EAP Task Force

JOINT MEETING OF

THE EAP TASK FORCE’S GROUP OF SENIOR OFFICIALS ON THE REFORMS OF THE WATER SUPPLY AND SANITATION SECTOR IN EASTERN EUROPE, CAUCASUS AND CENTRAL ASIA

THE EU WATER INITIATIVE’S EECCA WORKING GROUP

FACILITATING POLICY DIALOGUE, AND DEVELOPING A NATIONAL FINANCING STRATEGY FOR URBAN AND RURAL WATER SUPPLY AND SANITATION IN MOLDOVA

EXISTING SITUATION AND BASELINE SCENARIO

DOCUMENT 8

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Facilitating policy dialogue, and Developing a National Financing Strategy for Urban and Rural Water Supply and Sanitation in Moldova

Existing Situation and Baseline Scenario Consumption trends (lcd) 700 600 Chisinau 500 Balti 400 Large towns (6) 300 Medium towns (30) Small towns (2) 200 Weighted average 100 Per capita consumption (lcd) consumption capita Per 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Total expenditure by sector (Lei x 1000)

1,800,000 1,600,000 1,400,000

1,200,000 1,000,000 WW Sum 800,000 WS Sum 600,000 February 2007 400,000 200,000 0

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Document control sheet

Client: OECD Job No. B0334400 Project: Facilitating Policy Dialogue and developing a National Financing Strategy for Urban and Rural Water Supply and Sanitation in Moldova Report: Existing Situation and Baseline Scenario

Prepared by Reviewed by Approved by

ORIGINAL NAME NAME NAME M Allport

S Hassan J Lazenby M Allport

DATE SIGNATURE SIGNATURE SIGNATURE February 2007

REVISION NAME NAME NAME

DATE SIGNATURE SIGNATURE SIGNATURE

REVISION NAME NAME NAME

DATE SIGNATURE SIGNATURE SIGNATURE

Disclaimer: The opinions presented in this document are those of the Consultant and do not necessarily represent the opinion of the Steering Committee of the project, or of the Moldovan Government.

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List of acronyms and abbreviations

ACTD Agency for Construction and Territorial Development BOD Biochemical oxygen demand BNS Bureau of National Statistics EAP TF Environmental Action Programme Task Force EBRD European Bank for Reconstruction and Development EC European Commission EU European Union EUR Euro (currency of the European Monetary Union) GDP Gross Domestic Product GoM Government of Moldova IFI International Finance Institutions ISFM Investment Social Fund of Moldova lcd Litres per capita per day MAC Maximum Allowable Concentration MACA Moldova Apa Canal Association MDGs Millennium Development Goals MDL Moldova Lei MEC Ministry of Economy and Commerce MERN Ministry of Environment and Natural Resources MoF Ministry of Finance MLPA Ministry of Local Public Administration M3/s Cubic metres per second NEAP National Environmental Action Plan NEF National Environmental Fund NIS Newly Independent States O&M Operation and maintenance OECD Organisation for Economic Co-operation and Development PRSP Poverty Reduction Strategy Paper TA Technical Assistance TDS Total Dissolved Solids USD United States Dollars WHO World Health Organisation WS Water supply WW Wastewater WWTP Wastewater Treatment Plant

Currency equivalents

Currency Unit = Lei EUR 1 = 16.5 Lei

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Executive Summary

Introduction

This report describes the status of water and wastewater infrastructure in Moldova, and presents a baseline scenario reflecting a policy for financing modest improvements to the country’s water and wastewater infrastructure. This provides an early indication of the level of financial resources required, and the constraints under which future financing policies will need to operate. The objective of this report is to discuss these results with stakeholders, and elaborate possible future alternative development scenarios that they consider pertinent to government policies, and agree which scenarios should be modelled in the next stage of this project. The ultimate objective of the project is the development of a realistic financing strategy for urban and rural water supply and sanitation in Moldova.

Water Resources

The availability and quality of water resources plays an important part in influencing the type of water and sanitation infrastructure most appropriate to the conditions in Moldova, and to the economics of supply. A brief overview of Moldova’s water resources is therefore provided in Chapter 2.

