at the drinking water Treatment Plant at Crivina and continued in the Danube Delta where water meets water. The event was attended by representatives of the Embassies of the participating countries, journalists, representatives of UNESCO in Romania, Serbia and Hungary and subsidiaries of Veolia Eau, as well as members of international non-governmental environmental organizations.

 In order to protect the environment, Apa Nova Bucharest along with the Administration of the Danube Delta Biosphere Reserve released the guidebook on waste management called “Să păstrăm Delta Dunării curată” (Let’s keep the Danube Delta clean) in 2012.

Source: ANB Contractual Report. 12th contractual year\ 16 January 2013

244

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 In 2012 Apa Nova Bucharest launched and used the concept of the “Zero Footprint”. During the event the computer was used to

monitor CO2 emissions. The whole quantity of CO2 was compensated by planting 5,000 saplings so the Carbon footprint of the event became zero.  The World Water Day of 2012 headlined as “Siguranţa apei şi a hranei!” (Water and Food Safety!). Apa Nova Bucharest and the Mayoralty of Bucharest, Metrorex and the UN Information Centre gave the people of Bucharest a special event to support this message: eight graffers from several towns and cities around the country gathered to give an artistic form to it. The event organised by the Company was awarded at the Romanian PR Award Gala in 2012.

245

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Images of the World Water Day at the Underground in Bucharest

Source: ANB Contractual Report. 12th contractual year\ 16 January 2013

2.7 PERFORMANCE IN TERMS OF THE STAKEHOLDERS/CIVIL SOCIETY

2.7.1 Partnerships for Social Projects

Apa Nova Bucharest is deeply involved in the social life of Bucharest and beyond it. Next we will list the most representative examples of this:

 The involvement throughout 2011 in specific actions meant to support several associations fighting against exclusion and for equal opportunities:

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

. Samusocial, an association caring for the homeless adults of Bucharest which provides them with medical and social care.

. The association Ateliere Fără Frontiere (AFF) supporting people in difficulty by proposing jobs and helping them fit in professionally.

. Casiopeea, an association supporting the benefits of practising sports for improving health and actually helping women suffering from breast cancer.

 Why do we love Bucharest? (“De ce iubim Bucureştiul?”) (2007 – 2009). Apa Nova Bucharest carried out the campaign “Why do we love Bucharest?” which included special events dedicated to the people of Bucharest and aimed at instilling in them a feeling of belonging to the city of Bucharest by way of emotional messages posted in most places visited by the inhabitants of the capital city during the day: underground stations, bus stops, parks and, naturally, the streets, as well as clubs of coffee shops, reminding them of the “Street where I kissed Mimi”, the “Place where I used to play ball with the guys” or the “Trolley that used to take me home”.

 You are Bucharest! (2010) (“Tu faci Bucureştiul!”) is the slogan for an extensive campaign of Apa Nova Bucharest celebrating 10 years of activity. Throughout 2010, each month, Apa Nova Bucharest got

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

the ordinary resident in Bucharest involved in activities meant to bring him/her even closer to this city, sometimes so loved, and other times so denigrated, and always giving us many enjoyable times. This campaign was basically a continuation of the one of 2007 “De ce iubim Bucureştiul?” (Why do we love Bucharest), with the same charm and commitment to a capital city we are still learning to discover.

2.7.2 Environmental Partnerships and Actions

Every year Apa Nova Bucharest and the Administration of the Danube Delta Biosphere Reserve (ADDBR) and the Association “Salvaţi Dunărea şi Delta” hold an international event “Faceţi ceva care să dureze” (Make something that lasts). From 14 to 17 June 2012 this event was carried out at the Danube Delta Biosphere Reserve (DDBR). The 4th edition of the event held in Sf. Gheorghe was attended by over 200 people, representatives of the authorities, NGOs, journalists, employees of Veolia, ambassadors and representatives of the UNESCO programme from 16 countries. The delegations presented projects and solutions for protecting the water resources and, in particular, the biodiversity.

The goal behind the organisation of the event was to encourage partnership and cooperation at European level to contribute to sustainable development. Apa Nova Bucharest financially ensures the implementation

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). of two projects of the Administration of the Danube Delta Biosphere Reserve:

 The project “Să păstrăm Delta Dunării curată!” (Let’s keep the Danube Delta clean!) aiming at carrying out an information and awareness raising campaign among the inhabitants of DDBR and contiguous areas, and especially the visitors on the importance of an adequate attitude in terms of household waste storage and the potential impact on the Danube Delta of the non-compliance with basic environmental protection rules.

 The campaign for raising public awareness by simple gestures “Vreau să traiesc. Ajută-mă!” (I want to live. Help me!) is a project started by ADDBR to raise people’s interest in getting involved in environmental and biodiversity conservation issues.

 In 2012, Apa Nova Bucharest launched a biodiversity conservation action at the Arcuda Plant (150 ha). The first stage of this action consisted of giving a diagnosis for the fauna and flora found on the premises of the plant to then allow the determining of specific actions for preserving and favouring the biodiversity of those natural areas. Therefore, the first results of the study led to the discovery of a rare protected species of aquatic fern, pond clover (Marsilea quadrifolia) and some endangered species of reptiles (Natrix natrix, Natrix tessellata, Podarcis taurica).

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2.7.3 The Relationship with the Regulatory Authorities

The development of the Concession Agreement is controlled by the General Council of Bucharest by way of the technical regulatory authority for the agreement – MARPS99, and the economic regulatory authority, NARCS (initially the Competition Office), with the approval of the General Council of Bucharest and based on the rules approved by it. Apa Nova Bucharest met its reporting obligations towards these two institutions exactly. Likewise, in mediating all the disputes between Apa Nova Bucharest and MARPS, the Panel of Experts played a crucial role.

One may assess that, the same as the first seven years of the concession, in 2008 – 2011, in terms of the regulation of the service, the dynamic and proactive cooperation between Apa Nova Bucharest, ARBAC, NARCS and the Panel of Experts once again had positive and beneficial effects on the water supply and sewerage service in Bucharest.

99 According to article 2 of the Decision of the General Council of Bucharest no. 339/30.09.2009, “the Municipal Authority for the Regulation of Public Services is the technical regulatory authority of the Concession, and its powers are those in the Concession Agreement on the provision of water supply and sewerage services for Bucharest concluded with S.C. Apa Nova Bucureşti S.A. and under said decision it subrogates to the rights and obligations of the Agency for the Regulation of Water – Sewerage Service Levels of Bucharest – ARBAC stipulated by this Agreement”. 250

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

3 COMPARATIVE ANALYSIS OF THE PERFORMANCE OF S.C. APA NOVA BUCUREŞTI S.A. AGAINST SIMILAR MAJOR OPERATORS AT NATIONAL LEVEL

This document presents the position of Apa Nova Bucharest from the perspective of comparative analysis studies conducted by various organisations.

NARCS published in 2012 a Report on the condition of water supply and sewerage services, aimed at achieving an overall assessment on the condition of the water supply and sewerage system in Romania between 2009 and 2010.

The assessment conducted by NARCS experts targeted a series of elements specific to the current activity of water supply and sewerage service operators, as well as their technical, economic and financial performance, as follows:

 The condition of water supply services – based on the following criteria: population with access to water supply services from a centralised system, the length of the water network, the amount of water produced and distributed and the metering percentage related to consumers;

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The condition of sewerage services, based on the following criteria: population with access to sewerage services, the total length of the sewerage network and the amount of wastewater collected and conveyed, respectively the amount of treated water;

 The performance of regional operators assessed against the following parameters: the number of operating locations and the state of preparation and implementation of investment projects within the POS Environment;

 The financial performance of regional operators in terms of: total income, expenses, financial result, number of employees and tariff.

In our opinion, the comparative analysis of the technical, economic and financial performance of Apa Nova Bucureşti S.A. against other similar major operators across Romania must start from a series of assumptions related to ensuring comparability conditions. As regards the extent of provision of the water supply and sewerage services, Apa Nova Bucharest operates in the most crowded and extended urban area, having provided in 2010, water supply services to a population of 1,730,009 inhabitants and sewerage services for 1,710,764 inhabitants. Out of the 2,092,003 total inhabitants reported in the NARCS survey for 2010 (Table no. 16).

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

This extent of services exceeds by far the extent of the services provided by other operators with similar activity across Romania, even if they are already regional operators.

Table no. 16 Classification of operators depending on the population served, year 2010

N° of operating

water locations

–

N° Operator

supply

network

sewerage

on served

percentage

Total

Rural

Water metering

Urban

area of operation

total total watersupply

Population served

Population served per

Population served/km of of seweragekm network

Existing populationExisting in the

Populati

APA NOVA 1.710.76 1. 2.092.003 1.730.009 644 805 99 1 1 - BUCUREȘTI SA 4 COMPANA DE 2. 339.935 249.163 137.038 145 259 100 48 8 40 APA ARAD S.A. COMPANIA REGIONALĂ DE 3. 352.406 341.356 137.038 382 596 89 19 5 14 APA SA BACĂU APA-CANAL 4. 2000 S.A. 233.275 217.271 180.514 312 652 94 9 4 5 PITEȘTI APA-C.T.T.A. 5. S.A. ALBA 261.100 189.610 136.970 161 335 97 36 11 25 IULIA COMPANIA 6. APA SA 363.283 344.404 291.632 321 596 83 12 4 8 BRAȘOV COMP DE UT. PUB.DUNĂREA 7. 332.402 300.111 185.789 175 604 76 84 4 80 SA BRĂILA COMPANIA DE APA SOMEȘ 8. 610.959 528.544 382.361 270 386 97 47 8 39 S.A CLUJNAPOCA RAJA 9. CONSTANȚA 710.085 645.629 415.933 213 309 88 93 15 78 S.A COMP. DE APĂ 10. OLTENIA 810.000 330.000 300.000 388 596 80 9 7 2 S.A.CRAIOVA APA CANAL 11. 394.910 306.813 291.734 334 466 84 9 3 6 S.A. GALAȚI APA VITAL S.A. 12. 825.773 345.667 280.085 164 488 100 163 4 159 IAȘI AQUATIM S.A. 13. 451.455 398.664 336.097 265 528 86 40 9 31 TIMIȘOARA 253

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

VITAL S.A. 14. 256.589 209.969 156.882 318 488 93 10 10 0 BAIA MARE COMP. 15. AQUASERV 339.973 291.732 239.726 271 390 99 21 9 12 S.A.TG.MUREȘ COMP. JUD. APA SERV 16. 330.570 246.916 168.937 350 669 96 26 5 21 PIATRA NEAMȚ APA-NOVA 17. 232.452 232.452 171.676 560 - 100 - - - S.R.L. PLOIEȘTI APA-CANAL 18. 298.752 241.265 207.554 290 403 84 10 5 5 S.A. SIBIU S.C COMP DE UTILITĂȚI 19. 140.002 119.443 101.998 394 849 76 5 5 - PUB.FOCȘANI SA Source: NARCS, 2011

In Romania, in 2011 there were approximately 300 water companies. At that time it was expected100 that the regionalization program would create approximately 40 regional operators following the consolidation of smaller operators into a single regional operator. As a process, regionalisation takes place at county level and is conducted by the largest water operator in the region, which absorbs smaller companies within its structure.

In 2008, the condition and performance101 of many water infrastructures were relatively poor. The major problems faced by operators were:

 Inappropriate maintenance and operation services;

100 Ciomoş, V. (2011): Incurajarea reformelor în sectorul de apă românesc [Fostering Romanian Water Sector Reforms], Romaqua Magazine, n° 2/2011, www.romaqua.ro 101 GHID privind regionalizarea serviciilor de alimentare cu apă şi de canalizare [GUIDELINES on the regionalisation of water supply and sewerage services], Version (4), 17th of June 2008, page 4 254

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 High volume of non-revenue water caused by leaks in the network (water failing to generate income) and a low level of invoice collection (collection efficiency) from consumers;

 Lack of investment for the rehabilitation/extension of water/sewerage infrastructure;

 Lack of experienced personnel for the promotion, management and implementation of large-scale investment;

 Inefficient management of operating, maintenance and staff- related costs;

 Unclear roles and responsibilities of the institutions/authorities involved in the management of public utilities;

 Inadequate institutional framework.

The solution proposed to address these deficiencies was the organisation and operation of services at regional level to ensure sustainable development and economies of scale. The results achieved in the operation of water supply and sewerage services at regional level were the following:

 The provision of services at regional level by means of integrated systems and a more professional management leads in time to a reduction of water wasting, fostering the conservation of resources, minimizing investment and the protection of water sources.

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 Improving the preparation and implementation of investment projects, as well as the ability to negotiate financing.

 An increase in the quality of services, the improvement of customer relations and of their perception of operators.

 Achieving economies of scale leading to an increase in the efficiency of certain types of costs: the centralisation of billing and financial management, project implementation unit at central level, centralised laboratory management, etc.

However, the regionalization process has a number of significant risks102 because many of the smaller water operators are not managed on a commercial basis and there are operational losses. Small operators still face high levels of non-revenue water due to leaks in the network, poor collection systems and inadequate maintenance, as well as a lack of financial resources.

