SEPTEMBER 2015 ISSUE 3 I VOLUME 11 water asset management INTERNATIONAL

PAPERS Report sets out reform 3 The use of the Infrastructure Value Index to communicate and opportunities for Nigeria’s quantify the need for renovation of urban water systems Helena Alegre, Diogo Vitorino and State Water Agencies Sérgio Coelho ecommendations for reforms to improve the report states. 8 Energy efficient water supply Rperformance of Nigeria’s State Water Around $6 billion needs to be invested over systems in Albania: moving from Agencies have been set out in a report released the next ten years to achieve universal water energy scans and cost-benefit by the World Bank. supply, or some $2.9 billion to connect all analysis to the planning, With the country’s largest water suppliers current municipal residents, yet 18 of the State implementation and management struggling to improve service provision in the Water Agencies have never had an investment of energy efficiency water face of rapid urbanisation, the report, ‘State project valued at more than $10 million. That infrastructure in Albania water agencies in Nigeria: a performance there is the potential for users to contribute to Fridtjof Behnsen, Pirro Cenko, assessment,’ by Berta Macheve et al, surveyed this investment is supported by the fact that the Kastriot Shehu and Piro Ndreu 35 of the 37 State Water Agencies. It found national cost of water from alternative water that many utilities are able to collect and report providers is estimated at $650-700 million performance information, but that such a year, which is four times more than the 13 Analysis of three efficiency reports need to be analysed at the federal level. combined revenue of all the 35 State Water models for water supply and ‘It is necessary to institutionalize a federal Agencies surveyed, notes the report. sewerage companies: the case performance benchmarking system,’ the The report’s other recommendations include: of Albania report states. closing the current information gap as a first Evis Gjebrea According to the report, the 35 State Water priority; clarifying the corporate status of State Agencies were able to connect some 1 million Water Agencies, especially achieving true new customers between 2011 and 2013, but this separation from State Governments; improving 20 Milestones and results for the figure was dwarfed by the approximately 9 national and state tariff policy guidelines and Budapest Waterworks water million new urban dwellers during this time, regimes; reviewing tariffs for cost recovery and safety system meaning urban water coverage dropped by affordability; institutionalising metering of water Géza Csornyei and Genovéva Frank almost 3 percent, to less than 40%. ‘At the production and consumption; preparing for the current rate, within 10 years water coverage financing of future projects with input from State may drop below 30% and only 20% of urban Governments; and for the possibility of a national residents will have a direct water connection,’ water fund to be explored. G ADB to support Uzbek city of Djizzak

he Asian Development Bank (ADB) has industrial zone. Tapproved a $81 million loan to support To cope with an expected dramatic increase in upgrade of the urban sewage and wastewater the city’s population, the project will carry out a system in the city of Djizzak, Uzbekistan, in a massive rehabilitation of Djizzak’s deteriorated move it says will help raise living standards, wastewater and sewage system, which improve the environment and boost public health. according to ADB was constructed in the 1970s ‘Djizzak is a key driver of regional economic and has been barely maintained since. This has growth,’ said Hao Zhang, Principal Urban resulted in serious environ-mental damage and Development Specialist with ADB’s Central public health threats, such as an alarming and West Asia Department. ‘This project will rise in acute intestinal infections and viral give at least 85,000 residents and over 350 hepatitis. businesses access to clean water, and reliable Along with a new wastewater treatment plant, sewage collection and wastewater management the project will construct or rehabilitate over 62 services.’ kilometres of trunk sewers and four pumping Djizzak is capital of the Djizzak Province and stations and provide support to operate and is a former Silk Road junction connecting maintain the new facilities. By the time the Samarkand with the Fergana Valley in eastern project is completed in 2020, the system will Uzbekistan. According to ADB, the government be able collect and treat up to 30,000 cubic recently approved a long-term development plan metres of raw sewage per day, and the pumping that will accelerate urbanization, expand some capacity will have been increased to more than industries and relocate others, and attract 15,000 cubic metres per day from around 9000 foreign investment by establishing a special cubic metres per day in 2013. G NEWS

water asset management INTERNATIONAL

EDITORIAL Suez marks name change with Editors Dr John Bridgeman strong half-year results [email protected] rench group Suez released its half year federated under a single brand positioned in the Professor Stewart Burn [email protected] Fresults towards the end of July, reporting an sustainable resource management, which is already increase in group revenues to the end of June of bearing fruits,’ he said. Mr Scott Haskins €404 million, up by 5.9% to €7295 million Chaussade added: ‘The “Water Europe” division [email protected] compared to the same point last year. reported strong performance, driven by higher Dr Shiv Iyer The Water Europe division saw revenues rise by volumes, prices and new services. The [email protected] €56 million at constant scope and exchange rate, “International” division benefitted from sustained and the International division saw revenues rise by growth in almost all geographical regions and in all is Water Asset Management International €91 million. A favourable exchange rate impact businesses.’ is an international newsletter on asset accounted for much of the increase in the overall In early September, Suez also announced that it management in water and wastewater utilities. The focus of the newsletter is increase in revenue. had successfully completed placement of €500 on the strategic aspects of this developing CEO Louis Chaussade commented after the million in bonds to mature in 2025. According to the field, providing utilities with international perspectives on infrastructure planning release of the results that the board had approved company, demand for the bond had been six times and maintenance as they seek to deliver the change of the brand name to Suez, ‘a short, greater than the offering, allowing the company to cost-effective services to their customers. strong name and full of history’. ‘This agreement obtain its lowest 10-year coupon, at 1.75%. The Instructions for authors are available at: completes the launch of our single worldwide brand. company also noted that the placement was in line www.iwaponline.com/wami/default.htm Since March, the 40 Group’s trademarks are with its policy to refinance and extend its debt. G

PUBLISHING European Parliament votes for further

Publisher Michael Dunn Commission action on Right2Water

Water Asset Management International is published four times a year (March, he European Parliament voted on 8 September a range of actions. The European Parliament says June, April, December) by IWA Tin favour of a resolution urging action by the the Commission’s ‘alleged neutrality’ regarding water Publishing. Statements made do not represent the views of the International European Commission to take forward measures ownership is in contradiction with the privatisations Water Association or its Governing Board. called for by the Right2Water citizens’ initiative. imposed on some Member States by the

IWA Publishing The European Commission is the body responsi - Commission, European Central Bank and the Alliance House, ble for drafting EU legislation for possible adoption International Monetary Fund. It says that the 12, Caxton Street, by the European Parliament and Member States. Commission ‘should remain neutral’ and not London SW1H 0QS, UK Tel: +44 (0)20 7654 5500 The European Citizens’ Initiative is a means by which promote privatisation of water services in any way. To Fax: +44 (0)20 7654 5555 EU citizens can call directly on the Commission to this end, the European Parliament document adds Email: [email protected] Web: www.iwapublishing.com draft proposed legislation if a minimum of one million that production, distribution and treatment of water signatures can be gathered in support of an issue. and sanitation services should remain excluded from Right2Water had been the first such initiative to the Concessions Directive. SUBSCRIPTIONS gather the number of signatures needed – in fact Among the many other proposals in the European attracting almost 1,900,000 signatures. The Parliament’s response, it urges the Commission Water Asset Management International is available as either a print or an Commission set out its response to the Right2Water to ensure quantitative assessments of water afford - online subscription. proposals in a 13 page communication issued on ability become mandatory in any revision of the EU

2015 price (4 issues): March last year. At the time, Right2Water’s vice- Water Framework Directive. £299 / €451 / $596 president Jan Willem Goudriaan comment: ‘The Private water operator federation AquaFed (IWA members: £228 / €342 / $434) reaction of the European Commission lacks any commented: ‘The choice of “technical” operator Contact real ambition to respond appropriately to the must be made by the public authority that remains Portland Customer Services expectation of 1.9 million people. I regret that there in control… While some intended to exclude the Charles Darwin House, 12 Roger Street, is no proposal for legislation recognising the human choice of the private sector option from the range London WC1N 2JU, UK right to water.’ of solutions, the Parliament recognised the Email: [email protected] The European Parliament’s response levels a positive contribution of all operators including the Or visit: www.iwaponline.com/ number of criticisms at the Commission and calls for private sector. G wami/subscriptions.htm

Design & print Designer: David Parry i2O recruits for pressure expansion Printed by Hobbs The Printers, UK k-based smart pressure management technology Sensus, where he was responsible for the company’s ISSN (print): 1814-5434 ISSN (online): 1814-5442 Ucompany i2O Water has announced the pre-sales work. Prior to that he was Head of appointment of Keith Hilson as its new Head of Leakage at water utility South East Water, where his © IWA Publishing 2015 Customer Solutions. team made wide use of data and pressure manage - Hilson will work with the company’s water utility ment technologies to reduce leakage and help customers around the world to help them meet their deliver significant operational and environmental leakage, burst reduction and customer service savings. This work included specifying use of the targets. The company announced that he will i2O system. oversee development of i2O’s new products and The i2O smart pressure management technology service delivery models as well as leading its is currently used by 66 water utilities around the international sales and marketing teams. world, and the company recently secured £8 million Hilson was previously with metering company in funding to further develop its solutions. G

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 2 USE OF THE IVI TO COMMUNICATE RENOVATION NEEDS

The use of the Infrastructure Value Index to communicate and quantify the need for renovation of urban water systems

Urban water systems continue to accumulate renewal deficits. One of the key Helena Alegre, bottlenecks for a change in policy, mindset and practice is communication. Senior Researcher, LNEC, Lisbon, Portugal. Email: [email protected] Communication difficulties exist within utilities and between stakeholders. There is a need to convey that if considerable investments in renovation are not made at the Diogo Vitorino, Addition, Portugal. present time, and consistently over the years to come, we are preventing our children Email: [email protected] and grandchildren from full access to the services that current modern societies take for Sérgio Coelho, granted. The TRUST project provides paths forward, and one of them is the focus of this Baseform, Portugal. paper – the concept of IVI (Infrastructure Value Index) and a software tool to assist in Email: [email protected] awareness creation, assessing the long-term impact of renovation policies and assist in stakeholders’ negotiations. By Helena Alegre, Diogo Vitorino and Sérgio Coelho. © IWA Publishing 2015

rban water systems continue central and local governments. such as AMQI (2014). Uto accumulate renewal Therefore, the issue is to understand Internal communication challenges deficits, in spite of the efforts and communicate the severe increase with organizational complexi - made in recent years in terms consequences of the current policies, ty.The high degree of technical special - of awareness, scientific and tech - in order to create awareness and ization and the busy schedules nological developments, capacity, change priorities. of most professionals may contribute and renovation itself. to a more difficult and less frequent Ample evidence has been provided Internal and external communication dialogue among colleagues. Silos are by reports published in both developed One of the key bottlenecks for a naturally created between management and developing regions. In the USA, change in policy, mindset and practice processes and between utility depart - for example, the ASCE 2013 Report is communication, internally to the ments. Spiraling miscommunication is Card For America’s Infrastructure gave organizations and among stakeholders. naturally created: the less interaction America’s drinking water and waste - This has been recognized in recent among professionals, the less they know water public infrastructure a D (poor) events on infrastructure asset manage - about each other’s activities and in an A-to-F grading scheme. Even ment (IAM), such as in the closing understand each other’s professional countries where the quality of the session of LESAM 2013 (IWA & AWA, language, and the less they interact. A buried networks is a reference Sydney) and in the IAM Forum held similar problem occurs between worldwide, such as Germany, face during theWorldWater Congress 2014 decisional levels. Mid-level technical difficulties and pressure from the (IWA, Lisbon); as well as in publications managers often complain about the media.“Germany is collapsing” was the headline of a recent, admittedly At the dawn of the 21st century, much of our drinking water infrastructure is nearing the end provocative article by Bartek Starodaj of its useful life. There are an estimated 240,000 water main breaks per year in the United in German news magazine Der States. Assuming every pipe would need to be replaced, the cost over the coming decades Spiegel that criticized“(…) the sorry could reach more than $1 trillion, according to the American Water Works Association state of Germany’s infrastructure” (AWWA). The quality of drinking water in the United States remains universally high, (www.policyreview.eu/germany- however. Even though pipes and mains are frequently more than 100 years old and in need and-the-usa-are-falling-short-on- of replacement, outbreaks of disease attributable to drinking water are rare. infrastructure-investment). When looking for an explanation, 2013 Report Card For America’s Infrastructure economic constraints provide the easy ASCE www.infrastructurereportcard.org answer. Policy makers and utility CEOs argue that budgets are limited and that they cannot afford the invest - ments needed to compensate for the Annual capital gap for water infrastructure in the USA existing renovation gaps. However, (billions of 2010 US dollars) whenever a budget is limited, choices have to be made. Out-of-sight, taken- Year Spending Need Gap for-granted, long-lasting infrastruc - 2010 36.4 91.2 54.8 tures, when not failing at pace or with 2020 41.5 125.9 84.4 consequences that attracts media 2040 51.7 195.4 143.7 attention, are at the bottom of society’s Source: ASCE (2011) priority list, and consequently of