Existing situation

The existing infrastructure for both urban and rural settlements is described in Chapter 3 for different sized towns and villages, some basic indicators are summarised below:

Basic indicators (2005 figures) Size of town Nr % off % WS % sewer Per capita population connections connections consumption lcd > 200,000 (Chisnau) 1 17% 93% 81% 193 50,000-200,000 (Balti) 1 4% 80% 64% 77 20,000-50,000 6 4% 72% 55% 78 5,000 – 20,000 35 12% 61% 36% 44 0-5,000 11 1% 68% 33% 35 Rural settlements(1) 1472 61% 12% 5% 33 Source: MACA data base for year 2005 (1) Consultants estimates, based on 2002 survey results

The consumption levels indicate a dramatic reduction from the pre-independence design norms, resulting in the infrastructure being significantly under-utilised.

The poor condition of the infrastructure is evident from the irregularity of supplies, high levels of pipe bursts (40 times higher than Western Europe), high sewer blockage rates, and high levels of unaccounted water.

Apart from Chisnau and Balti, which appear reasonable, the urban wastewater treatment plants fail to meet the required effluent standards for about 70% of the time, and the rural treatment plants do not operate at all.

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The infrastructure for many of the smaller towns have been built relatively recently (around 30 years ago), but the poor quality of materials and workmanship, and insufficient funds for maintenance and reinvestment has resulted in serious deterioration of the infrastructure, with many systems on the point of collapse. Each town is different, and the specific needs of each town need to be examined in detail. Nevertheless, in all cases financing policies need to be urgently put into place to start replacing those components of the systems, which are in worst condition, and which lead to inefficient and poor service standards.

Existing expenditure for the sector approximately covers existing operating and maintenance costs, which are approximately 60% of projected levels. They do not cover the reinvestment costs required to halt further deterioration of the assets, nor does it cover the rehabilitation works necessary to bring service levels back to design levels or any investments to extend service coverage.

Baseline Scenario

In the context of the existing unsatisfactory situation, and the Government’s policy to improve water and wastewater infrastructure, it was considered that a baseline scenario projecting the current unsatisfactory situation would not be appropriate. The baseline therefore assumed investments to halt further deterioration of the infrastructure (re- investment or replacement), to provide some modest improvements to serviceability (renovation of rehabilitation), and extensions to reduce some of the more acute inequalities, as discussed in Chapter 3, and as summarised below:

• Planning period to be to 2026, but initial targets to be achieved by 2015 (the target date set for the Millennium Development Goals). • Population to remain at current (2006) levels • Full cost recovery of operation and maintenance costs • Investment in replacement of assets based on 1/nth of replacement value, where n = average life of assets. • Rehabilitation of 25% of water and wastewater networks (12.5% for Chisnau, which has recently undergone significant rehabilitation) (2008 – 2015) • Rehabilitation of 50% of pumping equipment (2008 – 2015) • Rehabilitation of 25% of treatment plants (2008 – 2015) • Service extensions to bring connection levels of towns to certain minimum levels. (2008 – 2015) • Modest improvements to rural water supplies and sanitation

NB: The costs of rehabilitation have been estimated using the actually required capacity rather than the existing capacity, which is generally far in excess of the requirements.

The purpose of setting these targets was to provide a baseline from which other development options can be compared. It should be stressed that this does not imply any Government or official approval or obligation to this scenario.

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Projected Baseline Expenditure Total expenditure by sector (Lei x 1000)

(EUR 1 = 16.5 Lei) 1,800,000

The annual projected expenditure of the 1,600,000 baseline scenario is indicated in Figure 1, 1,400,000 which averages at around Lei 1,000 1,200,000 million per annum. 1,000,000 WW Sum 800,000 WS Sum

600,000

Figure 1: Total annual expenditure of 400,000 baseline scenario. 200,000 0 The expenditure split between the water and wastewater sectors was • Water: 61% • Wastewater: 39%.