In this context, in 2011 at national level, there were 42 large regional operators with high technical and economic performance, able to attract European funds and implement large investment projects financed from such European funds.

Therefore, the comparative analysis is aimed at positioning Apa Nova Bucharest from a technical and economic perspective in relation to major

102 Ciomoş, V. (2011) Incurajarea reformelor în sectorul de apă românesc [Fostering Romanian Water Sector Reforms], Romaqua Magazine, n° 2/2011, www.romaqua.ro 256

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). regional operators with water supply and sewerage service supply parameters similar to those of Apa Nova Bucharest. a. In terms of the served population indicator, in 2010, Apa Nova Bucharest recorded the highest level of this indicator in relation to other national operators, due to the fact that it serves the largest and the densest urban agglomeration in Romania.

In 2010, in terms of the water network length, the company ranking first is RAJA Constanţa with a total length of 3,025 km, followed by Apa Nova Bucharest S.A. with 2,686 km and APA VITAL Iaşi with 2,110 km. The remaining operators have total length values below 2,000 kilometres103.

In terms of the sewerage service, the same operators, Apa Nova Bucharest and RAJA Constanţa, had in 2010 the longest sewerage networks in the country, with a length of 2,124 kilometres, and, respectively, 1,345 kilometres104. Based on the two items taken into account – population and network length – Apa Nova Bucharest has the highest value for the indicator served population/1 km of total network, 644 inhabitants/1 km of water supply network and respectively 805 inhabitants/1 km of sewerage network (Table n° 17).

103 NARCS (2011): Starea serviciilor de alimentare cu apa si de canalizare [The Condition of Water Supply and Sewerage Services], page 7 104 NARCS (2011): Starea serviciilor de alimentare cu apa si de canalizare [The Condition of Water Supply and Sewerage services], page 17 257

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Table no. 17 Served population /1 km of water supply and sewerage network, 2010

Served pop. / Served pop. per N° Operator km of total water km of sewerage supply network network 1. APA NOVA BUCUREȘTI SA 644 805 2. APA-NOVA S.R.L. PLOIEȘTI 560 - S.C COMP DE UTILITĂȚI 3. 394 849 PUB.FOCȘANI SA COMP. DE APĂ OLTENIA 4. 388 596 S.A.CRAIOVA COMPANIA REGIONALĂ DE APĂ 5. 382 596 SA BACĂU COMP. JUD. APĂ SERV PIATRA 6. 350 669 NEAMȚ 7. APA CANAL S.A. GALAȚI 334 466 8. COMPANIA APA SA BRAȘOV 321 596 9. VITAL S.A. BAIA MARE 318 488 10. APA-CANAL 2000 S.A. PITEȘTI 312 652 11. APA-CANAL S.A. SIBIU 290 403 COMP. AQUASERV 12. 271 390 S.A.TG.MUREȘ COMPANIA DE APA SOMEȘ S.A 13. 270 386 CLUJNAPOCA 14. AQUATIM S.A. TIMIȘOARA 265 528 15. RAJA CONSTANȚA S.A 213 309 COMP DE UT. PUB.DUNĂREA 16. 175 604 SA BRĂILA 17. APA VITAL S.A. IAȘI 164 488 18. APA-C.T.T.A. S.A. ALBA IULIA 161 335 19. COMPANA DE APA ARAD S.A. 145 259 Source: NARCS, 2011

Although it ranks first in terms of served population/1 km of total water supply network (2010), Apa Nova Bucharest ranks third in terms of the same indicator for the sewerage service, after COMPANIA DE UTILITĂŢI

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PUBLICE FOCŞANI (849 inhabitants/1 km of sewerage network), AQUASERV S.A. TULCEA (839 inhabitants/1 km of sewerage network). However, we must note the low value in absolute size for the parameters considered: the length of the sewerage network and the population provided with sewerage services for these two operators (Table no. 18).

Table no. 18 Small operators

Operator Number of Population provided Length of the inhabitants/1 km of with sewerage sewerage network sewerage network services – km - COMPANIA DE UTILITĂŢI PUBLICE 849 101,998 120 FOCŞANI AQUASERV S.A. 839 97,414 116 TULCEA Apa Nova Bucharest 805 1,710,764 2,124

b. The amount of water produced and wastewater collected in the sewerage system

The water volume produced in 2010 by all operators was 1,179,333 cubic meters, 1% less compared to 2009, while the served population increased in 2010 by 6.1 %105 compared to 2009.

In 2010, Apa Nova Bucharest ranks first in terms of the amount of water produced and wastewater collected in the sewerage system (Table no. 19).

105 Ibidem page 12 259

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

From the same perspective, as regards the average coverage of water supply services, in 2010, APA Nova Bucharest is middle ranking among the operators, with 82.70%. In 2010, APA NOVA S.R.L. Ploieşti ranks first with 100% coverage of water services. It should be noted that the operators serving only the urban areas have the highest coverage of water supply services.

According to the NARCS survey, regional operators treated in 2010 approx. 80% of collected water, 3% more than the value recorded in 2009. Table n° 19 illustrates the collected wastewater volume, respectively the treated water volume for the main regional operators106. Apa Nova Bucharest ranks first in terms of volume of activity in 2010, as shown in Table n° 23, with a produced water volume and an amount of wastewater collected in the sewerage system two times higher than the second largest operator RAJA CONSTANŢA SA.

In Bucharest, in 2012, the sewerage system must meet the needs of a population of more than 2,000,000 inhabitants, for the collection and discharge of industrial wastewater, as well as for the collection of storm water from an area exceeding 23,000 ha. The existing and anticipated urban development of neighbouring communities brings an amount of domestic wastewater from at least 200,000 inhabitants, as well as

106 Ibidem page 19 260

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). significant amounts of industrial wastewater and storm water collected from an additional area of approx. 50,000 ha107.

Table no. 19 The amount of produced water and wastewater collected in the sewerage system (2010)

Produced Amount of water wastewater collected N° Operator (thousand in the sewerage m3) system Collected Treated water water

(thousand (thousand m3) m3) 1. APA NOVA BUC. SA 244,891 182,431 2. RAJA CONSTANȚA SA 110,152 68,618 67,531 3. COMP. DE APA SOMEȘ SA CLUJ-NAPOCA 54,786 31,641 31,758 4. COMP. DE APĂ OLTENIA SA CRAIOVA 48,600 21,195 532 5. AQUATIM SA TIMIȘOARA 42,327 61,753 61,753 6. COM. APA BRAȘOV SA 40,991 27,435 27,435 7. APA VITAL SA IAȘI 40,462 23,713 78,755 8. COMP REG. DE APĂ BACĂU SA 37,696 10,979 24,342 9. AQUASERV SA TULCEA 34,076 3,303 - 10.APA -CANAL SA SIBIU 31,373 17,417 22,205 11.APA CANAL SA GALAȚI 29,612 18,197 15,380 12.COMP. U..P. DUNĂREA BRĂILA SA 26,085 13,667 239 13.COMP. AQUASERV SA.TG.MUREȘ 26,013 27,460 27,181 14.ACET SA SUCEAVA 25,439 12,321 12,321 15.APA -CANAL 2000 S.A. PITEȘTI 24,479 12,674 12,851 16.COMP. DE APĂ ORADEA SA 23,986 18,738 34,007 17.COMP. JUD. APA SERV SA PIATRA NEAMȚ 23,734 7,842 11,523 18.HIDRO PRAHOVA SA.PLOIEȘTI 20,797 6,253 6,253 19.APA - PROD SA DEVA 20,567 11,195 4,478 20.COMPANA DE APĂ ARAD SA 20,375 8,629 8,629 21.APA -NOVA S.R.L. PLOIEȘTI 18,481 16,053 21,410 22.VITAL S.A. BAIA MARE 18,121 10,630 10,630

107 ANB Contractual Report. Contractual Year 12th \ 16th of January 2013, page 17

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The implementation of the Directive 91/271 EEC concerning urban wastewater treatment is a complex and very costly issue assessed according to the Directive Implementation Plan (2004) to 9.5 billion Euros for investment, of which 5.7 billion Euros for treatment plants and 3.8 billion Euros for sewerage systems108.

According to the country report on Romania regarding the Strategic Evaluation on Environment and Risk Prevention, prepared by ECOLAS&GHK for the European Commission109, in terms of water supply/wastewater treatment and investment needs for the period 2007– 2013, Romania ranks second after Poland. In 2011, the wastewater discharge activity, as well as wastewater treatment in treatment plants, was conducted in 309 cities and towns and 552 communes110. At the end of 2011, the total length of the sewerage network in Romania was 23,137.2 km, of which 19,088.4 km in cities and towns.

Compared to the previous year, in 2012, the length of the sewerage network was extended by 1,159.7 km, more in rural areas than in urban

108 Situaţia în România a Apelor uzate urbane şi a nămolului provenit din staţiile de epurare [Urban wastewater and sludge from treatment plants in Romania]- PUBLIC BROCHURE - BUCHAREST, DECEMBER 2012, prepared by the Ministry of Environment and Forests and the National Administration “Apele Române” 109 “Strategic Evaluation on Environment and Risk Prevention” – Country Report – Romania, ECOLAS&GHK, 2006 110 Coriolan Onescu, article published on 23.07.2012 in NATIONAL Newspaper, http://www.timisoaraexpress.ro/stiri-nationale/romania-2012-canalizare-pentru-435- dintre-romani-_5449#!prettyPhoto[]/0/ 262

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). areas. In 2012, 43.5% of the population of Romania had their homes connected to sewerage systems. Until the commissioning in October 2011 of Glina Wastewater Treatment Plant, Bucharest used to discharge wastewater directly into Dâmboviţa, generating major risks to the environment and human health, positioning Apa Nova Bucharest, as the Concessionaire, first among national operators in terms of wastewater volume collected in the sewerage system and treated.

In 2011, there were 511 treatment plants111. Only 16 treatment plants comply with the requirements of the Directive 91/271/EEC, for the secondary stage of treatment112.

The most significant clusters in terms of the impact of wastewater on the environment are considered the 22 human clusters with more than 150,000 inhabitants, many of them covering some of the administrative adjacent communes. For all these human clusters, were approved infrastructure improvement projects in the field of wastewater collection

111 Situaţia în România a Apelor uzate urbane şi a nămolului provenit din staţiile de epurare [Urban wastewater and sludge from treatment plants in Romania]- PUBLIC BROCHURE - BUCHAREST, DECEMBER 2012, prepared by the Ministry of Environment and Forests and the National Administration “Apele Române” http://www.rowater.ro/TEST/Brosura-ape-uzate-pentru-public-2012.pdf 112 The secondary (biological) treatment stage is a component of the wastewater treatment plant, mainly aimed at removing a significant part of the biodegradable organic matter. The condition for defining the secondary stage is the efficiency in removing pollutants, namely: BOD5 > 70% and chemical oxygen consumption COD > 75%.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). and treatment, financed from ISPA funds that are continued from the Cohesion Fund. c. Water losses

In 2010, the amount of lost water was a loss of 53%, compared to the loss of 45% recorded in 2009.

Table no. 20 Percentage of non-revenue water from the total volume of produced water % of non-revenue water from the total volume of produced water COMP REG. DE APA BACAU SA 24.64 COMPANA DE APA ARAD SA 36.41 COMP. AQUASERV SA.TG.MURES 39.49 APA VITAL SA IASI 41.00 APA CANAL SA GALATI 41.74 COMP. DE APA SOMES SA CLUJ-NAPOCA 41.77 APA NOVA BUCUREŞTI SA 41.93 APA-CANAL 2000 S.A. PITESTI 43.20 APA -PROD SA DEVA 44.36 AQUATIM SA TIMISOARA 44.57 COMP. DE APA ORADEA SA 46.59 HIDRO PRAHOVA SA.PLOIESTI 50.65 COMP. U..P. DUNAREA BRAILA SA 51.92 ACET SA SUCEAVA 53.70 COMP. DE APA OLTENIA SA CRAIOVA 55.01 APA-CANAL SA SIBIU 55.40 COMP. JUD. APA SERV SA PIATRA NEAMT 55.42 COMP. APA BRASOV SA 57.36 RAJA CONSTANTA SA 61.66 AQUASERV SA TULCEA 85.50

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Water losses (Table no. 20) and produced water which is non-revenue water represent one of the most serious problems faced by all operators in the sector. It is estimated that more than 30% of the world drinking water is lost in the urban water supply systems before reaching the users113.

Non-revenue water usually involves three major components: a physical (or real) component, commercial losses and non-revenue authorised consumption.

 Physical losses are caused by poor maintenance and repair operations, the lack of adequate operational control and poor quality of groundwater.

 Commercial losses are caused by water theft committed by customers, in various forms, as well as poor management of data and information.

 Non-revenue authorised consumption includes water consumption for utilitarian purposes, such as water used for fire fighting and water provided free of charge to certain disadvantaged groups.