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 3 USE OF THE IVI TO COMMUNICATE RENOVATION NEEDS

PLAN Compare & decide. A decision-support environment where planning alternatives or competing projects are measured up, compared and prioritized through objectives-guided metrics PI Performance Indicators. Quantitative assessment of the efficiency or effectiveness of a system is provided, through the calculation of performance indicators. A tool for selection and calculation of kPI based on organized libraries, including industry standards (IWA) and user- developed libraries. FIN Financial project. Assess the net present value (NPV) and the investment return rate (IRR) of any financial project from a long-term/ asset lifecycle perspective. NETW EPANet Network Modeling. An efficient, Java-implemented EPANet simulation engine and natively integrated MSX library for full-range hydraulic and water quality network simulation, with advanced 2D/3D visualization and Google Earth integration. FAIL Failure analysis. Using system component failure records, such as work orders, predict present and future probability of failure of pipes or sewers. CIMP Component Importance. Simulate the failure of each individual pipe in a water supply network to measure its hydraulic impact on nodal consumption. UNMet Unmet demand. Quantify water supply service interruption risk through the expected reduced service, calculated as the volume of unmet demand over a given period. PX Performance Indices. Technical performance metrics based on the values of certain features or state variables of water supply is provided. Simulation-based tool provides detailed technical performance assessment, related to capacity, level-of-service, network effectiveness and efficiency, water quality and energy system behavior. IVI Infrastructure Value Index. Analyze the ageing degree of an infrastructure as a ratio between the current and replacement values of its components, and project short- and long-term investment needs. lack of understanding that their top that current modern societies take for Table 1 theTRUST project, and are the most managers – often elected politicians or granted? Media initiatives such as Last Tools offered in the instrumental for internal and external managerial executives without a WeekTonight with John Oliver: TRUST/AWARE-P communication: PLAN and IVI. background in urban water services – Infrastructure (HBO) (published 2 software platform The focus of this paper is IVI have of the existing problems and of March 2015) may help, but they (InfrastructureValue Index).The solutions to solve them. On the other need to be accompanied by a change following sections introduce the hand, top managers are often faced in culture, attitude and forms of concept, explain the rational of the with investment proposals, presented as communicating by water utilities. tool and exemplify uses as a communi - crucial by their staff, but without a cation and negotiation support tool. convincing rationale and expressed in The TRUST project, infrastructure asset terms that non-experts cannot fathom. management and communication The concept of IVI Accountability and justification Much has still to be done with this Managing water systems, here perceivable by users, shareholders regard. Some steps were accomplished designated as IAM, faces the challenge and other stakeholders is almost within the European Research project of dealing with assets of very different always lacking. TRUST (www.trust-i.net). In parallel nature, useful life and cost.Typically, Poor external communication is also to technologies and analytical tools, utility managers inherit an infrastruc - a major obstacle to good governance. TRUST results include an objective- ture with assets in diverse conditions Expert jargons are often used in oriented approach to infrastructure and stages of their life cycle.They are meetings and reports, which are not asset management, theTRUST/ expected to manage their value in perceived by people with different AWARE-P IAM approach, designed to order to ensure a service of adequate backgrounds. How to convey the support a continuous improvement quality, and make sure that what they need for … management process (Alegre et al. pass on to their successors is capable … investing in renovation of existing 2015). It is an outcome-oriented IAM of continuing to do so. Due to the infrastructures at an adequate pace, planning for long-term sustainability, indefinite life of an urban water when the lack of renovation does not embedding key ISO 55000 require - infrastructure as a whole, a classical have a short-term impact on the ments. Above all,TRUST/AWARE-P life cycle approach is not directly quality of service to users? is a transparent, defendable planning applicable – only to the individual … rejecting investments with an methodology to support the identifica - assets. Instead, long-term planning is obvious short-term impact on the tion of problems and in the compari - needed, embedding the life cycle of population in favor of investing in son and selection of alternative the individual assets without losing something that not visible and has no solutions.This is fundamental for good sight of sustained and sustainable perceivable short-term benefit? communication. service provision. How to transmit that if considerable TheTRUST/AWARE-P software The InfrastructureValue Index investments in renovation are not made platform offers a growing and (IVI) is the ratio between the current at present and years to come, we are customizable number of tools (fair) value of an infrastructure and preventing our children and grand- (baseform.org), summarized in 1.Two the replacement cost on modern children to have access to the services of these tools were developed within equivalent asset basis (Alegre, 2008), How long is long-term? as stated in (1): Is life cycle approach applicable to a public infrastructure as a whole? What is better for the service: concentrated investments or continuous renovation over (1) InfrastructureValue Index (%) = time? Are we renovating our assets at the right rate? Infrastructure Current (fair)Value Are prevailing project financing and PPP contracts adequate for indefinite live Infrastructure Replacement Cost infrastructures? The Infrastructure CurrentValue Or, more importantly than all: would be, in a competitive market activity, its market value. In a mono- polistic activity, as in urban water How much and when are my renovation needs? services, alternative valuation

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 4 USE OF THE IVI TO COMMUNICATE RENOVATION NEEDS

approaches must be adopted. One possibility might be the use of the accounting value. However, this option is not recommended for multiple reasons, as discussed in Alegre et al. (2014). The Infrastructure Replacement Cost is the expected cost of a modern equivalent if the infrastructure were built at the year IVI refers to. IVI shall refer to a specific date, as it changes over time. It can be assessed in several different ways, derived from two main families, as discussed in Figure 1 percentage of“living assets” (i.e. assets is a matter currently being worked Alegre et al. (2014): Input data for the that did not reach the end of their out, still marginally implemented in • Asset-oriented: Calculation is based IVI tool useful lives) over time. It encourages real situations. on the useful life of each asset, on the users to carry out sensitivity The development of the IVI tool depreciation curves and on replace - analysis to rehabilitation rates and had the following objectives: ment costs for each category of policies, to planning horizons and to 1. Assess IVI evolution over time; assets; useful lives estimates. It can accommo - 2. Assess capital needs for renovation • Service-oriented: Calculation is date both AM of linear assets and of over time; based on the performance of vertical assets, although the utility 3. Assess the percentage of assets (in functional units of the infrastruc - implementations so far have been terms of replacement values) that ture. mainly for linear assets. Its application did not reach the end of its useful to equipment and assets for which life, as a proxy of the quality of Whenever an asset-oriented strategy Figure 2 useful lives can be defined is straight - service provided; is applied, IVI may be determined Screenshots forward. Assets such as civil works, 4. Be easy to use; considering the individual contribu - from the TRUST subject to renovation interventions 5. Be applicable to cases where detailed tion of each asset (2): deployment that prolong their lives indefinitely, information exists on the assets, but also to cases where limited informa N Σi=1 fv i,t tion exists; IVI(t) = (2) 6. Accommodate both linear and N1 vertical assets; i=1 rc i,t Σ 7. Accommodate assets of different nature (e.g., water, wastewater, storm where: t : reference time; IVI(t) : water), different replacement values InfrastructureValue Index at time t; N and different useful lives; :Total number of assets; 8. Be based on and easy to understand rc i,t : replacement cost of asset i at time rational, even for non-experts; t ; fv i,t : fair value of asset i at time t. 9. Allow for sensitivity analysis to the main parameters used; IVI is a standardized measure of social 10. Produce easy to understand responsibility.The IVI of mature, well- outputs. maintained infrastructures is in the order of 50% (45% - 55%). Lower The first version of IVI, developed values mean that the current genera - prior toTRUST, could only respond to tion is accumulating a debt to the objectives 4 and 7. Implementation in coming generation and putting into real cases showed the need to fully risk the service provision. Higher rethink and redesign the tool.The values, pointing towards infrastructure utilities’ response to the new version youth, are only apparently good. In has been very encouraging. reality they mean that in the medium or long-term high levels of invest - Simplification options resulting from the ments for renovation will be needed in objectives a concentrated way. Ideally, the There is a major difference between renovation needs and the correspond - complexity and accuracy.There is a ing investment made should be evenly major difference between being simple distributed over time. IVI is a long- and being simplistic.The IVI was term planning index and aims at developed in order to be as simple to assisting stakeholders understand, use and interpret as possible, without communicate and negotiate becoming simplistic. Some options rehabilitation policies and associated made are often object of discussion by investments. scientists and researchers.This section presents the most relevant options The TRUST / AWARE-P IVI tool: made and, when applicable, some objectives, root assumptions frequent questions raised. IVI Tool objectives Replacement cost : the implementation Based on data that can be either of the current value of an infrastructure detailed (asset by asset) or simplified in the IVI tool assumes that the by cohort, the IVI tool assesses the IVI, replacement and the current values of the capital needs and the remaining the infrastructure may be assessed as the

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 5 USE OF THE IVI TO COMMUNICATE RENOVATION NEEDS

out sensitiveness analysis on the impact of adopting different useful lives.The IVI tool is not designed to support detailed analysis of what, when and how to rehabilitate each asset. It is a long-term planning tool, to be at an aggregated value. Current value : the implementation of the current value of an infrastructure in the IVI tool assumes simplifications resulting from careful analysis of pros and cons.The current value of an asset (or cohort of assets) is calculated as the replacement value multiplied by the percentage of residual life. Actual condition, if known and different from the average for the cohort, may give place to adjustments in the useful lives specified. A linear depreciation is adopted. Utility users report back that these simplifications are reasonable. Potential features accommodating, for instance, non-linear depreciation rates (e.g. bathtub curve functions) would once more give a false impression of accuracy and would reduce simplicity and ease of communication between technical and non-technical stakeholders. Parameters to run the simulations: users sum of the values of its components. 50-60 years); if a range is specified, Figure 3 can easily change some parameters To allow for flexibility, the software corresponding cohorts are uniformly IVI tool output for a during the analysis and stakeholders has just a column with the replace- distributed, processed as a uniform large network discussions at any moment.This ment cost, without any calculations distribution by the software. Given the described in detail includes the period of analysis, the included. Users are free to assess the random nature of failures, it has been possibility to simulate what happens if replacement cost of an asset or a group often suggested that the IVI tool Strategy 1: replacement at the end of useful life of assets as they consider appropriate. accepts a statistical distribution instead. replacement at the systematically occurs and the possibili - Import / export from Excel allow to This suggestion is not taken on board end of assets useful ty of setting a target in terms of IVI, easily customizing calculations as for one main reason: useful life is a very life annual replacement rate and annual appropriate.This option results from loose concept. Assets, and particular investment for renewal rate.These experience. Different utilities assessing constructed assets as pipes and civil Strategy 2: features resulted from suggestions from IVI manually used different approach - works, do not“die”.There useful life rehabilitation rate users of the first generation of applica - es. Although general guidance is stops when they no longer fit for = 0.5 % per year tion and are proving to be rather provided (e.g. use costs of modern purpose due to its condition (e.g. leaks, effective in terms of communication. equivalent; use average replacement structural resistance), capacity, ease of and renovation market values instead operation and maintenance, etc. Data input of historic book values), context may Statistical studies on past history may Data input (Figure 1) is a table with as dictate different procedure and the easily create bias.The use of sophisti - many lines as needed and columns application would became either too cated statistical functions often provides with an (asset or cohort) ID; a descrip - complex or too restrictive if the a false appearance of higher accuracy, tion of the component type (that replacement cost calculations were while adding complexity and reduces Table 2 may be used to filter the results per included. transparency to the tool.The option Example data for a component type; installation date; Useful lives : users may specify a single is therefore to keep a very simple simplified use of the useful life (one single value or a range); value (e.g. 60 years) or a range (e.g. rationale that easily allows to carry IVI tool and the replacement costs. Although all data can be loaded directly and manually in the IVI tool, import from / export to MS Excel allows users to prepare or modify the input files quicker and more easily.