Baseline expenditure by type of expenditure, and the impact on the average tariff level, (assumed at an index level of 1.0) that would be required to meet cost recovery are shown below:

Component % of total Impact on existing average tariff level expenditure (1.0) a) O&M 39% a) = 1.3 x current tariff level b) Reinvestment 45% a) + b) = 2.8 x current tariff level c) Renovation 12% a) + b) + c) = 3.2 x current tariff level d) Extensions 4% a) + b) + c) + d) = 3.4 x current tariff level

Approximately three times this level of expenditure for extensions would be required to meet the millennium development goals for urban infrastructure. And, significant additional investments would be needed to meet the same goals in rural areas.

The distribution of baseline expenditure between the different sizes of towns was: • > 200,000 (Chisnau): 57% • 50,000 – 200,000 (Balti): 8% • 20,000 – 50,000: 10% • 0- 10,000 22% • Rural 2%

Financing for Baseline Scenario

There are three basic mechanisms at the disposal of the Government to finance the proposed investments. These include:

• User charges for supply of water and wastewater services • National public budget support for capital investments and operations • External donor contributions for capital investments

a) User Charges

In an ideal situation, the tariffs levied on consumers should fully recover the economic cost of services generating sufficient revenues for service providers to undertake all necessary maintenance and capital investments. However, this has rarely been achieved in the economies in transition. There are numerous factors that have contributed to tariffs levels remaining well blow the cost recovery levels. The key consideration has been low levels of household incomes

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b) Income Levels

The distribution of average 30.0% monthly disposable household 25.0% income per capita for both rural 20.0% and urban areas of Moldova in 15.0% 2005 is shown below in Lei 10.0% 5.0% The distribution of urban 0.0% 50 150 250 350 450 550 650 750 850 950 income is skewed by a relatively large proportion of Urban Areas Rural A reas households in the top income bracket. There doesn’t seem to be very much divergence between the rural and urban incomes particularly in the upper income brackets where the rural incomes closely track urban incomes except for the top income bracket . However, overall differences in the lower income and the top income brackets are very significant as shown in the figure above

c) Tariff Levels and Consumer Affordability

Majority of international financing institutions and EU agencies adopt affordability criteria which recommend that household expenditure on water and wastewater services should not exceed 5% to 6% of its monthly income. An analysis is undertaken to determine the present consumer affordability levels for the urban water supply and wastewater systems in the country. The results highlight that the current levels of expenditures on water and waste services are well below the affordability thresholds. The expenditure levels account for less than 3% of monthly per capita income in most cases.

It is the stated policy of the Government that user charges should be gradually increased to levels of full cost recovery

d) Projected Revenues from User Charges – Lei (‘000)

The projected revenues increase until the user charges 700,000 600,000 reach the affordability 500,000 threshold in 2015 and remain 400,000 constant for the remaining 300,000 period. This results from the 200,000 assumption that the real 100,000 0

incomes remain constant over 7 0 1 4 8 1 2 5 0 1 1 1 1 2 2 2 0 0 0 0 0 0 0 0 the period of the analysis. The 20062 200820092 2 201220132 2015201620172 201920202 2 202320242 2026

contribution of user charges is Water Supply Wastewater estimated to generate revenues of Lei 7.1 billion from water supplies and Lei 4.5 billion from wastewater services in constant 2006 prices over the 20 year period. However, the total revenues of Lei 11.6 billion are far short of the total expenditure of Lei 22.7 billion over the period.

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e) Projected National Budget Support (Lei ‘000)

The projected national public 600,000 budget support totals Lei 4.0 500,000 billion and Lei 2.1 billion for 400,000 water supply and wastewater 300,000 respectively over the 20 year 200,000 period. In 2007 and 2008 it 100,000 accounts for 1.7% of forecast 0 overall public expenditure 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 00 01 01 02 02 compared with the planned 200 2 200 200 201 201 201 201 2 201 201 2 201 201 202 2 202 202 2 202 202 expenditure of just 0.5% in Water Supply Wastewater 2006. In 2009 it would increase to around 2.2% and gradually decline as a proportion of total overall expenditure between 2010 and 2015 and reducing considerably after 2016 as the expenditure requirements for the Baseline Scenario are reduced.

f) Projected External Financing Needs (Lei ‘000)

The involvement of external bilateral donors and IFIs, who could provide much needed grant and loan funds for the sectors, has been fairly insignificant.