Non-revenue water leads the operator to a vicious circle. Physical losses create problems in meeting the customers’ demand, requiring the production of a larger quantity of water, which obviously leads to a permanent increase in operating costs. Hence, the need for additional

113 Ariel Moshkovitz (2012):Performance-Based Non-Revenue-Water (NRW) Contracts in South Africa, Public-Private Partnerships Conference, JUNE 5-8, 2012 | DAKAR, SENEGAL 265

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). investment efforts needed to increase network capacity. Moreover, commercial losses caused by inaccuracies in the measurement made by customers, poor data management and illegal connections lead to a deterioration in income levels and the impossibility of obtaining financial resources.

The average value of non-revenue water for water supply systems is approximately 22%. A well managed system and service will keep this percentage below 10%, while a service based on old infrastructure, without leak detection systems and meter testing software, can reach 40% or more114.

In Bucharest, Apa Nova managed to reduce the level of non-revenue water by almost half, from 350 m3 per kilometre of network/day in 2000, to 176 m3 per kilometre of network/day in 2007. While 10 other operators across the country have reduced water losses by an average of 6 % per year, Apa Nova Bucharest achieved a percentage of 10% per year115. In the first nine years of the concession, Apa Nova Bucharest has invested 66 million dollars in the replacement of networks and other measures to reduce water losses. On the short term, this has led to an increase in the cost of water

114 Mijares, Luis: Water Audit Helps Identify Non-Revenue Water Losses, http://www.waterworld.com/articles/print/volume-26/issue-80/editorial-features/water- audit-helps.html 115 David Earhardt, Melissa Rekas, and Martina Tonizzo (2011): Water in Bucharest, A Utility’s Efficiency Gains under a Concession, Viewpoint, note number 326, February 2011, http://rru.worldbank.org/documents/publicpolicyjournal/326-Bucharest-water.pdf 266

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). supply services. But on the long term, these investments will allow the maintenance of costs and tariffs at a low level.

As regards the year 2010, the comparative analysis of the percentage of water losses for major operators in Romania shows that Apa Nova Bucharest is in the top tier, with a value of 41.93 % non-revenue water from the total water produced (Table no. 20).

The average water losses reported by Romania for the IB-NET in 2010 is 51%, as shown in Table no. 21.

Table no. 21 National average percentage

Non-revenue water (%) Poland - 2010 15 Albania -2011 64 Bulgaria - 2008 54 Romania - 2010 51 Czech Republic -2010 20 Macedonia - 2011 60 Hungary - 2007 32 Slovakia - 2007 31 Lithuania - 2010 24 Belarus - 2011 26 Moldova - 2011 44 Source: http://www.ib-net.org/en/country_map.php

As a remark, it should be noted that the level of water losses typically increases with the size or density of services in the area of supply. 267

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Therefore, it cannot be interpreted as representing a measure of the absolute poor performance of the service, especially in densely populated areas. d. Tariff policy

Table no. 22 shows the tariffs in force on 08.03.2013 for most national operators, as published on their official websites.

Table no. 22 Applicable tariff for water-sewerage - March 2013

Combine DRINKING d tariff WATER to SEWERAGE – Drinking Effective population TREATMENT Comments N° OPERATOR water+se date Lei/m3 Lei/m3 werage- without without VAT treatmen VAT t The tariffs of Apa Nova Ploiești rank the company in descending order, 40th of APA NOVA the 43 county capitals in Romania, 1. 29.01.2013 1.26 1.12 2.38 PLOIEȘTI namely, by 36.4% lower than the highest tariff in the country in this category Average tariff calculated for water in the 18 municipalities and for sewerage COMPANIA in 6 municipalities. 2. DE APĂ Valid 2013 2.23 0.96 3.19 There is no unique tariff. BACĂU http://www.apabacau.ro/index.php/tari fe-apa-canal http://www.apa-canal.ro/servicii-de- apa-potabila-apa-de-profunzime-si- APA CANAL canalizare/ 3. 01.07.2012 3.1 0.21 3.31 SA GALAȚI Average tariff calculated for water in 10 municipalities and for sewerage in 7 municipalities. APA CANAL 1.08. 2012 http://www.apacansb.ro/p.php?pag=ta 4. 2.59 1.35 3.94 SIBIU rife http://www.vitalmm.ro/index.php?opti VITAL SA 1.07.2012 5. 2.66 1.47 4.13 on=com_content&view=article&id=177: BAIA MARE sigpret&catid=44:pret&Itemid=123 Average tariff calculated for water in COMPANIA the 6 municipalities and for sewerage in 6. DE APĂ OLT 01.12.2012 2.43 1.75 4.18 5 municipalities SA There is no unique tariff. http://www.caolt.ro/ro/page.php?id=2 268

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

6 APA PROD 01.09.20 7. 2.93 1.27 4.2 http://www.apaprod.ro/info_cons.htm SA DEVA 12 COMPANIA 2.99 1.28 8. DE APĂ 31.12.2012 4.27 http://www.apaterm.ro/

ORADEA http://www.aquatim.ro/ro/97/tarife-si- 9. AQUATIM 1.09. 2012 2.28 2.08 4.36 servicii.htm http://www.apaoltenia.ro/informatii- utile/tarife/tarifele-apa-canal-facturate- COMPANIA de-companie/ DE APĂ 2.75 1.65 10. 01.01.2013 4.4 Sewerage tariff for Craiova. OLTENIA The sewerage tariff is not unique. 5 of S.A. the 8 municipalities are connected to sewerage systems. AQUABIS 11. 01.07.2012 2.75 1.65 4.4 http://www.aquabis.ro/tarife/ BISTRIŢA COMPANIA http://www.casomes.ro/index.php?pid 12. DE APĂ 1.07 2011 2.39 2.05 4.44 =4 SOMEŞ COMPANIA DE UTILITĂȚI Average tariff calculated for the 37 13. PUBLICE 01.05.2012 3.24 1.81 5.05 municipalities. DUNĂREA B There is no unique tariff. RĂILA COMPANIA http://www.apabrasov.ro/ro/clienti/tari 14. DE APA 01.12.2012 3.00 2.07 5.07 fe/ BRASOV APAVITAL http://www.apavital.ro/preturi_servicii- 15. 01.07.2012 3.02 2.20 5.22 IASI 1605-ro.html APA NOVA 16. 1.03. 2013 4.36 0.97 5.33 www.apanovabucuresti.ro BUCHAREST COMPANIA 17. DE APĂ 26.01.2013 2.84 2.77 5.61 http://www.caarad.ro/ ARAD No information about prices and tariffs RAJA on the company's official website. 18. 10.04.2012 3.00 2.67 5.67 CONSTANŢA http://joienegru.blogspot.ro/2012/04/t arife-raja-constanta-2012.html APA CTTA SA http://www.apaalba.ro/clienti- 19. 2013 2.93 2.79 5.72 ALBA tarife.html ACVASERV http://www.aquaservtulcea.ro/facturar 20. 1.09.2012 3.56 2.25 5.81 TULCEA e/?subpage=tarife-si-taxe COMPANIA 21. DE APĂ 01.07.2012 3.61 2.24 5.85 http://www.cabuzau.ro/ BUZAU https://www.apacanal2000.ro/tarife.as APA CANAL 22. 01.01.2013 3.23 3.03 6.26 px?key=JQwfpSYzKudRh7pt3aa4eA%3D 2000 PITEŞTI %3D In Rm.Valcea. APAVIL There is no unique tariff. 23. 01.01.2013 3.55 2.72 6.27 VÂLCEA http://www.apavil.ro/images/NoileTarif e01012013.pdf 269

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

In terms of tariffs, according to Table no. 22, among the 23 selected operators, Apa Nova Bucharest ranks 16th. Apa Nova Bucharest is also the operator with the most recent tariffs applicable as of 1st of March 2013. The increase of tariffs is justified by the fact that Bucharest City Hall needs to ensure the financial resources for two investment programmes: the investment in the main wastewater collector and the extension of water and sewerage networks by means of Bucur programme.

The project aimed at cleaning and using at full capacity the main wastewater collector of the city, located under Dâmboviţa River is estimated at approximately € 40 million and, upon its completion in 2014, will significantly decrease the flooding risk for the Capital city. The second programme funded by consumers is “Bucur", which provides for the extension of water and sewerage networks on several dozens of streets in the city which are deficient in this respect. Moreover, the increase of tariffs was also determined by the increase in inflation rate and exchange rate unfavourable to the national currency116.

e. Economic perspective

116 22 February 2013, ANB Press Office: Inflaţia şi devalorizarea leului ajustează tarifele serviciilor de apă şi de canalizare [Inflation and RON Devaluation adjust the Tariffs for Water and Sewerage Services http://www.apanovabucuresti.ro/mass-media/comunicate-de-presa/2013/22-februarie- 2013-infla-ia-i-devalorizarea-leului-ajusteaz-tarifele-serviciilor-de-ap-i-de-canalizare/

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

In 2010, according to the data taken from the NARCS survey, Apa Nova Bucharest ranks second among the most representative similar operators in the country in terms of the number of employees (1,898 in total, of which 951 operational employees), after Raja Constanţa with a total number of 2,486 employees, of which 1,823 employees in operational activity.

However, in the same year, the income obtained by Apa Nova Bucharest ranks the company first, even if in terms of applicable tariffs, it ranks third among the 44 operators reviewed117. This places Apa Nova Bucharest first in terms of labour productivity, calculated as a ratio between the total income obtained by the operator and the total number of employees.

In 2010, Apa Nova Bucharest obtained a total income per employee amounting to 249.5 thousand lei, about twice higher than the third ranking operator, APA-CANAL 2000 S.A. PITEŞTI with 110.87 thousand lei. After Apa Nova Bucharest, APA-NOVA S.R.L. Ploieşti ranks second with 211.91 thousand lei.

This justifies the excellent positioning of Apa Nova Bucharest in terms of income return, exceeding by far the minimum level of 5% of this indicator (Table no. 23). It should be noted, in this regard, the performance achieved by the APA-NOVA S.R.L. Ploieşti whose income return of 21.60% exceeds Apa Nova Bucharest (with an income return of 21.23%). Raja

117 NARCS (2011): Starea serviciilor de alimentare cu apa si de canalizare [The Condition of Water Supply and Sewerage Services], page 32 271

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Constanţa, considered the second largest operator in terms of the number of employees ranks only 15th, with an income return of 7.12% (Table 27.). Table no. 23 shows that generally, all major operators with large numbers of employees achieve a level of income return between 2% and 8%, which is considered low and insufficient in terms of economic and financial performance.

Table no. 23 Economic indicators

Of which: Productivity Income

return118 Income Expenditure (Total

N° Operator Total thousand thousand income/n° (Gross profit Lei Lei of x 100/Total employees) income) 119 TESA

OPERATIONAL

APA NOVA 1. BUCUREŞTI 1,898 947 951 473,543 372,993 21.23 249.50 SA APA-NOVA 2. S.R.L. 256 58 198 54,249 42,530 21.60 211.91 PLOIESTI APA-CANAL 3. 2000 S.A. 619 245 374 68,628 57,966 15.54 110.87 PITESTI APA VITAL 4. 1,043 169 874 109,699 101,921 7.09 105.18 S.A. IASI COMPANIA 5. 766 247 519 80,311 66,520 17.17 104.84 APA BRASOV

118 It is considered a gross profit margin, but applied to the entire income earned. Unaffected by the tax rate. It must be in continuous growth and exceed at least 5%. 119 It measures the efficiency of using human factor. It must be in continuous growth and over the sector average. A healthy growth is achieved through automation, robotics, little and skilled staff. It can be calculated in relation to total income, turnover, production achieved, production sold, production for the financial year, gross operating surplus and value added. 272

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

SA COMPANIA 6. DE APA 523 152 371 54,569 48,840 10.50 104.34 ORADEA S.A. AQUATIM 7. S.A. 913 227 686 90,193 83,236 7.71 98.79 TIMIȘOARA AQUASERV 8. 269 70 199 24,503 24,423 0.33 91.09 S.A. TULCEA COMP. JUD. APA SERV SA 9. 580 157 423 50,000 46,000 8.00 86.21 PIATRA NEAMȚ COMPANA 10. DE APĂ 735 90 645 60,944 46,758 23.28 82.92 ARAD S.A. RAJA 11. CONSTANȚA 2,486 663 1,823 198,998 184,836 7.12 80.05 S.A COMPANIA 12. DE APĂ S.A. 521 164 357 40,772 36,613 10.20 78.26 BUZAU APA-CANAL 13. 711 161 550 54,003 48,491 10.21 75.95 S.A. SIBIU COMPANIA DE APĂ 14. 1,751 402 1.349 127,955 124,621 2.61 73.08 SOMEȘ S.A CLUJNAPOCA COMP. AQUASERV 15. 868 320 548 62,714 63,808 -1.74 72.25 S.A.TG.MUR EȘ COMPANIA 16. DE APĂ OLT 270 68 202 18,757 13,614 27.42 69.47 S.A. VITAL S.A. 17. 513 100 413 34,607 33,271 3.86 67.46 BAIA MARE ACET S.A. 18. 673 233 440 44,744 40,746 8.94 66.48 SUCEAVA COMPANIA DE APĂ 19. TARGOVIȘTE 525 118 407 32,080 31,398 2.13 61.10 DÂMBOVIȚA SA COMPANIA 20. REGIONALĂ 839 137 702 49,813 46,618 6.41 59.37 DE APĂ 273

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

BACAU APĂ CANAL 21. 1,081 243 838 62,286 59,062 5.18 57.62 S.A. GALAȚI AQUABIS" SA 22. BISTRIȚA 536 123 413 29,803 29,946 -0.48 55.60 NĂSĂUD APA-C.T.T.A. 23. S.A. ALBA 820 223 597 44,493 40,372 9.26 54.26 IULIA COMP. DE 24. APĂ OLTENIA 1,227 162 1.065 61,724 59,732 3.23 50.30 S.A.CRAIOVA AQUAVAS 25. 529 169 360 25,750 25,430 1.24 48.68 S.A. VASLUI COMP. DE UT. 26. PUB.DUNĂR 715 215 500 34,768 31,761 8.65 48.63 EA BRĂILA SA* AQUACARAS 27. 703 196 507 28,072 27,491 2.07 39.93 S.A. REȘIȚA APA-PROD 28. 833 231 602 32,212 30,100 6.56 38.67 S.A. DEVA APAVIL S.A. 29. 692 267 425 19,240 18,912 1.70 27.80 RM.VÂLCEA Source: NARCS 2011

On the other hand, if labour productivity is measured as the ratio between the number of employees and 1,000 connections120, Romania does not make a very good impression. In the world, in 2008121, labour productivity was 1.9 in Eastern Europe and Central Asia, 0.8 in Latin America, 0.6 in Africa, compared to 0.2 in developed countries.