Software implementation The IVI tool is implemented in the TRUST deployment, web-based, available for allTRUST partners. However, it is also available in the AWARE-P Suite Community Edition (baseform.org) that can be used in its web-based form in AWARE-PTrial, or can be downloaded and used locally. Corporate versions are also available under a licensing scheme.

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 6 USE OF THE IVI TO COMMUNICATE RENOVATION NEEDS

Examples with detailed and simplified data If complete detailed inventories exist, an all of assets input data for IVI can automatically be generated and used. Figure 3 shows an example with 71,200 pipes of a gravity sewer system. It might represent a higher diversity of assets, including for instance water and wastewater, linear and vertical assets, equipment and civil works. Replacement costs were estimated by the utility based on diameters and replacement materials (modern equivalent material). The pink columns represent the annual invest - ment in rehabilitation.The yellow line is IVI, and the blue line the percentage of the system that did not reach the end of the useful life yet. In an ideal world, Figure 3a (replacement at the end of assets useful life) would show a flat yellow nine at 0.5 and a constant capital maintenance (pink columns). Instead, we have a declining IVI (that will presumably cause deterioration in the quality of service), some decades without investment needs, and afterwards some decades of very intensive investment in capital maintenance.To smooth the curve of investment needs, constant rehabilitation rates might be considered Figure 4 needed. This paper presents IVI and a [email protected]. (e.g.: Figure 3b). In this case the IVI tool output for a software tool, developed under the ASCE (2011). Failure to acct.The Economic alternative devised does not totally large network TRUST project and already broadly impact of current investment trends in water and respond to the problems occurred and described in a used by many utilities, that helps wastwater treamente infrastructure, ASCE, after 2080 it will be needed to increase simplified way responding to this need. G [email protected] rehabilitation rated. Coelho, S.T.,Vitorino, D., Alegre, H. (2013). If detailed inventories do not exist a) Strategy 1: No Acknowledgements “AWARE-P: a system-based software for urban or the information is not easily avail - investment for The research leading to these results has water IAM planning”. 2013 IWA LESAM, able to use, cohorts can be easily used rehabilitation received funding from the European Union Sydney, Australia as input date of the IVI tool.The Seventh Framework Programme (FP7/2007- Baseform (2013). example inTable 2 corresponds to a b) Strategy 2: 2013) under grant agreement n. 265122. www.baseform.org/np4/apps/awareApp.htmlass real case of an African town, where two replacement at the et management. main areas in town exist: the so called end of assets useful References “cement town”, corresponding to a life Alegre, H.; Coelho, S.T.;Vitorino, D.; Covas, D. more classical urbanized area, and a (2015). Infrastructure asset management - the peri-urban area, of informal housing TRUST approach and professional tools. Cities and slums. of the Future Conference.TRUST and IWA, The outputs in Figure 4 show a Mulheim, Germany, April 2015. higher granularity (thicker columns), Alegre, H.;Vitorino, D.; Coelho, S.T. (2014). but in any case rather useful to call the InfrastructureValue Index: a powerful modelling attention for the needs of investments tool for combined long-term planning of linear needed in some years, and for rapid and vertical assets, 16th Conference onWater decrease in service (many assets beyond Distribution System Analysis,WDSA 2014, its useful life) if these investments are Bari, Italy, Procedia Engineering,Volume 89, not made.The life discussion generated 2014, Pages 1428-1436 around these two graphics and other Alegre, H.;Vitorino, D.; Coelho, S.T. (2014). simulations carried out by the stake - InfrastructureValue Index: a powerful modelling holders demonstrated the value of this tool for combined long-term planning of linear tool for creating awareness, facilitating and vertical assets, 16th Conference onWater communication and assisting in Distribution System Analysis,WDSA 2014, negotiation and consensus-building. Bari, Italy, Procedia Engineering,Volume 89, 2014, Pages 1428-1436 Conclusion Alegre, H. (2008).“Water infrastructure asset Communicating the needs for invest - management”, Research Program, Series «Thesis ing in renovation of urban water and Research Programmes», LNEC, Lisbon, systems at a level that ensures long- ISBN 9789724921341 (in Portuguese). term service sustainability is a battle AMQI (2014). AMQ International. This paper was presented at the Cities of the still to be won. Simple-to-use and Strategic Asset Management, Ed. Penny Future Conference, TRUST and IWA, Mulheim, understandable methods and tools are Burns, Issue 400, September 22, 2014, Germany, April 2015.

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 7 ENERGY EFFICIENT WATER SUPPLY SYSTEMS IN ALBANIA

Energy efficient water supply systems in Albania: moving from energy scans and cost-benefit analysis to the planning, implementation and management of energy efficiency water infrastructure in Albania

Many Albanian water and sewerage utilities have energy costs that make up 30-40 % of Fridtjof Behnsen, MSc, MBA, their direct operating costs, in several cases even well above 50%. Energy scans and GIZ Water Sector Reform Program, Albania Email: [email protected] cost-benefit analysis conducted in 14 out of 58 towns have revealed that existing pumping systems often have efficiencies that are well below 50% of a comparable new Pirro Cenko, MSc Eng. GIZ Water Sector Reform Program, Albania system. This is due not only to the age of the pumping systems, but also because the Email: [email protected] systems have been designed and built for purposes different to those they are being Kastriot Shehu, Dr. Eng. used for today. Considering the high proportion of energy costs in the operations along Consultant, Albania with the low efficiency of existing systems, it is clear that there is a considerable need to Email: [email protected] improve the use of energy in water and waste water service provision. Efficient use of Piro Ndreu, Dip. MSc Eng. energy is an important factor to ensure the sustainable use of resources and is also a Consultant, Albania Email: [email protected] key ingredient when it comes to the provision of affordable and cost recovery water and sewerage services. Fridtjof Behnsen, Pirro Cenko, Kastriot Shehu and Piro Ndreu © IWA Publishing 2015 outline economically-viable investments and practices to achieve this aim.

costs many utilities struggle with the Skenderbeg Square, Tirana, often old, poorly maintained and Figure 1 Albania (Credit: Fridtjof amortised pumping systems, (that is, Overview of Behnsen) the system comprising pumps, motors, Albanian towns suction and transmission mains and covered by GIZ reservoirs). As a result many utilities energy scans

espite the fact that Albania is 58 utilities were able to provide Dblessed with abundant water regular services of more than 20hrs resources, the sector is facing daily (the target is for all utilities to significant challenges in terms of provide more than 20hrs daily providing safe, affordable and service by 2017) sustainable drinking water and • Average Non-Revenue-Water sewerage services. The current (NRW) for all utilities stands at challenges are perhaps best 68.1% (the target is for less than 40% explained by looking at some NRW by 2017) key facts that highlight sector • In 2013, only 18/58 utilities were performance (Water Regulatory able to meet their direct operational Authority, 2013 Sector costs (target: all utilities need to meet Performance Report): their operational cost by 2017) • On average the municipal utilities only supply water for about 12 Energy efficiency hrs/day and in 2013 only nine out of In their efforts to cover all operational

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In 2013 utilities reported to have used 173 Million kWh to pump 160 million m 3 of water. This results in a unit energy input of about 1.1 kWh/ m 3 and represents 5% of the overall have energy costs that account for billed energy consumption in Albania. 30-40% of the direct operating costs, and for some utilities this goes beyond 50% as in the case of Durres at 56%. low network pressure, very many sector average, according to sector The situation with the dilapidated private households and businesses in benchmarking data, of about 68%. A condition of many pumping systems Albania have in-house water pumping large part of these losses is due to was confirmed in 14 of the 58 towns systems and storage facilities to cope technical losses incurred through leaks through energy (system) scans in 2014. with the erratic supply situation.This and bursts in the transmission and The results are documented in cost- means that a very significant propor - distribution networks. In the case of benefit-analysis, and by mid-2015 tion of the Albanian energy demand is pumped supplies, this means a lot of scans of a further six utilities will also due to water and sewerage service energy is being used to produce water be completed (see Figure 1). provision, services that are charac - that is lost before it is consumed and With many utilities currently unable terised by many inefficiencies that have therefore does not generate any significant potential for improvement. revenue for the utilities. So in addition to new pumping Energy optimisation systems with efficient pumps and In addition to the low energy efficien - motors (that is, energy efficient), a cy of existing pumping systems, the reduction in the very high levels of utilities also face a significant challenge NRW through energy optimisation is in terms of energy optimisation in their required to ensure better use of energy networks. Many of the systems operat - and a significant reduction in the ing today are rather old, with largely amount of water that needs to be amortised assets. In addition, these pumped. Many of the supply systems systems were originally designed for visited do not have operational different purposes when they were network zones or any pressure constructed.This leads to a situation management, maintenance plans or where some key assets like reservoirs operational plans in place.This further are not located in the ideal place, or are increases the losses. not matched to the volumes of water that need to be provided. Future use of energy scans and As a result, reservoirs are quite often cost-benefit analysis sited at high levels that don’t allow for To systematically improve the energy to meet their operational costs, Figure 2 the efficient use of energy for pump - efficiency of pumping systems in significant electricity arrears are Energy Scans in ing.These reservoirs would better be at Albanian water and wastewater regularly accrued. As a result the relation to the lower elevations that are better suited utilities, the following 10-step government of Albania has repeatedly Asset Life Cycle to providing adequate supply pressure approach was defined from initial data provided energy subsidies over the in the networks.Transmission mains are capture, energy scans and cost-benefit- years to clear arrears with the electrici - too small, resulting in high flow analysis to finally implement measures ty distribution company on behalf of velocities that lead to higher friction and monitor the performance of the utilities, i.e. about €20 million losses and the need for bigger pumps. investments.This approach is similar to ($22.6 million) in 2014 and a further These are major contributing factors that found in guidelines such as the €45 million ($50.8 million) in 2015. to the very high NRW figures in EPA Guidelines for Energy These subsidies, however, were merely Albania, which currently stands at a Management for example: payments of arrears and did not carry any conditions for utilities to make In 2013 the 58 municipal utilities reported to have produced 273 million m 3 from pumped necessary investments and/or necessary and gravity fed sources, serving approximately 2.5 million people in the respective service changes at the operational level to areas. This volume equates to a per capita production of 300 litres/day. This is in contrast to counteract a future build-up of new the average per capita consumption of 150 litres/day. electricity arrears. The energy scans and cost-benefit analysis completed to date come to the Figure 3 conclusion that most of the existing Performance pumping systems that have been visited improvement logic only attain efficiencies generally below 50% of a comparable new system, resulting in high energy inputs for the water produced. Knowing that the reported operational data from utilities is generally inaccurate (for instance only about 25% of the water production is measured by bulk meters, and the rest is estimated), the overall use of electrical energy in the water sector probably ranges between 12-15% of the billed energy consumption (excluding water heating).There are hundreds of smaller communal schemes not included in this figure. Also, and as a direct result of the intermittent water supply and resulting