120 Caroline van den Berg, Alexander Danilenko (2011): The IBNET Water Supply and Sanitation Performance Blue Book, The International Bank for Reconstruction and Development / The World Bank, 2011 121 Ibidem, page 22 274

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

The differences between these rates and those recorded by national operators are determined partly by the connection practices used by customers/consumers. In Eastern Europe and Central Asia, many apartment buildings are still fitted with a single connection, therefore staff productivity per 1,000 connections is very low. In 2008, the average staff productivity was about 12 employees per 1,000 connections.

Table no. 24 Labour productivity indicator

Total N° of N° of Operator employees connections employees/1,000 connections 1. NOVA APA SERV S.A.BOTOŞANI 478 62,347 7.67 2. VITAL S.A. BAIA MARE 513 63,739 8.05 3. AQUASERV S.A. TULCEA 269 26,165 10.28 4. APA-NOVA S.R.L. PLOIEȘTI 256 23,776 10.77 5. COMPANIA DE APĂ TÂRGOVIȘTE 525 44,020 11.93 6. COMPANA DE APĂ ARAD S.A. 735 60,204 12.21 7. APASERV SATU MARE S.A. 400 32,679 12.24 8. COMP. DE UT. PUB.DUNĂREA 715 54,732 13.06 BRĂILA SA* 9. APA NOVA BUCUREȘTI SA 1,898 112,590 16.86 10.COMPANIA DE APĂ S.A. BUZAU 521 30,804 16.91 11.APA -C.T.T.A. S.A. ALBA IULIA 820 48,289 16.98 12.COMPANIA DE APĂ ORADEA S.A. 523 30,458 17.17 13.AQUABIS" SA BISTRIȚA NĂSĂUD 536 29,734 18.03 14.COMP. JUD. APA SERV SA PIATRA 580 31,986 18.13 NEAMȚ 15.AQUATIM S.A. TIMIȘOARA 913 49,768 18.35 16.COMP. AQUASERV S.A.TG.MUREȘ 868 43,477 19.96 17.APĂ -CANAL S.A. SIBIU 711 34,125 20.84 18.APĂ -CANA L 2000 S.A. PITEȘTI 619 29,538 20.96 19.RAJA CONSTANȚA S.A 2,486 117,972 21.07 20.APA VITAL S.A. IAȘI 1,043 45,346 23.00 21.COMPANIA REGIONALĂ DE APĂ 839 35,826 23.42 BACĂU 22.APAVIL S.A. RM. VÂLCEA 692 28,925 23.92 23.COMPANIA DE APĂ OLT S.A. 270 11,168 24.18 275

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

24.COMPANIA DE APĂ SOMEȘ S.A CLUJ 1,751 71,795 24.39 NAPOCA 25.COMPANIA APĂ BRAȘOV SA 766 30,492 25.12 26.APA - PROD S.A. DEVA 833 28,273 29.46 27.COMP. DE APĂ OLTENIA 1,227 41,497 29.57 S.A.CRAIOVA 28.ACET S.A. SUCEAVA 673 21,636 31.11 29.APA CANAL S.A. GALAȚI 1,081 33,737 32.04 30.AQUACARAS S.A. REȘIȚA 703 19,327 36.37 31.AQUAVAS S.A. VASLUI 529 14,019 37.73 Source: NARCS 2011

From this perspective, the performance of Apa Nova Bucureşti SA with a rate of 16.86 employees/1,000 connections, compared to the values of this indicator achieved by other companies in the field (Table no. 24), can be considered good. f. Power consumption

The increasingly visible concern of water supply and sewerage companies for the implementation of sustainable development and environmental protection measures, is proved by the ongoing effort to reduce the consumption of natural resources by reducing the consumption of raw water and power.

The intensive use of energy is a serious problem for the environment, the health of the population and living organisms in general. Burning fuel releases into the atmosphere large amounts of gas and other harmful substances that pollute the air at local, national and regional level, also contributing to the pollution of ecosystems. CO2 greenhouse gases

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). contribute to climate change, and a number of other pollutants are conveyed in the atmosphere over long distances, causing injury to human health, land, water and forest resources.

On the other hand, reducing this consumption has beneficial effects for water and sewerage operators also by reducing costs and increasing profit. In 2010, the average power consumption to produce one m3 of drinking water was 0.38 KWh/m3. Apa Nova Bucharest recorded in 2010 a power consumption of 0.22 kWH/m3 of drinking water, a significantly lower consumption than that of other major operators: RAJA CONSTANŢA S.A, 0.57 kWH/m3 of drinking water, APA VITAL S.A. IAŞI 0.83 kWH/m3 of drinking water, AQUATIM S.A. TIMIŞOARA, 0.28 kWH/m3 of drinking water122.

In 2010, Apa Nova Bucharest has completed a project with a value over four million Euros for the implementation of automatic dosing and monitoring systems in production plants and secondary pumping plants (e.g. Roşu and Grozăveşti) to streamline the collection, treatment and distribution of water to consumers. The new water management systems supplied by Schneider Electric reduce power consumption by up to 17%, saving more than 600,000 Euros.

However, the large differences in this indicator are determined by the actual conditions of the water caption, transportation and distribution

122 NARCS (2011): Starea serviciilor de alimentare cu apa si de canalizare [The Condition of Water Supply and Sewerage Services], pages 385-87 277

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). system. A number of operators do not use power for pumping because water is conveyed and distributed through free fall, which leads to very low values of power consumption123.

Reducing power consumption and hence the decrease of this cost and of the price of water by making significant investment is a permanent objective of the operators recording high values of energy consumption/m3 of produced water.

For the sewerage activity, in 2010, power consumption had an average value of 0.17 kWh/m3 of wastewater. The operators recording the highest values are those operating treatment plants with three steps: mechanical, chemical and biological.

The activities of Apa Nova Bucharest use124 increasingly less natural resources and energy, so that in 2012, the amount of purchased raw water had decreased by 50% since 2002, while power consumption had decreased by 70% since 2000. One should also note that Glina Wastewater Treatment Plant (WWTP) has a degree of energy autonomy which increased from approx. 50 % (July 2011) to approx. 70 % (July 2012)125, which locates Apa Nova Bucharest on an upward trend in terms of increasing the energy efficiency of activities.

123 NARCS (2011): Starea serviciilor de alimentare cu apa si de canalizare [The Condition of Water Supply and Sewerage Services], pages 33-32 124 http://www.apanovabucuresti.ro/companie/dezvoltare-durabila/protectia-mediului/ 125 ANB Contractual Report. Contractual Year 12th \ 16th of January 2013, page 25 278

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

4 THE ANALYSIS OF PUBLIC-PRIVATE PARTNERSHIP OF CONCESSION TYPE IN RELATION TO OTHER FORMS OF DELEGATION OF WATER SUPPLY AND SEWERAGE SERVICES

4.1 FRAMEWORK FOR THE ANALYSIS OF PUBLIC PRIVATE PARTNERSHIP OF CONCESSION TYPE

Public-private partnerships (PPP) developed in the sector of public utility services have become a phenomenon that is spreading worldwide and generating a growing interest126. Although mentioned only a decade ago, nowadays PPP attract a different interest amid reconsidering the obtaining and use of financial resources. PPPs are able to avoid the negative effects of exclusive public ownership and management in providing services on the one hand, and of direct privatization, on the other hand. PPPs combine the benefits of two dimensions: the private sector with its resources, technologies and management skills, and the public sector with its regulatory and public interest protection actions. This balanced approach is beneficial in providing public services with direct impact on meeting basic human needs.

Therefore, there are lots of good reasons to favour PPPs, but also extensive evidence that they work well. However, they impose severe organizational

126 Marek Belka, Executive Secretary, United Nations Economic Commission for Europe: Guidebook on Promoting Good Governance in Public-Private Partnerships, United Nations New York and Geneva, 2008, pag. iv 279

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). and institutional changes in the public sector. The complexity of their implementation and operation require new types of skills and institutions, transparent, efficient and responsible procedures, in other words, the application of change management in the public sector to achieve "good governance".

The driving force of PPP is of course economic. Delmon (2009) shows that public funding is not sufficient to remove the gap between investment needs in infrastructure and the funds available. There are few reasonable prospects of significantly increasing public funding or donations, therefore, the development of infrastructure will have to rely more on private financial markets to raise capital.

There is a wide range of options in terms of public service provision: from the direct management of services to their privatization in full, if the public authorities transfer all responsibilities, risks and benefits to the private sector. Within this framework, PPPs can be classified based on the degree of involvement of the public and private sectors, as well as the degree of risk allocation. Figure no. 67 presents the models of public-private partnerships in relation to the two criteria above.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Concession Build-Own-Operate

Design-Build-Finance-Operate--Maintain

SECTOR Design-Build-Finance-Operate

Design-Build-Finance-Maintain Design-Build-Operate

TYPES OF PPP Lease-Develop-Operate Build-Finance-Maintain Build-Finance Operation and Maintenance

DEGREE OF RISK OF PRIVATE OF RISK OF DEGREE Design-Build

DEGREE OF INVOLVEMENT OF THE PRIVATE SECTOR Figure no. 67 Scale of Public-Private Partnership

Source: Canadian Council for Public Private Partnership, cited by United Nations Economic Commission for Europe (2008): Guidebook on Promoting Good Governance in Public- Private Partnerships, United Nations New York and Geneva, page 4

The figure shows that a PPP of concession type requires the highest degree of involvement of the private sector, while taking a high degree of risk.

Concession contracts127 are commonly used by public authorities to ensure the provision of services or to build infrastructure. Concessions claim a significant share of the economic activity in the EU. The concessions involving private sector partners represent a special form of public-private

127http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=SEC:2011:1589:FIN:RO:DOC C.E. (2011): SUMMARY OF THE ASSESSMENT OF THE IMPACT OF THE PROPOSAL OF A DIRECTIVE ON THE AWARD OF CONCESSION CONTRACTS.

281

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). partnerships (PPP). According to available information128, over 60 % of PPP contracts can be classified as concessions. As a model in which the private partner receives as remuneration the right to operate the work or the service with the inherent financial risks, concessions constitute a legislative framework suitable for the implementation of public projects through PPPs, thus allowing for the execution of necessary works and public services which are no longer included in the public balance sheet as assets.

In order to analyse public-private partnership in relation to other forms of delegation of public water supply and sewerage services, we must mention the main trends of change that are manifested internationally in public management, in general, and in the management of public utilities, in particular, given the objectives and lines of action set by the Strategy Europe 2020 - smart, sustainable and inclusive growth. All these trends based on the effects of the gradual transition from the information society to the knowledge society, are real challenges and requirements for an efficient management of public utility services where the water supply and sewerage services are of particular importance.

In our opinion, the concerns of Romanian local authorities which must be aimed at a rapid alignment of water supply and sewerage services to international standards of performance, should focus on identifying the service management methods that can meet the following requirements:

128 idem 282

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). a. The need for grounding, measuring and monitoring global performance (economic and financial, social and environmental). b. Moving from a management based on information to a management based on knowledge, able to anticipate financial, commercial and operational risk situations threatening the operator. c. The use by the operators’ upper management of tools capable of streamlining the functions of the service management process (planning, organization, coordination, training, supervision- assessment) for public services and their conversion into “intelligent public services”.

d. The need to participate in the establishment of poles of competitiveness at regional level.

e. The acceleration of increase in the quality and competitiveness of public utility services.

f. The transfer of the "centre of gravity” of the governing act from the technical area to the economic and financial area by the focus of staff on analysis and design activities.

Significant factors justifying the decision to resort to a PPP of concession type:

 Budgetary constraints that the local public authorities cannot meet. The PPP meets this private financing need for the public sector. 283

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The need to use more the know-how and working methods of the private sector in public life.

 Changing the role of the State in the economy: the state switches from a role of direct operator to a role of organiser, regulator and controller.

Key elements of a PPP project of concession type:

 A balanced risk-sharing between all parties involved, especially between the public and private sectors.

 The involvement of all stakeholders and their representatives in the PPP programme.

 The performance of solid contracts between the entities involved.

 The design of appropriate public procurement procedures.

 Evidence of quality, time and cost benefits.

 Support and stimulate change and continuous improvement to ensure long-term success.

The EC Green Paper on PPP (European Commission, 2004) distinguishes between two different generic forms of PPP:

I. PPP of purely contractual type: the relationship between the public and private partner relies solely on conventional bonds and agreements which establish the role of each party. The two

284

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

partners work together on an equal footing (specific to the general pattern of the concession).

 Management models:

a. Operating models – the private operator is entrusted with the public task of planning, financing, construction and operation of an investment (max. duration 30 years), while the responsibility remains with the public sector.

b. Management models – focus only on the transfer of the management of a service to the private partner. It is successfully used in the system of public utilities and public health service.

c. Concession models (construction or services) – the private partner, i.e. the concessionaire, builds, develops or provides a service at its own economic risk, but is granted the right to refinance its costs from the operating fees paid by the beneficiaries of the service.

II. PPP of organisational or institutional type:

 Involves the cooperation between the public and private sectors within a distinct legal entity, the so-called “Project Company”, owned jointly by the public and private partners.

 The public partner has in this case a position of superiority.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Another differentiating element of PPP forms is represented by the correlations between the chosen solution and local public policies. They are usually subject to a set of basic objectives aimed at: a. Ensuring competition and free market access; b. Protecting the public interest ; c. Maximizing the added value for citizens; d. Defining the optimal level of service infrastructure funding, ensuring the viability and sustainability of projects, on the one hand, and preventing unnecessary consumption of financial resources, on the other hand; e. Choosing the best PPP option, taking into account the following parameters: a balanced risk-sharing ensuring an optimal duration of implementation, the clear definition of responsibilities of the parties involved. f. Ensuring an appropriate legislative and regulatory system providing the support of development and implementation of PPPs; g. Ensuring the sustainability of the public and social sector to create the support for strategic decisions on PPPs.

The approach that should be at the basis of promoting coherent local public policies in the field of services, focuses on the needs of final

286

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). beneficiaries, namely the consumers , who want proper water supply and sewerage services, ensuring an efficient management materialised in a decent tariff. From the methodological point of view, the starting point in the formulation of such policies lies in conducting analyses of cause-effect type129 which seek to identify the reasons that lead to deficiencies in the system.

A representative example is the situation of public water supply and sewerage services in Bucharest before their concession. One of the main causes of the low performance of this service was generated by the legal system and the public administration system allowing decision makers to act against the public interest. For example, the local authorities which coordinated the activity of RGAB, although they were aware that raising tariffs was necessary to increase the service quality, hesitated to do so, due to the immediate social impact of this measure. In addition, managerial positions were held, in some cases, by people with multiple connections in the system, even if they were not sufficiently qualified for the respective positions. There was a high risk that such manager’s award contracts on a preferential basis to interest groups. Also, due to low salaries, the staff in charge of disconnecting non-paying consumers would accept money for their illegal reconnection. Moreover, these problems were specific to many other cities where both the ownership and actual operation of water supply and sewerage systems belonged to the public sector.

129 World Bank, PPIAF - Approaches to Private Participation in Water Services, 2006. 287

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Since 1996, with the support of IFC, the decision makers in the field of public water supply and sewerage services in Bucharest have sought to address these issues, trying to find answers to the following questions:

 How to set up a system to provide services allowing the recruitment and selection of efficient managers entrusted with the formal freedom to make decisions?

 How can sufficient financial resources be ensured to cover the operating costs of the system, on the one hand, and to support the investment process, on the other hand?

 How can we create the conditions for an efficient management of financial resources, leading to a high return on the investment process, for both suppliers and consumers?

 How can we create opportunities for the expansion or upgrade of the water supply and sewerage system, when own financial resources are insufficient?

In identifying the answers to these questions, we must identify actual examples130 of municipalities that have attempted to restructure the water supply and sewerage service system, without this requiring the involvement of private capital. Except for some isolated cases where this attempt has proven to be successful, in most cases the reforms have not

130 World Bank, OCDE, Posch&Partners – Private Sector Participation in Municipal Water Services in Central and Eastern Europe and Central Asia, 2002. 288

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). achieved the desired effect. In many cases this happened because the public authorities in charge have failed to change the system of relations between the representative stakeholders of the services, particularly those who exhibited the strongest influence on the market.

Therefore, the only alternative to this version of implementation of local public policies in the field of the services, is the involvement of a private company in the reform process, while entrusting it with increased operational responsibilities. A private operator has a greater capacity to provide financial resources, but also to provide technological and managerial know-how that has proven successful in other similar cases. However, these benefits of implementing private capital, as shown in this study, are neither the only nor the most important. The main values brought by a private company refers to the alignment of all service stakeholders to the requirements of the public interest, by the capitalisation of general opportunities such as:

1. The focus on services and business performance. A well designed partnership between the public and private sectors will motivate the company involved to improve the services, by entrusting it with the control over costs and facilitating a pragmatic commercial approach in billing and collection of consumption billing. This translates into a change in organizational culture focused on rigorous cost management.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2. Easier access to financial resources. Funding bodies are more willing to provide funding for the upgrade or extension of the system if they are presented with a credible management and commercial approach. In this context, the credibility of a private company is higher than that of a public operator.

3. Improvement of the clarity and sustainability of policies. An institutional arrangement with a private company involves a rigorous definition of the future evolution of the tariff and cost saving solutions.

This analysis should not ignore the fact that in addition to the opportunities of the involvement of private capital, the PPP solutions imply a number of general constraints, of which the most important are:

1. “Nothing is for free”. The involvement of a private company facilitates the obtaining of financial resources for the water sector. The repayment of loans can be achieved only by ensuring an appropriate profit for the operator. In other words, the cost of increasing the service quality will be found eventually in the tariff paid by the consumers. However, the case of Bucharest showed that the beneficiaries accept increased tariffs in exchange of a sensitive increase in the service quality.

2. A private operator cannot take all the risks of a PPP. Private companies can manage many risks, such as the accuracy of the billing process, operating cost control or network expansion costs. 290

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

However, private operators are reluctant regarding taking major risks, such as rapid changes in exchange rates or interest rates. Also, private companies want to ensure that the government will observe the “game rules” and will not create additional risks by changing the orientation of public policies such as the cancellation of certain facilities.

3. The public administration remains responsible. Citizens will consider that the public administration continues to be primarily responsible for the qualitative evolution of the service, even if the service management and operation are carried out by a private company. Bucharest is a representative example for the advantages of a PPP of concession type, which is why the European Commission considers it an example of good practice for the implementation of private capital in the public water supply and sewerage services and at the same time, a significant example of successful concession agreement.

The analysis of the water management framework which must interpret the opportunities and constraints related to the concession of public water supply and sewerage services should not ignore a very important aspect, namely cultural diversity and management traditions. The optimal solution for implementing a PPP should be chosen taking into account a number of factors specific to each country, such as the legal and

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). administrative system, the types of management methods used in the past for water resources management, the level of administrative decentralization, the diversity of options for water supply and sewerage services, etc.

In this context, the answer to the question “Why concession?”, referring to the PPP between Bucharest Municipality and ANB, can also be given by interpreting the results131 of applying the multicultural model of Gert Hofstede in Romania, in conjunction with those obtained in the other countries. In light of the five dimensions of the model, namely power distance (the extent to which people perceive social inequality), individualism (the extent to which a culture encourages independence and freedom of the individual in relation to the group to which he/she belongs), masculinity (preference for competitiveness and promotion to the detriment of cooperation and harmony), uncertainty avoidance (the ease with which the culture faces new issues and takes risks, respectively the nation’s level of anxiety), long-term orientation (the period for which people make plans and expect the results and the extent to which they tend to sacrifice today’s reward for a future result), Romania obtained a set of values placing it in a comparative analysis with other European countries in the collectivism/femininity area.

131 Gallup, Institute for Research of Intercultural Communication, Interact - Survey Module 2005. 292

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Based on the results of Hofstede model in Romania, a series of consumer perceptions could be interpreted at the time of service concession. Thus, the vast majority of respondents in the survey conducted by IFC132 expected improvements in service quality in the short or medium term, while approx. 15% expected it to materialize in the long term. This perception is in line with the long-term orientation index value (LTO=61). On the other hand, there was a strong support for the idea of privatization of RGAB (over 80% of consumers), which should be interpreted also taking into account the existence of a large power distance and distrust in the public administration, which is illustrated by the power distance index value (PDI=90). Moreover, specialists consider that a society deeply feminine as Romania (masculinity index value MAS=42) is characterized by avoiding taking responsibility, hence the tendency to transfer the risks related to water supply and sewerage services to a private operator.

In this regard, the analysis of the concession of the public water supply and sewerage services in Bucharest will be especially focusing on the following directions:

1. The system of incentives granted to the operator, to the public administration authorities and to the consumers;

132 International Finance Corporation – Report – Survey of consumers RGAB, August 1998

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

2. The degree of ensuring a balance between the rights and obligations of the local public administration authorities and operators;

3. Ensuring the sustainability of the partnership and the degree of recognition of its commercial, social and political dimensions;

4. The accuracy of the quantification of the financial effects of the partnership;

5. Ensuring the communication between the stakeholders;

6. The degree of meeting the consumer needs and expectations;

7. The existence of long-term vision;

8. The clear definition of the partners’ roles;

9. The degree of realism in estimating the risks of the partnership;

10. The level of capitalizing the operator’s know-how and experience, both in terms of technology and management practices.

For emphasizing the manner in which the above-mentioned elements can be found at the level of ANB, and the extent to which they can be considered best practices, the methodology used was the one employed by the European Commission133 for diagnosing PPP in the field of public utility community services. This methodology is focused on five benchmarking

133 European Commission, Directorate – General Regional Policy – Resource Book on PPP Case Studies, July 2004. 294

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). criteria: the value of the investment, the term of the Agreement, the level of transfer of responsibilities, the risk of demand and the risk of availability. The quantification system proposed by the European Commission can be found in Table no. 25.

Table no. 25 System proposed by the European Commission for quantifying Best Practices in the field of PPP

Score

Criterion 1 2 3 4 5

Amount of the Below 10 10-50 million 50-100 100-150 Over 150 investment million Euros million Euros million Euros million Euros Euros

Length of the 5 years 10 years 15 years 20 years 25 years contract

Level of transfer Fully to the 70%/30% 50%/50% 30%/70% Fully to the of public sector private sector responsibilities

Risk of demand* Below 20% 20%-49% 50% 51%-80% Over 80%

Risk of Below 20% 20%-49% 50% 51%-80% Over 80% availability* Source: Radu I., Lefter V., Şendroiu C., Ursăcescu M., Cioc M. (2008): Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare. Experienţa municipiului Bucureşti. [The Effects of Public-Private Partnership on Public Water Supply and Sewerage Services. The Experience of Bucharest Municipality], ASE Publishing House, Bucharest *) The risks quantify the extent to which they are taken over by the operator. Obviously, the higher the risks for the operator, the lower they are for the citizens and the public administration authorities. 295

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

At the level of Apa Nova Bucharest, following the application of the five criteria, the following situation resulted:

 The amount of the investment. The investment assumed by Apa Nova Bucharest is a valued as high (the European Commission rates it with a score of 4 on a scale of 1 to 5), above the investment average at the level of other similar PPP’s in the European Union. As a matter of fact, the specialists believe that, in addition to the public transport services, the water sector requires the highest capital investment. Presently, the total investment achieved by ANB amounts to approx. 314,320 million Euros. The main investments are directed to the construction of the water treatment plant in Crivina, the extension and upgrade of the network, the upgrading of the water pumping system, equipment or the establishment of a technical call centre. Between 2008-2012, Apa Nova Bucharest has had investments that allow placing the PPP in area 5, according to the assessment system presented in Table no. 25.

 The length of the contract. Similarly to the criterion “the amount of the investment”, the water and transport sectors imply the greatest contract lengths (usually over 20 years), as a result of the relationship between the invested capital, the extent of involvement of private capital and the time needed for ensuring the recovery of the investment from the profit. Similarly to other countries that, at the time of concluding the PPP were negotiating their accession to the European Union, the Apa Nova Bucharest 296

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

partnership features an extensive contract term (25 years, rated by the European Commission with a score of 5 on a scale from 1 to 5). The main cause for setting a great length of concession is to ensure that the tariff is as bearable as possible, so that investments made may be recovered more slowly.