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sector that requires energy efficiency as well as energy optimisation measures. To systematically tackle the challenges it is suggested that utilities focus on the asset life cycle approach depicted in Figure 2.The initial data capture (system and operational data) that led to the energy scans were carried out in the operational phase of Figure 4 the cycle for the existing water supply Ability to influence systems.The results obtained from the costs of these operational assessments are infrastructure documented in the form of cost- projects along benefit analysis, which needs to be the project considered in the planning phase of development the cycle to ensure future infrastruc - process ture is energy efficient. • Define main challenges (objectives) infrastructure measures to mitigate • System information (data capture - some of the problems was not part of Planning phase system) the mandate of the programme.This, For the planning phase the National • Operational information (data however, leaves the question of what Strategy ofWater Supply and Sewerage capture - operations) can be done with the valuable findings (2011-2017) provides clear guidance • Situation assessment (energy scans) and analysis. How can the Albanian on the kind of service that shall be • Technical options (cost benefit water sector use the findings and rendered by water utilities in Albania analysis) recommendations in order to deal by 2017.The main aspects that to be • Feasibility study with the situation in the sector? highlighted in this paper are: • Secure funding • A 24 hour supply with • Detailed design/tender documents Asset life cycle adequate pressure • Project implementation/ With the water sector in Albania • A supply with good quality commissioning responsible for an estimated 12-15% of potable water • Monitor and communicate outcomes the billed electricity consumption, and • Affordable water and sewerage at the same time operating many services for the end consumers The work done under theWater Sector inefficient pumping systems and water • Sustainable services (economically Reform programme, a technical supply networks with multiple opera - and environmentally), that is, assistance programme funded by the tional challenges, isolated improvement services that attain operational cost German government and implemented measures by some water utilities will recovery and at a later stage total by GIZ (Gesellschaft für Internationale not have sufficient impact for the cost recovery Zusammenarbeit), only dealt with steps necessary long-term change to provide 1 to 5 of the above approach, that is, sustainable and improved service To check whether utilities in Albania energy scans/cost-benefit-analysis.The delivery in Albania.There is consider - are moving towards attaining these design and implementation of actual able energy saving potential in the sector strategic targets, a system of Figure 5 performance indicators has been in Schematic of the place since 2008.This system has been WOBIS System collecting relevant operational data from utilities over the years and it is used to calculate sector specific Key Performance Indicators (KPIs). However, so far this data is mainly being collected to calculate the respective KPIs that are reported in the sector.The information from the KPIs is not turned into actual knowledge often enough through assessments, and that knowledge used to define clear actions as depicted in Figure 3. More effective performance assess - ments are needed at the operational, regulatory and policy levels. If such assessments are made effectively against the sector strategy targets, for example, they can be used to define manage - ment actions to address shortfalls and trigger necessary investments.This could include decision making on subsidy allocations to utilities as well, Life Cycle Costs for pumping systems have shown that 5% of the overall costs are due to the based on performance. investment cost for the implementation and 10% for the maintenance costs over the life From the operational/system data time. However, 85% of the costs that a utility incurs from a pumping system are related to capturing that was undertaken for the energy costs. Therefore, using more expensive energy efficient motors pays off over the life- energy scans it has become clear that in cycle and ensures lower operating costs. many cases the data at the utility level is either not (readily) available and is

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A single leak from a 6mm-hole in a water distribution pipe or transmission main, operated at 5bar pressure, will lose about 40-45 m 3 of water per day. This amount of water could fill an also often not accurate or reliable. But Olympic size swimming pool with a capacity of 2500m 3 in 2 months. With an assumed water unless the data variables are correct and production cost of 0.3 €/m 3 this single leak will cost a utility almost €5000 annually accurate, everything else will not represent the actual situation on the ground, which will lead to erroneous could be remedied by providing places that were visited, operating assessments. additional transmission capacity. manuals were not available and key To achieve this aim,WOBIS (Water Second, the reservoirs are not always operational data like water production Operational Business Information located where they are needed. Many and pump operating hours were not System) was developed to assist the reservoirs were constructed to serve a recorded. Also the utilities generally did utilities in capturing key operational different purpose to that which they not have an up-to-date asset register data variables on a monthly basis and are used for today.This, however, means and networks maps and schematics using them to calculate selected KPIs. that a lot of water is lifted to elevations available that would provide the Thus the utilities are put in a position where it is not needed.This consumes a required information to carry out an to monitor progress on a monthly basis lot of energy that could be saved by assessment like an energy scan at a such that they can see if operational constructing reservoirs in suitable pumping station. improvements are being made that locations. As a result an Excel tool has been lead toward attaining the envisaged Third, many networks don’t have developed to capture key pumping KPI targets. any functional pressure zoning. system data and help determine the Based on the data collected for the Not only does this affect the overall energy efficiency of the pumping energy efficiency assessments, the operation of the water supply net - systems. In addition,WOBIS (Water cost-benefit analyses that have been works, but with reservoirs in high Operational Business Information prepared generally outline economi - locations the water pressure in the System) has been developed to help the cally-viable measures in the 14 utilities, network is excessive in many low- utilities to routinely capture key looking at investments with a simple lying areas. operational data variables on a monthly payback period generally in the range All of the above leads to increased basis. Figure 5 outlines theWOBIS of two to five years. wear and tear on the infrastructure, and system.The operational data to be increases the NRW.This is why there is captured is first and foremost required Implementation phase a strong need in Albania to design and by each utility to regularly analyse For the implementation phase it is vital implement energy optimisation and assess its performance against that the recommendations from the measures.This requires the use of operational targets, which would be planning phase are based on sound experienced planners and designers, set as part of a utility’s business plan assessments using valid data. It is at the and the need to specify and tender or corporate plan. Additionally, the planning stage of any project where the the right equipment and materials, system can also be used to satisfy biggest opportunity exists to influence complying with minimum technical reporting needs to theWater the final costs of new infrastructure as standards, which ensure the implemen - Regulatory Authority (ERRU) and depicted in Figure 4. tation and use of efficient infrastructure the Benchmarking Unit (BMU) If the planning is wrong from the over the asset life cycle. Finally, within theWater and Sewerage start, this could well lead to inefficient professional construction supervision Directorate (DPUK) in the Ministry infrastructure with high operating and commissioning is needed to ensure ofTransport and Infrastructure. costs.Therefore it is important that that what was designed and specified From the recorded operational data for pumping systems, for example, is constructed and installed to the variables, theWOBIS system automati - professional pump selection software required standard. cally calculates the respective indicators is used to determine the most suitable and can compare these with annual pump/motor for the pumping system Operational phase targets for the KPIs, provided these (for the transmission main).This also To ensure that good quality services are have been set. means that the impeller diameter of provided by a utility, it needs to employ These regular performance assess - the pump has to be matched to actual qualified staff that will ensure the day- ments need to be linked to the defini - operating conditions, and if the to-day operations are done according tion of specific management and demand in the supply area varies a lot, to the operating manuals. In many investment actions geared towards variable speed pump sets should be Figure 6 considered. Finally the use of energy- Benchmarking efficient IE3 motors has to be consid - Cycle (adopted ered, and appraisals of different from DWA-M 1100E) technical options need to consider the full life-cycle cost to ensure that operational costs are properly considered. Since NRW is such a big issue in Albania, a special focus needs to be put on improving the water supply networks. First, the capacities of existing networks have to be checked against realistic demand scenarios. During the energy scans it was found that many transmission mains for example were operating with flow velocities that were far too high. Undersized pipes lead to excessive head losses and require large pumps and motors to transport water to the reservoirs.This uses a lot of energy, and

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related costs).This equates to an annual investment of €180 million ($203.9 million) to ensure that by 2040 all Albanians enjoy a 24 hour water supply service with good potable water, and adequate wastewater services. Finally, it would be considered very beneficial for the Albanian water sector if the planning, implementation and management of water and wastewater infrastructure were set up following an asset life cycle approach.To determine how well current processes and practices in the sector are aligned with such an approach, a detailed analysis would be required to determine exactly where there are Figure 7 gaps and weaknesses. Asset Life Cycle Based on such a gap analysis, con - crete measures could be formulated to closing the gap between current these assets with well-planned and clarify the roles and responsibilities of performance and envisaged or targeted designed solutions as soon as possible to all actors involved in the planning, performance, as outlined in the bench - attain cost effective operations. design, implementation and opera - marking cycle in Figure 6. tions. An effective communication Such assessments have also been Conclusion structure between all actors would integrated into the revised tariff In the current situation for many need to be developed based on well- application process of theWater utilities in Albania, well planned, designed processes and appropriate Regulatory Authority (ERRU). Since designed and implemented energy steering and coordination structures, 2014, tariff applications using the new efficiency and energy optimisation supported by an appropriate capacity tariff-setting tool need be accompanied measures could have a significant development programme at sector, by a tariff justification.This can essen - impact on their ability to cover their institutional and individual level. tially be seen as a summary version of a operational costs. New pumping Within the ongoing sector reforms business plan that requires a utility to systems with highly efficient pumps and as part of the current administra - highlight the strategies and planned and motors (that is, energy efficient), tive territorial reforms in Albania, this interventions it wants to carry out, in along with measures to better control would be an ideal time to develop and an effort to meet the forecast improve - the very high NRW (through energy integrate such an asset lifecycle ments in the regulatory KPIs. It would optimisation) would lead to a more approach for the water sector as part of be ideal if in future other decisions like efficient use of energy and a significant these reforms.Through its expertise in allocations of subsidies would also be reduction in the amount of water that capacity and organisational develop - based on such assessments and plans. is pumped into the system. Suitable ment and its long-term involvement in investments have been identified in the the Albanian water sector, GIZ Retirement phase cost-benefit analysis and many have (Gesellschaft für Internationale In the case of planned disposals of been found to be economically viable Zusammenarbeit) would be an ideal assets, it is necessary that steps 1 to 5 of with a simple payback period of two to development partner to assist in the the asset life cycle (see Figure 7) are five years. conceptualisation, design and imple - done before the old assets can be To ensure that the right infrastruc - mentation of such a multi-layered and retired. Only at this stage can these old ture investments are planned and multi-faceted change process. G assets be taken out of service and also implemented, it is paramount that removed from the asset registers, while accurate and reliable operational data is References the new assets need to be entered. It available and also used for regular Water Regulatory Authority of Albania (2014), was noted that many investments in the performance assessments.This requires Report on the Performance ofWater Supply and past have not been recorded properly in qualified, well-trained staff in the Sewerage Companies. asset registers and their status and utilities and for the sector to perform Water Regulatory Authority of Albania condition have not been monitored these duties better. Being able to use (2015),WRA Annual Report 2014. and updated.This would be a huge help energy more efficiently and pump less Albanian Official Journal (2011). National for decision making if and when assets water would also have a big impact on Strategy ofWater Supply and Sewerage (2011- need to be replaced. the future development of water/ 2017). From the work in the field for the wastewater tariffs, and thus the long- DWA German Association forWater, energy scans it was also noted that term affordability of services for the Wastewater andWaste (March 2008), Advisory broken assets (for example pumps or end consumer. Leaflet DWA-M 1100E, Benchmarking in motors) are quite often replaced with To achieve this, significant infrastruc - Water Supply andWastewater Disposal. whatever is available at the time, to ture investments are required, as many Albanian Ministry of PublicWorks and ensure that some kind of service can be of the water supply systems are old This article is Transport (MPWT) - General Directorate of provided.These makeshift solutions, with amortised networks and pumping based on a paper Water Supply and Sewerage (DPUK) (2013), however, often remain in place and lead systems. According to the Master Plan presented at the Water Supply and Sewerage Master Plan for to situations where, for example, for the AlbanianWater Sector, there is IWA Regional Utility Albania. oversized pumps and motors are not an overall infrastructure investments Management US Environmental Protection Agency (EPA), matched to the system curve and need to the amount of €5.1 billion Conference, Tirana, Energy Star Program (2013),The Guidelines for operate very inefficiently. Efforts ($5.8 billion) until 2040 (or €6.8 Albania, 13-15 May Energy Management should be made to properly replace billion ($7.7 billion) including all 2015. (www.energystar.gov/guidelines).

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Analysis of three efficiency models for water supply and sewerage companies: the case of Albania

Evis Gjebrea analyses three efficiency models for the water supply and sewerage sector Evis Gjebrea, PhD in Albania, which aim to evaluate economies of scale by focusing on the factors that Lecturer, Department of Economics and Management impact the efficiency of water and sewerage companies. The study analyses financial, European University of Tirana, Albania technical and operational data for the period 2006-2012 for 29 water and sewerage Email: [email protected] or [email protected] companies that cover 81% of the population of Albania. For the purposes of this study, this research uses an econometric model for efficiency of water supply and sewerage © IWA Publishing 2015 companies previously tested in a study on the relative efficiency of water utility companies in Brazil, which has similarities to companies in Albania.

t the global level, water is supplied with drinking water, due to Aconsidered a rare resource losses and misuse – using water for and there are several factors that other purposes – production is 31% cause this phenomenon. These higher than the demand for drinking are global warming, population water. Meanwhile, the volume of water growth, which increases pressure billed (sold), meets only 54% of the for more water, and demographic demand at sector level.These statistics change in the population due to the shift from rural to urban Table 1: List of Water/Sewerage Companies with both services areas. The debate on water has become an important issue No. Name of the Company Number of population Number of population with worldwide, as shown by the served with water access to sewerage inclusion of water issues in 1 Berat & Kuçovë 103743 87512 Agenda21 of the United Nations 2 Burrel 23025 16475 (UN) in 1992 and the Millennium 3 Delvinë 6300 2092 Development Goals. 4 Durrës 267612 181240 Water, from being a free or social 5 Elber (sh.p.k) 116000 112250 commodity has become a consump - 6 Ersekë 5900 5900 tion commodity and many global 7 Fier 126250 76042 conditions that have occurred and 8 Fushë Arrëz 1986 1700 are occurring have led to its scarcity. 9 Fushe Kruje 9616 8360 As a result one of the challenges of 10 Gjirokastër (Q) 33156 14025 the 21st century is the effective and 11 Kamëz 40768 20104 efficient management of water.To that 12 Kavajë 61071 23751 end, water management theory has 13 Korçë (Q) 87500 77400 changed by introducing the concept 14 Krastë 2213 2013 of sustainable water management, and 15 Krujë 16837 16000 its relationship with other sectors such 16 Kukës 40000 25000 as health, environment, agriculture 17 Lezhë 31378 31706 and industry. 18 Libohovë 3082 567 Albania is a country rich in water 19 Librazhd 18812 16100 resources, and with the current 20 Lushnjë (Q) 47500 40000 capacity of the resources it possesses it 21 Mallakastër 17975 10720 is able to meet the needs of the whole 22 Mirditë 6074 5261 population. But the challenge remains 23 Pogradec 58142 43885 efficient use of water resources. 24 Pukë 2892 2112 Concretely, the annual average 25 Rrogozhinë 9007 3504 capacity of all sources used for 26 Rubik 2322 2207 production of drinking water is 27 Sarandë 43220 32346 3 654M.m , while the average volume 28 Shkodër (Q) 82649 73465 3 of water produced is 278M.m 29 Tiranë (Q) 828200 655000 (Drejtoria e Përgjithshme e Ujësjellës Total number of population for 29 companies 2093226 1586735 Kanalizimeve, 2010). Total number of population for 58 companies 2573023 1586735 This indicates that only 43% of the Weight of sample /Total population number 81% 100% country’s water resources are used. Assuming that the entire population Source: General Water and Sewerage Directorate living in the area of jurisdiction was

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Table 2: Summary Statistics for the Basic OLS Models sectors, and the total cost of the private network is a substantial part of the total For the Volumes Models: cost of water, leading to a natural monopoly (Mergos, 2005). Specifically, Variable Observations Mean Standard Minimum Maximum competitors cannot build parallel Deviation water supply and sewerage systems in LN OPER COST 203 10.78009 1.354354 8.317204 14.45287 the same city (Urio, 2010). LN WAGE 203 5.844669 0.3050549 5.072671 6.808056 Quiggin (2011) argues that most LN WATER VOL PROD 203 7.500128 1.658615 4.60517 11.59958 cases of public ownership exist for LN SEWER VOL COLL 186 6.167105 1.523327 2.079442 9.917996 infrastructure services such as energy For the Population Models: and water and there are two reasons for this: first, these services require huge Variable Observations Mean Standard Minimum Maximum investments and what counts is the low Deviation cost of public borrowing, and second, LN OPER COST 203 10.78009 1.354354 8.317204 14.45287 such services are a natural monopoly LN WAGE 203 5.844669 0.3050549 5.072671 6.808056 and if they were privatized they would LN POP SERV WATER 203 10.06328 1.466459 7.482214 13.7233 require regulation by the government. LN POP ACCESS TO SEWER 195 9.698738 1.579222 5.607639 13.57662 In this sense, the choice is between one form of government intervention For the Connections Model: and another. One way to address this issue is to Variable Observations Mean Standard Minimum Maximum merge several water companies and Deviation create big regions, which is known LN OPER COST 203 10.78009 1.354354 8.317204 14.45287 as regionalization.This process has LN WAGE 203 5.844669 0.3050549 5.072671 6.808056 occurred both in developed and in LN WATER CONN 199 8.15966 1.947109 .6931472 12.02472 developing countries. According to LN SEWER CONN 196 8.292021 1.414973 5.62852 11.92949 Kingdom (2005) there are few publications on regionalization.The show the high financial costs of the than 50,000 inhabitants, a fact that European Union (EU) and theWorld water and sewerage companies (WSCs) shows there is a lack of economies Bank are promoting this scheme in in Albania. of scale (Padeco, 2009).The poor developing countries.The main In Albania there are currently 58 performance of these companies exerts reasons for regionalization are to water and/or wastewater companies pressure on the government, which is achieve economies of scale by serving operating, and the performance obliged to provide subsidies. Although a large number of people, and the indicators show an unhealthy financial these have been reduced, they still ability to access private sector situation. Overall, companies face more remain high at 8% of total operating financing or funds from international or less the same problems, regardless of costs for 2012.The subsidies are institutions that are encouraged to their severity, which varies from one provided to cover the financial losses finance based on the benefits from region to another. Some of these of theWSC, while today's debate is economies of scale. problems faced by companies in the that subsidies should be provided to The most important factor in sector level according to the data by help the poor. regionalization is achieving economies Water Regulatory Authority (Water In Albania, there are no in-depth of scale.This is especially important Regulatory Authority, 2012) are as studies on increasing the efficiency of for small cities which, being small in follows: theWS sector.The only institutions size, have difficulties in achieving • A relatively low level of water that have conducted several studies in economies of scale. According to a supply: there is 80% coverage in the field are theWorld Bank and the report prepared forWestern city general, of which 90% is in urban German Bank for Reconstruction and projects (McFarlane, 2003), the reasons areas and 60% in rural areas Development (KfW). Specifically, the for sharing access to water resources • Coverage of sewerage services is at a World Bank has conducted studies are financial, geographic inter- level of 50% in total, of which 70% is on decentralization, increasing the dependence, public health concerns, in urban areas and 17% in rural areas. efficiency of the sector and investment regulatory changes, and public • The degree of losses (the water that projects, while KfW has conducted expectations. is produced and introduced into the studies for investment projects carried According to SMC Martin, Inc system, but that does not generate out in several cities including Korça, (1983), regionalization favors any income) is approximately 67%, Pogradec, Kavaja, Kukës Rrogozhina, economies of scale, as the total costs while the standard inWestern Lushnja, Berat, Kuçovë, Saranda, will decrease with the increase in Europe is 20%, and furthermore the Gjirokastra, Lezha and Fier. Recently population served. Also the savings standard according to theWater a master plan for the necessary arising from the aggregation of Regulatory Authority (WRA) is investments in theWSC was prepared financial, human resources and 30%.This is due to low levels of by a German consulting company, technology contribute to achieving meter installation, illegal connections which analyzed the financing needs the economies of scale. to the network and the network of theWS sector until 2040. Since 1998, the most important being overused. studies that have looked at the • Continuity of water supply is on Literature review economies of scale in the water sector average 10.8 hours, while the It is known from the literature that are those by Kim and Clark (1998) in standard inWestern Europe is 24 the introduction of competition in the US, Garcia andThomas (2001) in hours a day. the water sector is more difficult than France, and so on.These econometric in other sectors such as energy and studies failed to show that economies According to theWorld Bank study telecommunications, because the of scale are more powerful for small undertaken in 2010, it is estimated that technical characteristics of the water companies in providing services to the 80% ofWSCs are small cities with less sector differ from those of other WS sector, and that economies of scale

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are more stable when company size is determined by the volume of water Table 3: Basic OLS Models for 2006-2012 produced. But these studies also show that the most powerful economies of Dependent Variable: (ln) Operating Cost scale exist when the number of connections or the population served Variable MODEL is used as an indicator for the size of Volumes Population Connections the company (Tynan and Kingdom, 2005).The overall result is that in all Constant 3.850199*** -0.1922845 2.971766*** cases analyzed in various studies, the (4.82) value t (-0.30) value t (3.83) value t regionalization process has as its main (0.000) value p (0.764) value p (0.000) value p factor increased efficiency as indicated Wage 0.231528 0.4476861*** 0.0913152 by the economies of scale theory. (1.61 value t (4.01) value t (0.65) value t With the introduction of the (0.110) value p (0.000) value p (0.517) value p concept of integrated water manage - Water Volume Produced 0.6544855*** ment, merging companies becomes (12.05) value t a necessity in order to maximize (0.000) value p economic and social welfare in an Sewer Volume Collected 0.107497* equivalent way without compromising (1.84) value t the sustainability of ecosystems. For (0.067) value p example in England andWales, Population served 0.6366187*** economic growth and the emergence with water (8.94) value t of pollution problems forced the (0.000) value p central government to reorganize Population with 0.2021717*** management of water resources by access to sewer (3.02) value t bringing together more than 200 (0.003) value p water companies and 1400 sewerage Water Connections 0.0770307*** companies to form only 10 regional (2.67) value t companies.These companies had the (0.008) value p objective of managing water and also Sewer Connections 0.8050484*** sewerage services in an integrated (20.56) value t manner (Kingdom, 2005). (0.000) value p According to McFarlane (2003), Observations 186 195 192 financial benefit is provided by R2 0.8364 0.8918 0.8498 geographic interdependence, meaning that some areas may have problems in gaining access to water resources, and thus merging water companies also • What are the criteria used for Lin, 2005).When it comes the question offers access for areas that are unable rankingWS companies by their of measuring efficiency with an to access water. efficiency? econometric model, analysts have two options: cost functions and production Methodology The quantitative hypotheses are as functions. Neither is perfect, due to The basic units of analysis in this study follows: limited data.The preference for one or areWSCs operating in Albania that • The reduction of technical losses the other depends on the particular offer both types of services, namely reduces the volume of water circumstances as analyzed by access to water supply and sewerage produced and the annual Sabbione (2006). systems for the period 2006 to 2012. operating costs One of the most important circum - First, the analysis started for all water • The effect of scale in relation to stances is the environment in which and/or sewerage companies, 54 in the population served by the the company operates.When we talk total, for that period. Currently in water/sewerage company should be about maximizing profit, a production Albania there are 58 water and/or important in reducing relative function can be a natural choice for sewerage companies operating, but operating costs a company, which can choose its out of these four did not exist during • Increasing the number of meters production level. However, if the the period of analysis. installed leads to a significant company has an‘obligation to serve’, it From the data analysis, it was found increase in operating costs will need to produce as much as is that not all companies offered both • The current methods for ranking required by customers. In this regard, water and sewerage services. In this the companies by efficiency should the production function may not be context, the analysis was reduced from be changed, taking into account adequate. In the case of Albania a cost 54 to 29 companies that constitute the ranking according to operating function may be applicable because the selected sample.The sample of 29 conditions WSCs are of different size, and the companies is representative because it service areas are also different. covers 80% of the population served. This paper is based on econometric Such companies have an obligation The data used are publicly available on techniques that use parameters or to serve the population, and in this the web page of the General variables. In general, a non-parametric regard it is more appropriate for a Directorate ofWater and Sewerage. data envelopment analysis model can company to produce as much as is Research questions raised in this provide answers to some important required by its customers. Since 42% study were: questions. However, this study relies on of the companies serve fewer than • What are the factors that affect the the parameter model to evaluate the 50,000 inhabitants, this indicates that company's operating costs? most important parameters and to test there is a lack of economy of scale, and • Which of the factors is the most the relative importance of variables profit maximization on the basis of important in the operating costs? (Cubbie &Tzanidakis, 1998; Berg & production would not be appropriate.