Figure no. 68 Radial diagram of the main coordinates of the PPP concluded between Bucharest Municipality and Veolia

Source: Radu I., Lefter V., Şendroiu C., Ursăcescu M. Cioc M (2008): Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare. Experienţa municipiului Bucureşti. [The Effects of Public-Private Partnership on Public Water Supply and Sewerage Services. The Experience of Bucharest Municipality], ASE Publishing House, Bucharest

 The level of transfer of responsibilities. Even if in the case of water and sewerage services the transfer of responsibility is not as obvious as, for example, in the case of public sanitation service, there are numerous practices in the European Union. With reference to the contract concluded for the concession of public 297

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

water supply and sewerage services in Bucharest to Apa Nova Bucharest, the transfer of responsibility was a high one (rated with 4 by the European Commission, on a scale from 1 to 5, i.e. the maximum score for this criterion for the 27 cases of PPP analysed in the survey134). As a matter of fact, the full delegation of responsibilities to the private sector can only be performed in the case of divestiture contracts. In general, the concessions implies a delegation of the risks to the operator, alongside with a system of incentives to motivate the operator to assume such risks .

 The risk of demand. It refers to the extent to which the variation of the demand, the competition or the general evolution of the economic environment have a direct impact on the operator, and pose risks for the same. In the case of Apa Nova Bucharest, the risk of demand is an average one (rated 3 on a scale from 1 to 5), but high compared with other similar PPPs. Basically, the risk of a negative economic evolution with impact on the fluctuation of the demand is divided equally between the public and the private sectors, which can be considered an example of best practice.

 The risk of availability. It refers to the risk of not reaching the standards or levels of service or that of not meeting the consumption demand of the population. In other words, it is

134 European Commission, Directorate – General Regional Policy – Resource Book on PPP Case Studies, July 2004. 298

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

primarily about the entity that assumes the potential risk of inadequate water supply and sewerage services in terms of quality and quantity. In the case of Bucharest, the risk of availability is fully assumed (a score of 5 on a scale from 1 to 5) by the operator, which means a complete exemption from responsibilities of the local authorities and the consumers. As a matter of fact, in Bucharest, one of the main principles of PPP was applied, namely that the risks must be taken over by the parties that can manage them. According to the survey135 published by the European Commission, of the 27 examined cases, Apa Nova Bucharest is the operator that has assumed the greatest risks of availability.

The PPP of concession type in Bucharest can be considered an example of best practices, which obtained in a review of PPPs conducted by the European Commission a rating of 4.2, well above the overall average of 3.2.

The results obtained during the period 2000-2012 in the public water supply and sewerage services in Bucharest, within the PPP of concession type concluded between the municipality and the company allows us to point out the following advantages of this type of PPP:

 Risk-sharing model. The Bucharest experience has shown that if the operator takes over the most important shares of risks, the municipality is relieved of the responsibility for the quality of

135 European Commission, Directorate – General Regional Policy – Resource Book on PPP Case Studies, July 2004. 299

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

service and has competencies only in the field of monitoring and promoting corrective actions. The risk-sharing system applied in Bucharest is an optimal one and it counterbalances standards, liabilities, services, quality objectives and a well regulated tariff system.

 The difference between the general principles of privatization and those of a PPP. As one can see for Bucharest, there are aspects of the service, such as those related to the risks of demand, for which the obligations of the municipality and those of the operator should be well balanced. An inequitable sharing of these risks, regardless of whether it is directed towards the private sector or the public one, would disrupt the operation of the system.

 Benefit schemes acceptable for the operator under a massive transfer of responsibilities to the former. In the case of Apa Nova Bucharest, the transfer of responsibilities was a high one, but, at the same time, this operator was also granted a number of increased competences, particularly in terms of charging certain tariffs to allow the recovery of the investment. We can consider that, from this point of view, the PPP concluded for the public water supply and sewerage service in Bucharest is marked by a balance between rights and obligations, both for the operator and for the central public administration authorities.

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

 The length of the PPP must be correlated with the financial factors that ensure its sustainability. For Bucharest, the length of the contract (25 years) is one that ideally reflects the amount of the investment, the tariff system and the benefits estimated at the time of granting the concession. Moreover, a high length of the partnership is also the recommended solution for the cities that require major investment in infrastructure rehabilitation, or for the countries in which the average net income of the population is a low one.

 PPPs have the ability of capturing the value of the expertise and technology of the private sector in complex projects. We could say that the PPP of concession type applied in Bucharest, in which the operator has an experience of over 150 years in the operation of water supply and sewerage systems, may be considered a typical example of the formula „success brings success”.

 Each project is unique. In other words, a risk-sharing method proved to be successful for a certain project it will not necessarily be effective in the case of other projects. Although this assumption is valid, the PPP concluded between Bucharest Municipality and Apa Nova Bucharest has shown that there are a number of general universal principles:

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Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

o The share of the risks transferred to the operator is directly proportional to the size of the project, as well as to the potential benefits of the operator;

o There are risks to be taken over by specific partners, such as the risk of regulation which is assumed by an independent body(in the case of Bucharest, ARBAC, and subsequently by MARPS), while the risk of the service quality is assumed by the operator (Apa Nova Bucharest).

4.2 SPECIFICITIES OF THE CONCESSION OF WATER SUPPLY AND SEWERAGE SERVICES IN BUCHAREST136

Although PPPs have a number of joint features, principles and procedures, the Bucharest experience in conjunction with the experience of other European capitals showed that there is no optimal „recipe”. Of course, when the administration does not have similar experiences on the implementation of PPPs, as was the case of Bucharest Municipality in 1999, it is good to choose a traditional version of PPP, "tried and tested" successfully in other cases. However, there were certain features of the system that individualized the concession of public water supply and sewerage services to Apa Nova Bucharest (network wear, the existence of

136 Radu I., Lefter V., Şendroiu C., Ursăcescu M.,. Cioc M (2008): Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare. Experienţa municipiului Bucureşti. ASE Publishing House, Bucharest

302

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). telescopic pipe networks, the mediation of relations with the final beneficiaries by means of homeowners’ associations etc.).

A finding made by the experts of the European Commission and the World Bank is that the implementation of PPP in the field of services is a natural course that local governments will follow, given at least two reasons: on the one hand, the public sector must borrow the technological and managerial know-how from the private sector to ensure a superior performance of services and, on the other hand, the investment potential of the public sector is limited and it must attract new sources of funding of a private nature. The partnership between Bucharest Municipality and Veolia may represent such a reference example for other cities in Romania. A prestigious private partner, such as Veolia , can provide a boost to infrastructure investment in at least two respects. First, the experience and know-how of the operator allow a more accurate definition of the optimal level of funding required in order to ensure, on the one hand, the viability and sustainability of projects and on the other hand, to avoid unnecessary consumption of financial resources. Secondly, a private operator is able to sustain much higher investment both from own sources and from external sources, with greater credibility to the funding bodies.

The involvement of consumers, both during the preparation of the PPP and its operation, is essential. The Bucharest experience is representative because the main decisions taken by the municipality at the time of service concession corresponded, according to the results of a research conducted 303

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). by IFC, to the consumers’ vision: the privatization of RGAB, choosing the method of privatization, defining the Levels of Service and tariff adjustment procedures. Thus, the concession contract had a much greater social acceptability than in other cities, where the fear of the population regarding the loss of municipal control was more marked.

Knowledge is the most important resource of the new millennium and it can only be the result of a sustainable experience of the body owning it. As regards the public water supply and sewerage services, the knowledge regarding service management and operation is owned by large companies such as Veolia. Bucharest experience has shown that the only way to integrate this know-how is the PPP. As shown in various surveys presented in this paper, there were municipalities that attempted to restructure the system without the involvement of private capital. But the vast majority have failed precisely because of insufficient technological and managerial know-how. Another reason for the failure of restructuring of service systems not involving the participation of private companies, is represented by the relational practices (political pressure on tariffs, the awarding of works to groups of interest, high level of receivables/ debts etc.). Bucharest experience has shown that a PPP, by focusing mainly on the commercial nature of the service, mitigates or even eliminates most of these practices.

Focusing on commercial performance means bringing market economy principles in the public water supply and sewerage services. Until 1998, in 304

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Bucharest, service provision practices were far from an effective commercial management due to the strong interference of other factors (political environment, permissive legal system, relational system). These practices have resulted in an uncompetitive tariff unable to support an increase in service quality, a poor customer relationship management system and an unsubstantiated cost control policy. Concession brought about new commercial practices and new ways of improving commercial staff, which have helped mitigate the influence of factors outlined above, and a substantial improvement in the efficiency and effectiveness of business management.

The design of any PPP should be subject to a set of specific objectives that need to be estimated realistically so as not lead to an overstatement of the results expected by consumers from the operator. In the case of the PPP between Bucharest Municipality and Veolia, project objectives mainly relate to an increase in service quality and a high level of customer satisfaction. The main advantage of the design model chosen for this PPP consists in the accurate definition of monitoring elements of the objectives, which can be found in the LOS system. Moreover, official and updated information on the degree of achievement of objectives, reflecting the effectiveness of the PPP, is available to anyone interested by accessing the website of the operator or of the technical regulator.

We can state that the PPP concluded for the water supply and sewerage services in Bucharest is a “win-win” situation, which includes great benefit 305

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). schemes correlated with the risk level assigned to each partner. Thus, the municipality is relieved from most of the responsibilities associated with the operation of services and is also a minority shareholder in ANB. The operator consolidates its reputation on a new market and focuses its activity on obtaining profit, while the citizens are provided with higher quality services in accordance with the LOS agreed in the Concession Agreement.

The PPP between Bucharest Municipality and Apa Nova Bucharest is a typical example of „service level agreements”. According to the authors, this institutional variant is indicated for ensuring a risk level as low as possible for the operators and the administration, as there are clear performance standards that the operator must meet, Apa Nova Bucharest being directly responsible for the means to achieve these standards. Thus, the consumers are protected from a possible bad management of the operator. The performance of the PPP between Bucharest Municipality and Apa Nova Bucharest is monitored by an independent and non- governmental public body, which provides a higher degree of neutrality than other regulatory models, such as those specific to the delegation of regulation competences to the central public administration, the operator or the contracting authority. Moreover, neutrality is emphasized by the role of the Panel of Experts, both in terms of tariff adjustment procedures and the settlement of disputes that may arise between partners.

306

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

By means of the actions taken during the period 2000-2012, Apa Nova Bucharest attempted a stronger bonding with its consumers, both through quarterly surveys of their satisfaction and perception regarding the activity of Apa Nova Bucharest, and through a series of actions specific to customer relations management: hiring Correspondents of Homeowners’ Associations, introducing practical sheets, sending newsletters, setting up operational centres, establishing the customer relations telephone number.

The main risks of a PPP of concession type, such as those related to the accurate billing process, operational cost control or network upgrade and extension costs, have been taken over, in Bucharest, by Apa Nova Bucharest. However, there are risks that cannot be taken over by a private operator, such as those generated by the economic environment (currency and interest rate fluctuations) or the political and legislative environment. Bucharest Experience has shown that often this is not understood by all partners who must ensure the sustainability of this type of public-private partnership.

4.3 CONCLUSIONS

Since the first year of concession, Apa Nova Bucharest has made considerable efforts, even under a high level of indebtedness, for achieving the objectives related to the Service Levels, so that in 2012, it succeeded in meeting all its contractual obligations in relation to Service Levels. Apa

307

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Nova demonstrated over the 12 years of the concession that is able to implement major projects in Bucharest, cooperating with all stakeholders under the supervision of the Panel of Experts. For instance, the beginning of the vast and complex process of rehabilitation of the Cassetta under Dâmboviţa River, the commissioning and the beginning in 2012 of the investment works planned for Glina Wastewater Treatment Plant, the lead connection replacement etc.

Both in terms of the size of activities carried out and the economic and financial performance, Apa Nova Bucharest occupies a distinct place among water supply and sewerage service operators in Romania. Effective management and corporate social responsibility targets placed the company on favourable positions among national regional operators.

The training, protection and capitalization of available human resources created within Apa Nova Bucharest a strong organizational culture, as a condition of motivation, loyalty and reward. The dynamics of the organisation’s internal growth is materialized in the management policy to maximize results by the creativity of human resources, to maintain management commitment.

On the other hand, the company has demonstrated a strong commitment to the urban life in Bucharest. Numerous activities and projects undertaken by Apa Nova Bucharest aimed at the rehabilitation, maintenance and capitalization of the historical and cultural heritage of Bucharest, grants it the status of the main financial supporter of these types of actions,

308

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). neglected due to the harsh economic and financial conditions in the recent years.

We must also mention the constant actions focusing on sustainable development. Apa Nova Bucharest acts according to values supported by means of environmental protection, solidarity and protection of natural heritage activities. All activities have a major impact on natural and aquatic ecosystems, in particular by water sampling and wastewater discharges into the natural environment, so that the focus on biodiversity conservation is a necessary and assumed commitment for a responsible community.

In conclusion, Apa Nova Bucharest can be considered an efficient water supply and sewerage service operator from an economic, social and environmental perspective, further demonstrating the viability and sustainability of the concession of these services in Bucharest, primarily by achieving the objective related to service quality increase and consumer satisfaction.