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 15 ANALYSIS OF THREE EFFICIENCY MODELS FOR ALBANIAN WATER COMPANIES

which exclude the external variable Z. Table 4: Summary Statistics for the Basic OLS Models with the Environmental Variable Z Although there is limited information, specifications show that a high For the Volumes Models: percentage of variability in operating Variable Observations Mean Standard Minimum Maximum costs of companies is explained only Deviation with selected independent variables LN OPER COST 203 10.78009 1.354354 8.317204 14.45287 that are variables of the production and LN WAGE 203 5.844669 0.3050549 5.072671 6.808056 price inputsW. LN WATER VOL PROD 203 7.500128 1.658615 4.60517 11.59958 Each model has an output variable LN SEWER VOL COLL 186 6.167105 1.523327 2.079442 9.917996 associated with the water service, and LN VOL WAT MEASURED 186 5.612998 1.955937 -1.07881 10.57029 an output variable associated with the sewerage service. Independent For the Population Models: variables are grouped into three Variable Observations Mean Standard Minimum Maximum categories (Sabbione, 2006): Deviation TheVolumes model except wage LN OPER COST 203 10.78009 1.354354 8.317204 14.45287 includes as variables: LN WAGE 203 5.844669 0.3050549 5.072671 6.808056 • The volume of water produced in LN POP SERV WATER 20 10.06328 1.466459 7.482214 13.7233 thousands of m 3 (000 m 3) LN POP ACCESS TO SEWER 195 9.698738 1.579222 5.607639 13.57662 • The volume of sewerage collected LN VOL WAT MEASURED 186 5.612998 1.955937 -1.07881 10.57029 in thousands of m 3 (000 m 3) • The volume of water measured in For the Connections Model: thousands of m 3 (000 m 3) Variable Observations Mean Standard Minimum Maximum Deviation The Population model except wage LN OPER COST 203 10.78009 1.354354 8.317204 14.45287 includes the variables: LN WAGE 203 5.844669 0.3050549 5.072671 6.808056 • The population served by water that LN WATER CONN 199 8.15966 1.947109 .6931472 12.02472 is the number of people served with LN SEWER CONN 196 8.292021 1.414973 5.62852 11.92949 water services LN VOL WAT MEASURED 186 5.612998 1.955937 -1.07881 10.57029 • The population number with access to sewerage services We assume that aWSC can Equation (3): maximize its profits by minimizing the Yt= β1 + β2 Xt2+ …….. The Connection model except wage cost of producing some exogenously βkXtk + µt includes the variables: given output level, subject to the • The number of water connections available technology (that is, the Where: • The number of sewerage connections production function).The solution to t is the number of surveys which this optimization (cost minimization) varies from 1 to t;Yt is the dependent The theoretical hypotheses are as problem is a cost function (Sabbione, variable; β1 is the constant; β2….. βk follows: 2006): are the coefficients to be determined; • Hypothesis H 0: the annual operating Xt 2 …. X tk are the independent cost is not influenced by the inde - Equation (1): variables; and µt is the error term. pendent variables of the three C= f(Y,W, Z) In this paper, the dependent variable models, and in this case there is no is the annual operating cost of the linear relationship WhereY is the output vector,W is the company, excluding amortization. In • The alternative hypothesis H 1 ≠ H 0: vector of input prices, and Z is the Albania, the majority of companies annual operating costs are signifi - vector of environmental characteristics. have financial losses, and subsidies from cantly influenced by the indepen - It is assumed that this cost function C the central government are allocated to dent variables of the three models, (.) can be deconstructed as the product cover the annual operating costs. or at least one of the variables of two functions g (.) and h (.).The The challenge for allWSCs, as linearly affects the dependent function g (.) will have the input prices described in the National Sectorial variable, which in this case is the W and outputsY as arguments, while Strategy 2011-2017 for water and annual operating cost the function h (.) will incorporate the sewerage, is for the company to initially exogenous variable Z that will affect cover its operating costs and then as a Results of the three models the technology of the company.The final objective to cover its total costs, From the results of the Basic OLS cost function is then: which would be an indication that models, some preliminary and the company is moving to financial expected conclusions can be Equation (2): autonomy. Specifically, the Strategy extracted. First, we see that the C= g(Y,W) h (Z) stipulates that by the year 2017, coefficient of the variableWAGE is coverage of direct operating costs with always positive, but not always impor - Characteristics of the cost function revenues and payables must reach tant.WAGE is important when Having introduced the mathematical 100%.This is a strong argument for choosing production by having the side of the cost function, this section companies to understand which population served as an output. In all analyses the regression model used and variables most affect the variability of three regressions, the models confirm the results of the test of the significance the dependent variable. the hypothesis that the firm's operating of the model.The model used is a The first set of results consists of costs will increase if the price of labor multiple linear regression, which three different specifications of the cost goes up, but confirmation of the includes several variables that affect function depending on the output hypothesis becomes more specific the efficiency of aWS company. variables chosen: aVolumes model, a when we choose to produce on the Theoretically, the model has the Population model and a Connections basis of the population served, following formula (Ramanathan, model.These versions are called basic because all indicators are positive 2002): Ordinary Least Square (OLS) models, and significant.

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 16 ANALYSIS OF THREE EFFICIENCY MODELS FOR ALBANIAN WATER COMPANIES

Specifically, the mathematical relationship between variables for the Table 5: Basic OLS Models for 2006-2012 only for the Environmental Variable Z three models is given below: Dependent Variable: (ln) Operating Cost Equation (4):Volumes model Operating cost = 3.8 + 0.23 × wage + Variable MODEL 0.65 × volume of water produced + Volumes Population Connections 0.11 × volume of sewerage collected + 0.54 Constant 4. 27644*** - 0.0614173 3.162032*** (5.31) value t (-0.08) value t (3.87) value t The result is that the variables of the (0.000) value p (0.935) value p (0.000) value p Volumes model have a positive linear WAGE 0.1656319 0.3893714*** 0.0796103 relationship with the operating costs. (1.17) value t (3.18) value t (0.55) value t What is evident in this equation is that (0.245) value p (0.002) value p (0.584) value p an increase of one percent of the Water Volume Produced 0.53318*** volume of water produced will (9.22) value t increase operational costs by 0.65% (0.000) value p and an increase of one percent of the Sewer Volume Collected 0.1128604* volume of sewerage collected will (1.87) value t increase the operational costs by (0.063) value p 0.11%. Population served 0.5749276*** with water (7.02) value t Equation (5): Population model (0.000) value p Operating Cost = -0.19 + 0.45 × Population with 0.2840244*** wage + 0.64 × population served with access to sewer (3.62) value t water + 0.20 × population with access (0.000) value p to sewerage services + 0.44 Water Connections 0.0475238 (1.41) value p The result is that the variables of the (0.160) value p population model have a positive Sewer Connections 0.7664642*** linear relationship with the operating (15.51) value t costs except for the constant.What is (0.000) value p evident in this equation is that an Water Volume Measured 0.1500166*** 0.002597 0.0768459 ** increase of one percent in the popula - (5.11) value t (0.09) value t (2.23) value t tion served with water will increase (0.000) value p (0.930) value p (0.027) value p operational costs by 0.64% and an Observations 175 178 179 increase of one percent in the number R2 0.8507 0.8822 0.8413 of people with access to sewerage services will increase operational costs by 0.20%. The next step is to test the environ - WRA, sector performance report for mental variable Z to isolate its effect on 2012, it is reported that the level of Equation (6): Connections model the operating cost and evaluate it in losses in the sector is 67%. Similarly, in Operating Cost = 2.9 + 0.09 ×Wage detail.The additional variable Z was theWS sector strategy for 2011-2017 + 0.07 ×Water Connections + 0.8 × included only if it added significant the objective is that by year 2017 losses Sewerage Connections + 0.52 explanation to the operating cost by be reduced to 40%, a change of 27%. having a stable, meaningful and statisti - On the basis of the results reached The result is that the variables of the cally significant coefficient.The result is through the regression formula, the connections model have a positive that the variables of all the three final conclusions are as follows: linear relationship with the operating models have a positive linear relation - • A reduction of technical losses from costs.What is evident in this equation ship with the operating costs. In all 67% to 40% will reduce the volume is that an increase of one percent in the three models the coefficient of deter - of water produced by 45%, and water connections through meters will mination R 2 is high, which shows that operating costs will decrease by 29%. increase operational costs by 0.07%, 85% of the operating cost variability is (Hypothesis 1 is verified) and an increase of one percent in the explained by the variables of the • Serving a greater population of 1% sewerage connections will increase the volumes model, 88% of the variables of to 5%, the operating cost increases by operational costs by 0.8%. the population model and 84% by the less than the increase in population In all three models, the coefficient of variables of the connections model. As (from 0.57% to 2.8%). (Hypothesis 2 determination R 2 is high, which shows a general result all three models have a is verified) that 83% of operating cost variability is high R 2 to explain the variability of the • Increasing the number of meters explained by the variables of the annual operating cost, and none of installed (from 10% to 20%) the volumes model, 89% of the variables of them is excluded, but of the three operating costs increase much less the population model and 85% by the models, the model that explains best (0.7< C < 1.4 %). (Hypothesis 3 is variables of the connections model. As the variability of operating costs is the rejected) a general result, all three models have Population model, with a coefficient high R 2 to explain the variability of of determination of 88%. As a final Rankings of the water and sewerage annual operating costs, and none of conclusion, adding the environmental companies them is excluded, but of the three variable in our testing does not create a To estimate the efficiency level of models, the model that explains best significant change. theWSCs, three stochastic cost the variability of operating costs is the As mentioned in this article, the level frontier models were run. Basic OLS Population model, with a coefficient of of water losses in the water and sewer - regressions were valid to identify the determination of 89%. age sector is high. According to the significant variables that most explain

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 17 ANALYSIS OF THREE EFFICIENCY MODELS FOR ALBANIAN WATER COMPANIES