309

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

INDEX

A C analysis report, 207, 213, 221 ARBAC, 1, 18, 21, 25, 36, 37, 38, 44, 45, 49, cash, 124, 127, 128, 132 53, 54, 67, 69, 71, 73, 75, 76, 77, 83, 86, Cassette, 57, 62, 63, 144, 150, 231 250, 302 certification, 38, 68, 181, 200, 201, 203 Arcuda, 28, 134, 135, 137, 142, 145, 152, comparative analysis, 13, 14, 292 177, 211, 212, 249 complaints, 5, 7, 25, 31, 36, 43, 47, 68, 70, audit, 201, 232, 266, 323 72, 74, 75, 77, 84, 86, 87, 238 awards, 189 concession, 3, 5, 4, 5, 9, 11, 12, 13, 14, 15, 16, 17, 18, 20, 21, 22, 23, 24, 26, 30, 31, B 34, 35, 40, 41, 43, 45, 47, 49, 50, 51, 52, 53, 65, 67, 70, 72, 75, 77, 79, 80, 84, 86, benchmarking, 106, 294 102, 109, 144, 161, 166, 175, 178, 206, best practices, 24, 189, 288, 289, 294, 295, 231, 238, 239, 250, 266, 279, 281, 283, 298, 299, 301, 302 284, 285, 287, 291, 292, 293, 297, 298, billing, 5, 6, 79, 84, 85, 175, 256, 269, 289, 299, 301, 302, 303, 304, 306, 307, 309, 290, 307 322 biodiversity, 248, 249 Concession Agreement, 1, 4, 9, 11, 12, 16, Bucharest Mayoralty, 1, 137, 141, 145, 146, 17, 18, 19, 20, 21, 22, 24, 25, 26, 27, 28, 214 31, 35, 36, 37, 38, 39, 40, 41, 42, 43, 45, Bucharest Municipality, 8, 16, 19, 292, 297, 47, 48, 49, 50, 51, 53, 54, 55, 56, 57, 64, 299, 300, 301, 302, 303, 305, 306 65, 66, 67, 68, 70, 71, 73, 76, 77, 79, 81, budget, 22, 111, 161, 234 82, 84, 86, 89, 90, 109, 110, 166, 207, 233, 250, 291, 295, 296, 297, 301, 304, 306

310

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). connection, 25, 26, 30, 31, 32, 34, 38, 40, 52, discharges, 56, 57, 58, 148, 149, 194, 199, 54, 65, 66, 77, 78, 79, 80, 81, 82, 83, 90, 230, 309 136, 137, 141, 144, 150, 155, 173, 174, distribution, 25, 27, 28, 29, 31, 33, 39, 40, 178, 266, 274, 275, 276 146, 179, 198, 207, 208, 215, 277 consumer information, 215, 307 drinking water, 6, 10, 17, 25, 26, 27, 28, 30, consumer perception, 3, 6, 7, 8, 11, 14, 293 31, 33, 35, 37, 38, 39, 43, 47, 48, 49, 51, consumers, 3, 4, 5, 6, 7, 8, 9, 10, 11, 13, 14, 78, 80, 81, 99, 112, 134, 135, 136, 137, 19, 20, 26, 30, 54, 93, 98, 99, 100, 102, 138, 139, 142, 143, 145, 146, 147, 152, 103, 106, 107, 112, 161, 173, 174, 177, 155, 166, 177, 178, 182, 195, 198, 206, 178, 203, 204, 206, 207, 208, 215, 216, 207, 208, 210, 211, 212, 213, 225, 228, 217, 221, 222, 223, 226, 251, 255, 270, 229, 232, 244, 251, 259, 260, 261, 264, 275, 277, 287, 288, 290, 293, 294, 299, 265, 267, 277, 278 303, 304, 305, 306, 307, 309 consumption, 5, 6, 60, 111, 138, 140, 146, E 149, 157, 164, 178, 179, 188, 194, 195, 196, 198, 207, 224, 228, 229, 237, 239, economic performance, 109, 113, 157, 159 263, 265, 276, 277, 278, 298, 303 efficiency, 9, 16, 17, 21, 22, 41, 95, 99, 103, consumption billing, 289 106, 107, 149, 165, 168, 171, 175, 179, Corporate Social Responsibility (CSR), 199, 195, 223, 224, 238, 255, 263, 272, 288, 308 301, 305 correspondents of Homeowners’ environmental protection, 10, 18, 61, 102, Associations, 307 155, 249, 276, 283 cost control, 290, 307 equipment, 32, 37, 47, 60, 63, 78, 95, 136, courses, 64, 86, 107, 111, 172, 182, 184, 190, 140, 144, 146, 153, 183, 184, 296 191, 199, 229, 303 European Commission, 62, 262, 291, 294, Crivina, 18, 134, 137, 145, 152, 155, 211, 295, 296, 298, 299, 303 212, 244, 296 European Union, 1, 11, 17, 25, 27, 55, 58, 61, cultural diversity, 291 226, 238, 296, 297 current assets, 113, 115, 117, 125, 129, 158 event, 32, 34, 49, 53, 57, 118, 126, 129, 150, customers, 3, 4, 5, 6, 7, 8, 17, 20, 21, 24, 25, 166, 168, 185, 188, 229, 244, 245, 247, 26, 30, 31, 32, 35, 36, 37, 43, 47, 49, 54, 248 68, 70, 72, 75, 78, 79, 80, 82, 83, 84, 85, experts, 98, 250, 251, 303 86, 87, 88, 89, 90, 92, 93, 107, 108, 115, 118, 166, 172, 186, 193, 202, 203, 204, 205, 206, 209, 215, 216, 217, 218, 219, F 220, 221, 222, 223, 226, 229, 231, 238, Federation of Independent Trade Unions of 239, 256, 265, 266, 275, 305, 307 Apa Nova (FITU), 187, 188, 189 financial autonomy, 120, 121, 122 D financial balance, 21, 113, 124, 125, 126, 127, 128, 131 damages, 5, 7, 25, 33, 34, 46, 57, 60, 134, financial crisis, 110, 161 139, 143, 147, 167, 178 financial resources, 11, 17, 122, 126, 256, Dâmboviţa, 62, 63, 144, 150, 194, 199, 231, 266, 279, 286, 288, 289, 290, 303 263, 270, 308 fixed assets, 113, 114, 115, 116, 133 debts, 120, 122, 126, 127, 128, 129, 130, 131, 160, 172, 232 degree of indebtness, 113, 119, 122 delegation, 4, 12, 24, 101, 279, 282, 298, 306 311

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

G L GCB, 1 labour productivity, 271, 274, 275 General Council of Bucharest, 8, 11, 16, 18, laws, 8, 286, 287, 305, 307 19, 42, 50, 53, 54, 79, 250 lead connection replacement, 233, 308 Gert Hofstede model, 292, 293 length of the concession, 295, 301 Glina, 59, 60, 61, 63, 64, 144, 145, 149, 150, Levels of Service, 4, 17, 18, 19, 20, 21, 22, 24, 153, 155, 167, 171, 180, 181, 184, 199, 25, 26, 27, 31, 35, 41, 42, 47, 48, 49, 51, 201, 203, 221, 230, 231, 263, 278, 308 52, 53, 54, 55, 59, 65, 66, 67, 68, 69, 70, Global Water Intelligence (GWI), 236, 322 71, 72, 73, 80, 83, 84, 86, 87, 89, 90, 98, governance, 280 106, 163, 166, 298, 304, 305, 306 liquidity, 118, 126, 128, 129, 130, 132 H local public policies, 286, 289, 291 losses, 22, 25, 136, 140, 146, 160, 175, 176, homeowners’ associations, 8, 303 177, 178, 183, 231, 236, 239, 256, 264, Human Resource management, 179 265, 266, 267, 304 Human Resources, 179, 189, 190, 308 M I maintenance, 7 IDEO, 183, 185, 186 market demand, 295, 298, 300 IFC, 1, 238, 288, 293, 304, 322 MARPS, 1, 14, 18, 19, 21, 24, 25, 30, 31, 35, income, 17, 107, 108, 156, 162, 163, 166, 36, 38, 39, 40, 43, 47, 48, 49, 51, 52, 55, 169, 170, 171, 175, 223, 231, 233, 234, 65, 66, 68, 69, 71, 72, 74, 76, 77, 78, 79, 235, 252, 255, 266, 271, 272, 301 80, 81, 83, 84, 85, 86, 87, 89, 90, 91, 98, infrastructure, 10, 97, 101, 107, 114, 164, 106, 177, 238, 250, 302 166, 175, 225, 254, 255, 263, 266, 280, meter, 5, 31, 32, 52, 53, 55, 79, 89 281, 286, 301, 303 metering, 6, 9, 25, 79, 80, 112, 136, 140, 143, INS, 227 149, 177, 221, 239, 251 International Finance Corporation, 293 monitoring, 14, 19, 20, 21, 24, 25, 27, 28, 29, intervention works, 198 34, 38, 42, 45, 59, 65, 96, 98, 104, 106, investment, 11, 17, 18, 19, 22, 24, 56, 63, 144, 145, 146, 148, 149, 150, 152, 183, 101, 107, 117, 132, 133, 135, 136, 137, 184, 207, 210, 212, 283, 300, 305 139, 140, 141, 143, 144, 146, 154, 157, municipal control, 304 160, 164, 167, 171, 178, 182, 198, 202, 214, 230, 231, 232, 233, 252, 255, 256, N 262, 270, 278, 285, 295, 296, 300, 301, 303, 308 NARCS, 14, 16, 19, 98, 236, 250, 251, 252, investment policy, 24, 121, 132, 133, 137, 254, 257, 258, 260, 271, 274, 276, 277, 154, 296, 300, 301, 303 278, 324 ISO, 94, 201, 202, 213 network extension, 41, 67, 150, 167, 231, 270 K NIS, 1 non-revenue water, 107, 175, 177, 255, 256, know-how, 289, 294, 300, 303, 304 264, 265, 266, 267

312

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

O regulation, 13, 17, 18, 21, 44, 53, 96, 98, 100, 104, 107, 180, 207, 209, 250, 279, 302, operating expenses, 161, 162, 165, 166, 169, 306 171, 197, 290 rehabilitation, 23, 28, 62, 63, 64, 73, 101, operational centres, 307 102, 133, 134, 135, 136, 137, 139, 141, operational costs, 160, 307 142, 143, 146, 147, 148, 150, 153, 154, opportunities, 288, 289 155, 167, 178, 188, 230, 231, 242, 255, outlets, 67, 68, 70, 148 301, 308 return, 95, 121, 156, 157, 158, 159, 160, 271, P 288 reviews, 146 Panel of Experts, 306 RGAB, 287, 293, 304 pipes, 27, 31, 32, 33, 39, 40, 41, 42, 64, 66, risk management, 290, 291, 292, 293, 295, 70, 72, 75, 80, 81, 206 298, 299, 300, 302, 307 pollution, 57, 60, 108, 134, 224, 276 risk of availability, 295, 298 population, 10, 95, 102, 157, 172, 204, 213, risk of demand, 295, 298 214, 226, 227, 237, 249, 251, 252, 253, Roşu, 28, 134, 137, 142, 145, 147, 150, 152, 257, 258, 259, 263, 268, 276, 291, 298, 177, 197, 211, 212, 277 301, 304 power consumption, 195, 198, 278 S PPP, 4, 13, 24, 103, 279, 280, 281, 282, 283, 284, 285, 286, 290, 291, 292, 294, 295, SC Apa Nova Bucuresti SA, 4, 7, 9, 11, 12, 13, 296, 297, 298, 299, 300, 301, 302, 303, 14, 16, 19, 22, 24, 25, 26, 27, 30, 33, 34, 304, 305, 306, 307, 322 35, 36, 37, 38, 39, 40, 41, 42, 43, 44, 45, PR, 245 46, 47, 49, 51, 52, 53, 54, 63, 64, 65, 67, practical sheets practice, 307 68, 69, 71, 73, 74, 75, 76, 77, 78, 81, 82, pricing policy, 300, 301 83, 84, 85, 86, 87, 89, 90, 91, 292, 294, private capital, 14, 288, 289, 290, 291, 296, 296, 298, 299, 300, 301, 302, 303, 305, 304 306, 307 privatization, 21, 164, 279, 280, 293, 300, service, 3, 4, 5, 6, 7, 9, 10, 11, 12, 13, 14, 15, 304 16, 17, 18, 19, 22, 23, 24, 25, 26, 30, 31, procurement, 136, 183, 198, 284 35, 36, 39, 40, 42, 43, 44, 47, 48, 49, 51, profit, 23, 120, 159, 223, 237, 272, 277, 290, 52, 54, 55, 56, 64, 66, 67, 68, 70, 71, 72, 296, 306 74, 75, 76, 77, 78, 79, 80, 82, 84, 86, 87, pumping, 34, 134, 135, 137, 138, 142, 145, 89, 90, 92, 95, 96, 97, 98, 99, 100,101, 147, 155, 195, 198, 212, 277, 278, 296 102, 103, 105, 106, 107, 108, 109, 112, 114, 118, 132, 149, 160, 161, 163, 164, R 166, 169, 175, 178, 188, 194, 196, 197, 202, 203, 206, 210, 213, 214, 215, 218, RADET, 1, 42, 98, 118, 133, 172, 231, 232 219, 220, 221, 222, 223, 224, 226, 227, rates, 270, 291, 307 231, 232, 233, 234, 236, 237, 238, 239, raw water, 28, 63, 153, 195, 210, 276, 278 240, 250, 251, 252, 253, 254, 255, 256, reaching compliance for telescopic pipe 257, 258, 259, 260, 266, 267, 268, 269, networks, 8 270, 271, 277, 278, 279, 280, 281, 282, receivables, 113, 115, 117, 118, 127, 130, 283, 285, 286, 287, 288, 289, 290, 291, 132, 172, 219, 304 293, 294, 295, 296, 297, 299, 300, 302, 303, 304, 305, 307, 309, 323, 324 service, 108 313