Ranking of the best companies Table 6: Final Ranking for year 2012 for W/S Utilities according to stochastic cost frontier models according to both evaluations is as follows: Volumes Model Population Model Connections Model Scientific Paper WRA Tiranë Tiranë Tiranë 1.Tirana 1.Tirana Durrës Durrës Durrës 2. Durrës 2. Korçë Berat & Kuçovë Berat & Kuçovë Berat & Kuçovë 3. Elber 3. Elber Elber Elber Elber 4. Berat & Kuçovë 4.Vlorë Shkodër Shkodër Shkodër 5. Shkodër 5. Shkodër Fier Fier Fier Gjirokastër Gjirokastër Gjirokastër Ranking of the worst companies Korçë Korçë Korçë according to both evaluations is as Sarandë Sarandë Sarandë follows: Lushnje Lushnjë Lushnjë Kavajë Kavajë Kavajë Scientific Paper WRA Lezhë Lezhë Lezhë 1. Delvinë 1. Pukë Fshat Pogradec Pogradec Pogradec 2. Rrogozhinë 2. Orikum Burrel Burrel Burrel 3. Libohovë 3. Gjirokastër Fshat Kamëz Kamëz Kamëz 4. Krastë 4. Libohovë Krujë Krujë Krujë 5. Rubik 5. Has Kukës Kukës Kukës Mirditë Mirditë Mirditë The test results confirm Hypothesis 4, Librazhd Librazhd Librazhd that the current methods for ranking Mallakastër Mallakastër Mallakastër companies according to efficiency Ersekë Ersekë Ersekë should be changed to take into Fushë Krujë Fushë Krujë Fushë Krujë account the ranking as per operating Pukë Pukë Pukë conditions.This was shown by the Fushë Arrëz Fushë Arrëz Fushë Arrëz constant term that explains other Delvinë Delvinë Delvinë factors not captured by the volumes Rrogozhinë Rrogozhinë Rrogozhinë model, population model and connec - Libohovë Libohovë Libohovë tions model. Krastë Krastë Krastë As is evident, both rankings are Rubik Rubik Rubik different.There are several reasons for the differences in the rankings found the variability of annual operating economy of scale and the conclusions in this comparison. Both types of costs, but the construction of an of empirical studies carried out by rankings use different methodologies. efficiency ranking needed to account recognized authors, who conclude that Also, the ranking of the scientific paper for both inefficiency and randomness the greater the increase in the popula - considers both types of services, and as in the error term.The error term tion served, the lower the cost per unit. a result companies that offer only explains the random factors arising This finding is relevant in the case of water service are not included, which from natural disasters or other Albania, that an increase in the number is an added value of the scientific conditions that are outside the of population served leads to an paper, while theWRA ranks all company’s control and do not depend increase in population density, which companies regardless of the services on it, such as geographic position - impacts the achievement of economies they provide. being located in an area that serves a of scale. In addition, the ranking criteria limited number of people or that is used by theWRA to group companies a long distance from access to the Comparison of the Performance according to their size are on the river basin. Ranking of WSCs with ranking by the basis of water connections, while the What is evident from the ranking WRA criteria used by the scientific paper are results is that the five bestWSCs for In Albania, performance monitoring of according to three models: the efficiency during 2012 are the same theWS sector started in 2006 based on Volumes model, the Population model companies across the three models. a benchmark set by the benchmarking and the Connections model.What is These utilities are:Tirana, Durrës, Berat Monitoring Unit and later by the found is that the ranking used by the & Kuçovë, Fier and Elber Ltd. Some of WRA. It is important to compare the WRA does not take into considera - the factors that could have contributed ranking of the companies based on the tion the part of the population that is to the efficiency are good manage - results of this scientific study and the supplied with water, but is not ment, qualified staff, accumulated ranking produced by theWRA. equipped with meters. It is a fact that expertise and so on.The fiveWSCs Specifically, theWRA groups the part of the population served with with the worst efficiency are the same companies in three categories using as water may not be equipped with companies across the three models. criteria the number of connections to meters, but still companies receive These are: Delvinë, Rrogozhinë, the water system. According to the their payables using a fixed method for Libohovë, Krastë and Rubik.The WRA, the grouping as per connections price calculation. In this context, this is constant term in the stochastic model contrary to the size of the service area revenue for the company and affects its in this case takes into account other helps to differentiate between large and financial performance.This can be a factors besides those above. Factors small companies. For each group, the point of strength in the ranking used that affect inefficiency could be bad benchmark is calculated for the main in the scientific paper. management, unqualified staff, lack of sector indicators and the performance expertise, and so on. of each company is then calculated by Conclusions The stochastic test results are in line comparing with the benchmark of Albania is a country rich in water with the theory of efficiency on the each indicator. resources, and with the current

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 18 ANALYSIS OF THREE EFFICIENCY MODELS FOR ALBANIAN WATER COMPANIES

capacity of the resources it possesses it calculation. In this context, this is http://www.dpuk.gov.al/5_vjet_benchmarking is able to meet the needs of the whole revenue for the company and affects _vilma_bibolli_2011.pdf. population. But water management is its financial performance.This can be Enti Rregullator i Ujit (2012), Raporti i not efficient because only 43% of a point of strength in the ranking used Performancës për vitin 2012, pp. 46-48. water resources are used, the produc - in the scientific paper. Garcia, S andThomas, A (2001)The tion is 31% higher than the demand The testing used for efficiency structure of municipal water supply costs: for drinking water, and the volume of through the econometric model is a application to a panel of French local communi - water billed (sold) only meets 54% of scientific contribution recommended ties, Journal of Productivity Analysis 16(1), pp. the demand at the sector level.The for consideration by theWRA. 5–29. degree of losses is approximately 67%, Efficiency is just one aspect associated Kingdom,W (2005) Models of aggregation while the standard inWestern Europe with economies of scale. In addition to for water and sanitation provision,Water Supply is at 20%, and furthermore the this factor there are other factors such and Sanitation Notes, Note No. 1, January, pp. standard according to theWRA is as institutional, political, administrative 12, 15. 30%.This is due to the installation of and legal that the companies must McFarlane, S (2003), Regional water works: meters being at low levels, illegal consider. It is recommended that in sharing urban water services,Western Cities connections to the network and the order for the companies to achieve Project Report #28, pp. 7. fact that the network is overused. economies of scale, regionalization and Mergos, G (2005) Private participation in the One way of addressing the the creation of bigger regions could be water sector: recent trends and issues, European inefficiency of the sector is to merge an option. In this context, in the Water 9/10, pp. 59-75. several water companies and create framework of the new territorial and Ministria e Punëve Publike dheTransportit big regions, known as regionalization. administrative reform that is happening (2011), Strategjia Kombëtare e Furnizimit me This process has occurred both right now in Albania, policy makers Ujë dhe Kanalizimeve, 2011-2017. in developed and in developing should define a regionalization model http://www.erru.al/doc/Strategjia_Kombetare_ countries. According to Kingdom, the that takes into consideration not only e_Furnizimit_me_UK.pdf main reason for regionalization is to the economic factor but also other Padeco CO, LTD (2009), Feasibility Study achieve economies of scale by serving factors as mentioned here. of Regional Utilities in theWater andWastewater a larger population, and the ability to Clearly, much work remains. For Sector of Albania, pp. 13. access private sector financing or funds the purposes of rewarding good Quiggin, J (1995) Does privatization pay? from international institutions. performance and penalizing weak Australian Economic Review, No. 110 (2nd According to SMC Martin, Inc performance, scholars and practitioners quarter) pp. 23-42. regionalization favors economies of need to develop benchmarking Sabbioni, G (2006) Econometric measures of scale, as the total costs will decrease procedures that can pass legal the relative efficiency of water and sewerage with the increase in population served. challenges. Econometricians must utilities in Brazil, pp. 3-6. Also, the savings arising from the contribute to the debate on increasing SMC Martin, Inc (1983) Regionalization aggregation of financial, human the efficiency of theWS sector in options for small water systems,Washington, DC: resources and technology contribute Albania. In order to address the U.S. Environmental Protection Agency, pp. to the achievement of the economies efficiency issue, academicians must 19. of scale. collaborate more closely with the Tynan, N and Kingdom, B (2005) Optimal In all three models, the coefficient WRA and other policy makers to size of utilities?, Return to scale in water: of determination R 2 is high, which decide on a standardized ranking evidence from benchmarking. shows that 83% of the operating cost assessment. Urio, P (2010) Public Private Parnterships: variability is explained by the variables In the context of the new territorial success and failure factors for in-transitional of theVolumes model, 89% by the and administrative reform, the govern - countries, University Press of America, Maryland, variables of the Population model and ment should promote the offering of pp. 26, 30. 85% by the variables of the water and sewerage services by the Youn, KH and Clark, RM (1988) Connections model. As a general same operator.This could help the Economies of scale and scope in water supply, result, all three models have a high R 2 company to reduce costs and increase regional science and urban economics 18, no. 4, to explain the variability of the annual savings, thus improving efficiency. G pp. 479. operating cost, and none of them is http://www.un.org/geninfo/bp/enviro.html excluded, but of the three models, the References model that explains best the variability Ramanathan, R (2002) Introductory economet - of operating costs is the Population rics with application, South-Western College model, with a coefficient of determi - Pub, USA, pp. 9, 82, 50-51, 144. nation of 89%. Banka Botërore (2004) Studimi mbi The ranking criteria used by the Decentralizimin dhe Privatizimin e Sektorit të WRA to group companies according Ujit në Shqipëri. to their size are are on the basis of Banka Botërore (2011) Raporti nr. 64412- water connections, while the criteria AL mbi Decentralizimin dhe Realizimin e used by the scientific paper are accord - Shërbimeve në Shqipëri:Qeverisja në Sektorin e ing to three models: theVolumes Ujit. model, the Population model and the Berg, S and Lin, C (2005) Consistency in Connections model.What is found is performance rankings: the Peruvian water sector, that the ranking used by theWRA PURCWorking Paper. does not take into consideration the Cubbin, J andTzanidakis, G (1998) part of the population that is supplied Regression versus data envelopment analysis for with water but it is not equipped with efficiency measurement: an application to the meters. It is a fact that a part of the England andWales regulated water industry, population served with water may Utilities Policy 7, pp. 75-85. not be equipped with meters, but Drejtoria e Përgjithshme e Ujësjellës This article is based on a paper presented at companies still receive their payables Kanalizimeve (2011), Raporti 5 vjet the IWA Regional Utility Management using a fixed method for price Benchmarking, pp. 17, Conference, Tirana, Albania, 13-15 May 2015.

WATER ASSET MANAGEMENT INTERNATIONAL • 11.3 - SEPTEMBER 2015 • 19 THE BUDAPEST WATERWORKS WATER SAFETY SYSTEM

Milestones and results for the Budapest Waterworks water safety system

The Budapest Waterworks (BWW) was among the first to establish a water quality Géza Csornyei system, both in Hungary and in Europe. As a first step, a system was established for the Operation Director of Water Division, Waterworks of Budapest, Hungary. Csepel island water treatment works, Budapest, as this has complex drinking water Email: [email protected] treating technology due to the water’s iron and manganese content, which necessitates Genovéva Frank the active intervention of the operator to maintain water quality. Géza Csörnyei and Operational engineer, Genovéva Frank look at the eight-year-long development process for the BWW potable Waterworks of Budapest, Hungary. water safety system, the structural changes, water quality events and water quality © IWA Publishing 2015 event management experiences. In addition, the authors look at modification of the structure of the drinking water safety manual due to mergers and legal changes, and water quality results achieved through more polished, efficient operation.

treatment, potable water production, network operation and potable water supply – today it supplies more than two million people with healthy piped potable water – as well as with waste - water treatment and related services, which are supported by the application of world-class technologies.

BWW’s international activities The professional queries we receive from countries all around the world indicate a demand for cooperation among our partners. Negotiations have been started recently with several European and Asian cities in the fields of consultancy, technology develop - ment and main contracting, and contracts have been signed. Among them, the reconstruction and capacity increase of two water treatment plants supplying potable water to the capital city of Sri Lanka is worth mentioning. The NationalWater Supply and Drainage Board of Colombo awarded udapest Water Works (BWW), progress in the past 100-plus years.The The control centre this contract to our company. Apart Bwhich celebrated the 147th early plants that used to be operated by (credit BWW) from that, the Hungarian government anniversary of its establishment steam engines have been replaced by has concluded a comprehensive water this year, is one of the significant modern, automated facilities that meet sector framework agreement with water utility suppliers of the the most exacting hygiene require - Vietnam, within which, as per the Central-Eastern-European region ments. In almost a century and a plans, BWW will build two water given the size of the population half, newer and newer water towers, treatment plants. Furthermore, memo - served and the outstanding level of pumping stations, and pipe networks randa of understanding in the field of technology. have been built, and wells put into cooperation have been concluded During its over 140-year lifetime, operation.The company’s pipeline between our organisation and the BWW has developed along with the network has reached more than 5,000 utility providers of Baku in Azerbaijan, capital city.The first temporary water km in length throughout the city.The Ohrid in Macedonia,Tirana in treatment works was established in company’s water treatment, network Albania, Istanbul inTurkey, and Urunqi 1868, followed by the construction of operation and water quality testing in China. two water treatment works in Buda in activities are enabled by cutting edge It is of special value that in the 1882.Then the Káposztásmegyer water technologies.Today, the potable water period since the change of regime, treatment works was put into service in production and supply systems are BWW has already walked a path of 1904, which was the most up-to-date completely automated. market, technological, operational such facility in Europe at that time. Looking at its core activities, the and economic development that is The company has made immense company deals with potable water still ahead of these cities. Regional

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co-operation, by strengthening alternative revenues not directly gained from potable water sales, by increasing the value of the company, by gaining experience related to the core activities, and by extending know-how, serve to achieve our owners’ goals.

BWW water safety systems Water safety plan legal background Water utility companies were first obliged to prepare water safety plans according to the requirements of the 65/2009. (III. 31.) Government Decree, on the basis ofWHO guide - lines. Requirements for the content of these plans were not fixed then in any Hungarian legislation. Later, these requirements were determined in the 201/2001. (X. 25.) Government Decree regarding quality requirements for drinking water and the water sampling process. Figure 1: Water legislation did not yet deal with the in 2007 Authorities level of river preparation of water safety plans, but • then for northern water production The water safety plan has first to be Danube BWW was already planning the in 2007 sent to the National Center for Public implementation of a water safety • then for the entire water production Health for professional acceptance, management system. During the and network operation in 2009 then, having this expert opinion, to the implementation, BWW used the ISO National Public Health and Medical 22000:2005 standard on food safety Later, BWW implemented an integrat - Officer Service for authorisation. management systems and requirements ed management system by amalgamat - for any organization in the food chain, ing four management systems: Steps for preparing the water safety plan as being more comprehensive. • quality according to ISO 9001:2008 BWW was among the first in Hungary Wells under water • The water safety management • environmental according to ISO and Europe to start building a water during flooding system was certified: 14001:2004 safety management system. Hungarian (credit BWW) • firstly for southern water production • water safety according to ISO

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22000:2005 and describes an internationally actions for drought periods. A collec - • occupational health and safety accepted quality management system. tion of decision matrices related to according to BH OHSAS The HACCP plan and water water quality complaints was created 18001:2007 safety plan contain specifics on risk to manage complaints about water evaluation, operational monitoring, quality and background pollution. The BWW water safety plan achieved hazard analysis, protection of water professional acceptance from the resources, which are essential, but Decision matrices National Center for Public Health on neither of them can be certified per se. Steps for managing complaints were 23 June 2011, then permission from However, the food safety management taken in 2005 according to: the National Public health and Medical system according to ISO 22000:2005 • BWW’s technological process steps Officer Service on 7 November 2011. can be. Water quality parameters deter - BWW has until 7 November 2015 to The food safety management system mined by the 201/2001. (X. 25.) initiate public health surveillance of according to ISO 22000:2005 can Government Decree regarding the plan. basically serve as a good basis for a quality requirements for drinking drinking water safety plan, but cannot water and the water sampling Main elements of the water safety plan contain sufficiently detailed hazard process The BWW water safety plan contains a analysis and risk evaluation for the • Technological water quality results description of the water supply system, whole water supply system. determined by the water safety team hazard analysis and risk evaluation, Application of the food safety determination and evaluation of management system (ISO 22000:2005) Various corrective actions are measurements for checking risks, provides an enormous advantage necessary to manage non-compliant establishment of a checking monitor - and continuous development for results from wells and well pump ing system, and establishment of a the water safety plans and HACCP, houses, collection points, reservoirs drinking water risk management with its all advantages at BWW: it and consumer points. system. includes an annual examination, is infrastructure and resource- Implementation of and experiences The relationship between the water centered, and offers with the integrated management safety plan and the quality manage - document management and system ment system international certification. Pseudomonas compliance in Surány Advantages and disadvantages Pseudomonas was found during Council directive 98/83/EC directive Specialties of risk assessment scheduled sampling of the water in the 3 November 1998 on the quality of Due to the condition of BWW’s water ROCLA pipe at Surány in 2010.The water intended for human consump - resources even the raw water can be conclusion was that the sampling tap tion gives recommendations for mentioned as a hazard in some cases. has to be located as close as possible member states to implement an During the operation of bank filtration to the sampling location, with no appropriate quality management wells, potential industrial or municipal affecting factors in between (such system for checking whether drinking contamination, temporary flooding as a pump, or online measuring water intended for human consump - and drought periods have to be consid - instrument). tion complies with the requirements ered. Internal regulations have been of this Directive. created for the fast management of Red sludge disaster The ISO 22000 standard determines sudden operational statuses such The red sludge disaster happened on 4 uniform requirements for HACCP as event management at water produc - Laboratory testing October 2010 at Kolontár-Devecser- plan and makes HACCP certifiable, tion facilities, a flood manual, and (credit BWW) Somlóvásárhely.The corner of the 10th section of Ajka Alumina plant’s tailing pond burst, and the entire flora and fauna ofTorna creek were destroyed by red sludge.The pollution passed through the rivers Marcal, Rába, and Mosoni-Danube and reached the river Danube. BWW’s laboratory started a sampling programme for the river Danube and wells, monitoring pH, conductivity, heavy metals, earth metals and performing toxicological tests on the waters of the river Danube.TheWater Production Department completed these tests by measuring the pH every four hours. On the basis of measurements lasting for one and a half months, it can be declared that the red sludge disaster had no effect on the drinking water supplied by BWW.

Supervision of reservoir vents (see tables) Venting of water storage reservoirs is necessary due to fluctuating water levels. Reservoir vents create a water quality risk as drinking water can come into contact with the environ -

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ment if the vents are incorrectly UV treatment PLC program was successful.The ed.The laboratory instrumentation has protected.To prevent contamination, a installed in minimum dosage limit was eliminated been continuously expanding and closing fiberglass filter layer has been Budapest’s oldest and flow-rate proportional dosage has developing over the past 10 years. installed at the end of the vents since pumping station. been implemented.The precipitation Informative microbiological rapid 2010.The filters are replaced every (credit BWW) of hypo crystals has been accelerated test measurements, which are used to year.They are contaminated by iron due to the use of the driving water examine reservoir status following (Fe), manganese (Mn), antimony (Sb), stream. Checking and maintenance of washing, have been operating efficient - aluminium (Al), zinc (Zn), lead (Pb), the dosing lance is performed every ly for years.The results are available 24 Phenanthrene, fluoranthene, pyrene, week, and an acid wash every three hours earlier than accredited laboratory chrysene, benz(b)fluoranthene, pollen, weeks. results, and are in line with them. plant parts and insect wing scales. CFD simulation was performed to examine Actions to improve water quality Mobile water purification and packaging the flow of dust. Accredited laboratory and rapid test system laboratory BWW has been dealing with the topic Flooding The laboratory was established in of cleaning and packaging water in case Regarding earlier high water levels, 1960. For the accreditation, the entire of catastrophes and extraordinary flooding in 2013 brought challenges sampling system was reformed; use of situations. Our equipment can be used from an operational point of view. cars for sampling and manual measure - to supply smaller settlements, parts ments were implemented.The process of settlements, industrial facilities, Hypo dosers of sampling was accredited in 2004. institutional consumers and settlement Many chlorinators have been Later, to make the administration of the populations with healthy drinking reconstructed and have operated as sampling process easier, a PDA mobile water.Though the equipment is part hypo dosers since 2014. Among other workstation and the LIS laboratory of our own emergency water supply, it methods tested, use of a separated information program were implement - has been used in several emergency flowing stream of‘driving water’ for dilution with the modification of the Table 1: Contaminants of fiberglass filter Table 2: PAH content of fiberglass filter Parameter Measured value Limit value Phenanthrene 22,47 µg/l Fe (total) 35 µg/l 200 µg/l Fluoranthene 29 µg/l Mn (total) 2,5 µg/l 50 µg/l Pyrene 16,5 µg/l Sb 1,2 µg/l 5 µg/l Chrysene 15,72 µg/l Al 60 µg/l 200 µg/l Benz(b)fluoranthene 17,91 µg/l Zn 13 µg/l - µg/l Pb 2,7 µg/l 10 µg/l

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Lead in the drinking water network There are almost 4000 pieces of connection pipe that are known to be made of lead in BWW’s network. Regular analysis is performed on lead connections at different points in the supply area to check compliance with the 10 µg/l dissolved lead limit value for water from consumer taps defined by the 201/2001. (X. 25.) Government Decree.The entire connection pipe is replaced when the lead concentration is above the limit. Similarly, lead connections are replaced instead of being repaired during maintenance work.

Asbestos cement pipe network Some 42% of the material of the pipe network operated by BWW is made of situations abroad.The equipment can Challenges and future developments Horizontal filtering asbestos cement. Asbestos cement be transported on EUR pallets or in Network cleaning technologies wells (credit BWW) means a risk mainly during repair 10 or 20 feet standard containers.The Beside the implementation of sched - works when it is necessary to cut the equipment is considered to be a uled network flushing, the improve - pipe. Exposure of workers to asbestos mobile plant, so the HACCP system is ment of water quality in the network fibres in the air must be kept below 0.1 implemented and operated for them. is also ensured by various network fibre/ml. So ensuring the use of the cleaning technologies such as air required labour protection devices, Drinking water dispenser bottle filler scouring, soft sponge cleaning, and the choice of cutting and BWW owns a little drinking water chain-and-drag and RAK cleaning. assembling technology and appropriate dispenser bottle filler plant, which Two new pipe cleaning technologies waste management are essential. initially served only the hot and cold have been tested on an experimental Nevertheless, reconstruction of water supply for our own employees. basis: dry ice-WOMA cleaning and asbestos cement pipes is due because The plant underwent technological jelly cleaning. of their age and to ensure the safety development and reconstruction in of water supply. 2012. Monitoring of the product and Inspection and review of fire hydrants related raw and auxiliary materials is Fire hydrants have to be examined and Conclusion elaborated in the operating HACCP flushed every six months according to Implementation and continuous system, in accordance with the the 28/2011. (IX. 6.) Department of development of the drinking water Codex Alimentarius and other legal Home Affairs Decree. An advantage is safety management system in the requirements. that stagnant pipe sections and dead everyday life of BWW is a good tool ends are regularly flushed, which for improving water safety actions, Online measuring instruments minimises sediments and secondary enabling BWW to cope with the water The installation of online measuring contamination in the pipe network. quality problems that occasionally instruments has become a reasonable occur. BWW’s risk assessment method option due to the need to monitor Installing non-return valves and decision matrices, and water quality results and rapidly BWW has been installing non-return the water quality improvement actions recognise operational errors. valves since 1 July 2005 to prevent taken over the past years have made Measurements results (for Fe, Mn, water flowing contrary to the proper it possible to react efficiently to nitrite, pH, chlorine and turbidity) are flow direction. Non-return valves water quality events and, with the available 24 hours a day, are document - should be installed in domestic potable continuous improvement, to provide ed and can be retrieved in the SCADA water pipes just before the valve after our consumers with highly-compliant program and are monitored by the the water meter, according to the drinking water and give the chance dispatcher continuously for possible MSZ 22115:2002 Consumer water to solve potential challenges in the interventions. connections standard. future. G

References All the information above is BWW’s own methodology and system, and is based on BWW’s own data.

This article is based on a paper presented at the IWA Regional Utility Management Conferences, Tirana, Albania, 13-15 May Geza Csornyei Genoveva Frank 2015.

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