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012). service quality, 4, 6, 8, 14, 21, 25, 287, 290, transfer of responsibility, 289, 293, 295, 297, 293, 300, 302 298, 299, 300 sewerage, 3, 4, 5, 6, 9, 10, 11, 12, 13, 14, 15, treatment, 27, 55, 56, 57, 58, 59, 60, 61, 62, 16, 17, 19, 20, 22, 23, 25, 26, 40, 41, 42, 63, 145, 165, 187, 230, 262, 263, 264, 55, 57, 62, 64, 65, 66, 67, 73, 80, 81, 82, 268, 278 92, 95, 96, 97, 98, 99, 100, 101, 102, 103, turnover, 111, 156, 161, 162, 168, 169, 204, 105, 106, 107, 108, 109, 112, 118, 135, 205, 272 136, 138, 139, 140, 141, 143, 144, 148, 150, 155, 160, 161, 163, 166, 167, 169, U 175, 178, 194, 203, 206, 209, 213, 214, 215, 218, 220, 221, 222, 223, 224, 225, upgrade, 17, 19, 34, 61, 73, 101, 104, 134, 226, 229, 230, 231, 232, 233, 234, 235, 135, 138, 140, 144, 145, 147, 163, 167, 236, 237, 238, 239, 250, 251, 252, 253, 183, 211, 216, 288, 290, 296, 307 254, 255, 257, 258, 259, 260, 261, 262, 268, 269, 270, 271, 276, 277, 278, 279, 282, 287, 288, 291, 292, 293, 295, 297, V 298, 299, 300, 301, 302, 304, 305, 308, Veolia, 303, 304 309, 323, 324 share capital, 131, 159 sharing, 286, 300, 301 W social dialogue, 187 water pressure, 25 Social Projects, 246 water quality, 6, 17, 24, 25, 26, 27, 28, 29, stakeholders, 289, 294 30, 55, 57, 145, 152, 194, 199, 206, 207, Standards (ISO, OHSAS), 19, 25, 27, 28, 50, 210, 212, 213, 221, 238 54, 55, 56, 57, 58, 66, 69, 88, 94, 181, water supply, 3, 4, 5, 6, 9, 10, 11, 12, 13, 14, 201, 202, 213 15, 16, 17, 19, 22, 23, 26, 27, 28, 34, 35, structural ratios, 113, 115, 116, 117, 119 37, 39, 40, 43, 47, 48, 49, 51, 52, 65, 90, subsidies, 55, 56, 226, 240 92, 95, 96, 97, 98, 99, 100, 101, 102, 103, suppliers, 3, 4, 5, 10, 94, 217, 222, 288 105, 106, 107, 108, 109, 112, 142, 150, sustainability, 286, 301, 303, 307 160, 163, 166, 167, 169, 175, 178, 194, sustainable development, 10, 93, 94, 97, 100, 203, 208, 209, 213, 214, 218, 219, 220, 101, 109, 194, 197, 199, 248, 255, 276, 222, 223, 224, 226, 231, 232, 233, 234, 309 236, 238, 239, 250, 251, 252, 253, 257, 258, 260, 265, 266, 267, 276, 279, 282, T 287, 288, 291, 293, 295, 297, 298, 299, 300, 301, 302, 304, 305, 308, 309, 323 tariff, 5, 6, 17, 18, 19, 20, 21, 22, 23, 98, 109, water supply and sewerage system, 137, 160, 160, 161, 167, 168, 225, 231, 232, 233, 288 236, 239, 252, 268, 269, 287, 290, 297, water supply network, 296, 300, 301 300, 304, 305, 306 water treatment, 187, 206 technical equipment, 114 water volume, 49, 51, 110, 111, 112, 157, telescopic pipe networks, 8, 9, 53, 54, 303 175, 204, 260, 263 Tender Book, 20, 39, 64, 65, 68, 79, 95, 101 work productivity, 170, 173, 174, 175 term of the concession, 20, 50 working capital, 124, 125, 126, 127, 128, 131 training, 181, 190, 191, 193 working conditions, 144, 180, 187 World Bank, 1, 98, 109, 303

314

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

LIST OF FIGURES

Figure no. 1 Evolution of the number of samples taken from the distribution network in 2008 – 2012 ...... 29 Figure no. 2 Evolution of the number of tests performed in 2008 – 2012 .. 29 Figure nr. 3 Evolution of the compliance of drinking water quality parameters in 2008 – 2012 ...... 30 Figure no. 4 Evolution of the number of connections in 2008 – 2012 ...... 34 Figure no. 5 Evolution of the compliance of A3 Level of Service – continuity of services in 2008 – 201 ...... 39 Figure no. 6 Evolution of the A5 Level of Service – time between the notification of the explosion/leak and the repair in 2008 – 2012 ...... 47 Figure no. 7 Evolution of the compliance of A8 Level of Service – invoices issued based on meter readings as a percentage of the total invoices in 2008-2012 ...... 55 Figure no. 8 Evolution of the compliance of B3 Level of Service – time between the notification of the clogging of an outlet and its emptying ..... 70 Figure no. 9 Evolution of the compliance of B4.1 Level of Service – time between the notification of a sewer collapse and the pipe replacement... 72 Figure no. 10 Evolution of the compliance of B4.2 Level of Service – time between the notification of a channel clogging and the clearing of the clogging ...... 74 Figure no. 11 Evolution of the compliance of the C1 Level of Service – connections metered as a percentage of the individual or shared connections of several customers ...... 80 Figure no. 12 Evolution of the compliance of C3 Level of Service – time for handling billing information requests ...... 85 Figure nr. 13 Evolution of the compliance of C4 Level of Service – time for handling written complaints in 2008-2012 ...... 87 Figure no. 14 Evolution of the number of phone calls from customers ...... 88 315

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 15 Evolution of the C5 compliance – time for answering the customers’ phone calls ...... 88 Figure no. 16 System of performance of the water supply and sewerage services ...... 105 Figure no. 17 Framework for analysing the overall performance of the water supply and sewerage service operator ...... 109 Figure no. 18 Share of fixed assets and current assets out of the total assets of the operator in 2007 – 2011 ...... 114 Figure no. 19 Evolution of the operator’s current assets ratios in 2007 – 2011 ...... 115 Figure no. 20 Evolution of the operator’s structural ratios of fixed assets in 2007 – 2011 ...... 116 Figure no. 21 Evolution of the structure of the operator’s current assets in 2007 – 2011 ...... 117 Figure no. 22 Evolution of the operator’s financial stability ratio in 2007 – 2011 ...... 119 Figure no. 23 Evolution of the operator’s global financial autonomy ratio in 2007 – 2011 ...... 121 Figure no. 24 Evolution of the operator’s term financial autonomy ratio in 2007 – 2011 ...... 122 Figure no. 25 Evolution of the operator’s total debt to equity ratio in 2007 – 2011 ...... 123 Figure no. 26 Evolution of the operator’s equity in 2007 – 2011 ...... 124 Figure no. 27 Evolution of the operator’s working capital in 2007 – 2011 125 Figure no. 28 Evolution of the Working Capital Requirement ...... 127 Figure no. 29 Evolution of the operator’s net cash in 2007 – 2011 ...... 128 Figure no. 30 Evolution of the operator’s liquidity ratio in 2007 – 2011 .. 130 Figure no. 31 Evolution of the operator’s patrimonial solvency in 2007 – 2011 ...... 131 316

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 32 Evolution of the value of the operator’s investment in 2007 – 2011...... 132 Figure no. 33 Evolution of the value of the operator’s fixed assets in 2007 – 2011 (values expressed in Euros) ...... 133 Figure no. 34 Evolution of the turnover ...... 156 Figure no. 35 Evolution of the net profit/loss ...... 156 Figure no. 36 Evolution of the economic rate of return ...... 158 Figure no. 37 Factorial analysis of the economic rate of return ...... 158 Figure no. 38 Evolution of the financial rate of return ...... 159 Figure no. 39 Evolution of the asset rate of return ...... 160 Figure no. 40 Evolution of the turnover compared to the operating expenses (Euros) 2008 – 2011 ...... 162 Figure no. 41 Evolution of the turnover indicator for 1 Euro operating expenses 2008 – 2011 ...... 162 Figure no. 42 Evolution of the crude oil prices ...... 164 Figure no. 43 Evolution of the annual operating expenses (Euros) per sold m3 indicator ...... 165 Figure no. 44 Evolution of the operating expenses for 1 Euro income, 2008 – 2011 ...... 166 Figure no. 45 Evolution of the operating profit/loss 2008 – 2011 ...... 168 Figure no. 46 Evolution of the personnel expenses compared to the total operating income and total operating expenses (operation)...... 169 Figure no. 47 Evolution of the annual personnel expenses/employee ..... 170 Figure no. 48 Efficiency rates ...... 171 Figure no. 49 Annual salary expenses for 1 m3 sold volume ...... 172 Figure no. 50 Evolution of the number of employees per 1,000 water connections ...... 173

317

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Figure no. 51 Evolution of the number of employees per 1,000 served people 2008 – 2011 ...... 174 Figure no. 52 Evolution of the network loss indicators in 2001 – 2011 ... 176 Figure no. 53 Evolution of the degree of metering 2000 – 2010 ...... 177 Figure no. 54 Evolution of the number of people participating in the courses in 2000 – 2012 ...... 191 Figure no. 55 Evolution of the number of hours of the training programmes in 2000 – 2012 ...... 191 Figure no. 56 Evolution of the power consumption and quantities of greenhouse gases ...... 195 Figure no. 57 Evolution of the specific energy consumption ...... 196 Figure nr. 58 Evolution of the expenses on raw materials, consumables and other operational services in 2007 – 2011 ...... 197 Figure no. 59 Speed of collection of the bills ...... 206 Figure no. 60 Methods of interacting ...... 217 Figure no. 61 Evolution of the customers’/consumers’ degree of satisfaction (percentages) ...... 223 Figure no. 62 Evolution of the average consumption in 2008 – 2012 ...... 229 Figure no. 63 Evolution of the tariffs (less VAT) in 2008 – 2012 ...... 230 Figure no. 64 Minimum guaranteed salary income in European countries 2012 ...... 235 Figure no. 65 Average combined level of water and sewerage tariffs in 2012 for Europe ...... 237 Figure no. 66 Tariffs and prices in April of 2011 ...... 241 Figure no. 67 Scale of Public-Private Partnership ...... 281 Figure no. 68 Radial diagram of the main coordinates of the PPP concluded between Bucharest Municipality and Veolia ...... 297

318

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

LIST OF TABLES

Table no. 1 Evolution of the consumers’ perception of the water supply and sewerage services between 2000 and 2007 ...... 5 Table no. 2 Evolution of the volume of sold water 2008 – 2011 ...... 111 Table no. 3 Fields of investment ...... 134 Table no. 4 Fields of investment ...... 137 Table no. 5 Fields of investment for 2011 ...... 142 Table no. 6 Fields of investment for 2012 ...... 146 Table no. 7 Summary of the investment implemented by Apa Nova Bucharest in 2009 – 2012 (thousand RON) ...... 154 Table no. 8 Evolution of the non-revenue water volume ...... 175 Table no. 9 Statement and share of the expenses on raw materials, consumables and other operational services (Euros)...... 197 Table no. 10 Structure of the customers of Apa Nova Bucharest ...... 204 Table no. 11 Consumers and water volume delivered in 2010 ...... 204 Table no. 12 Degree of collection of the bills ...... 205 Table no. 13 Results of the tests of the DPHB 2010 ...... 208 Table no. 14 Distribution of the GDP according to the economic sectors, % Bucharest – Ilfov (2006 – 2010) ...... 227 Table no. 15 Evolution of the average daily drinking water consumption for home use ...... 228 Table no. 16 Classification of operators depending on the population served, year 2010 ...... 253 Table no. 17 Served population /1 km of water supply and sewerage network, 2010 ...... 258 Table no. 18 Small operators ...... 259 319

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

Table no. 19 The amount of produced water and wastewater collected in the sewerage system (2010) ...... 261 Table no. 20 Percentage of non-revenue water from the total volume of produced water ...... 264 Table no. 21 National average percentage ...... 267 Table no. 22 Applicable tariff for water-sewerage - March 2013 ...... 268 Table no. 23 Economic indicators ...... 272 Table no. 24 Labour productivity indicator ...... 275 Table no. 25 System proposed by the European Commission for quantifying Good Practices in the field of PPP ...... 295

320

Efectele parteneriatului public-privat în serviciile publice de alimentare cu apă şi de canalizare din municipiul București (perioada 2008-2012).

BIBLIOGRAPHY

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