The projections show relatively 600,000 large contribution by external 500,000 donors and IFI’s to meet the 400,000 needs of the water and 300,000 wastewater sectors and make 200,000 up the financing gap left after 100,000 the revenues from user charges -

9 2 4 7 9 0 2 08 0 11 1 13 1 16 1 1 2 21 2 24 26 and support from the national 0 0 0 0 0 0 0 0 public budgets are taken into 20072 20 20102 20 2 20 20152 20 20182 20 2 20 20232 20252 account. On the basis of these External Financing projections, a total of Lei 4.3 billion of external financing is needed over the period. This would take up most of the Government’s forecast for external financing assistance between 2007 and 2009 and a significant proportion until about 2016 to fulfil the expenditure needs of the Baseline Scenario.

g) Concluding Remarks

In assessing the contribution of each source of funding, the following should be noted:

Projected revenues from user 1,800,000 charges levied on the 1,600,000 1,400,000 consumers for water supply 1,200,000 and wastewater services cover 1,000,000 800,000 52% of the total requirements 600,000 over the 20 year period. The 400,000 200,000 user charges are projected to 0

0 5 7 2 reach the affordability threshold 06 08 09 1 11 13 1 16 1 18 20 2 23 25 0 0 0 0 0 0 by 2015. 20 200720 2 20 2 201220 201420 2 20 2 201920 202120 2 20242 2026 User Charges Budget Support External Finance National public budget support

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is projected to increase significantly over the first few years from about 0.5% of the overall budget expenditure at present to around 2% by 2010 and gradually decline until 2015, and more rapidly thereafter. It would account for 28% of the total financing requirements over the period

The projected financing from external sources would take up most of the forecast external financing assistance between 2007 and 2009 and a significant proportion until about 2016 to fulfil the expenditure needs of the Baseline Scenario. It would contribute to 20% of the total financing requirements.

If it considered that the direct beneficiaries should carry the burden of all rehabilitation and improvements of water supply and wastewater services, the analysis show that the long term average incremental costs for the whole Baseline Scenario is Lei 23 / m3. This implies that if this level of average tariff was applied throughout the country for water and wastewater in real terms over the next 20 years, it would fully recover the costs of the Baseline Scenario. However, if full costs recovery tariffs were applied to individual systems they would range from Lei 30 to over 60 per m3 for water supply and wastewater services. These levels of charges would exceed the willingness and the ability of the majority of the consumers to pay.

It should be emphasised that the baseline scenario in essence represents a fairly minimum intervention needed to address the requirements of the water and wastewater sectors. Nevertheless, it needs challenging initiatives to finance the requirements. The projections shown here for increases in user charge revenues, public budget support, and external financing are substantially greater then achieved before.

Development Scenarios

Before any development scenarios are considered, there are a number of policy considerations that are required to improve the environment within which the water and wastewater sectors operate, and upon which any financial strategy will depend: • Target dates set for full cost recovery • Tariff regulation to be shifted from municipal councils to a national regulator to avoid undue political interference in this process. • Some form of regionalisation needs to be considered to improve management efficiency and to address affordability issues in smaller, poorer communities. • Strengthen the current metering policy • Strengthen institutional arrangements for implementing internationally financed projects.

It is evident that significant increases in current sector financing will be required to meet even the modest targets of the baseline scenario. More ambitious targets will need greater levels of financing, which will also imply greater affordability issues. Alternative development scenarios therefore need to keep these considerations in mind.

The Feasible model conveniently divides the expenditure into four components:

• Operation and maintenance costs, which are seen as the first essential financing component. • Reinvestment (or replacement) costs, which are not covered at present, but which are essential to avoid further deterioration of assets. A decision not to cover these costs would be tantamount to a decision to allow the systems to deteriorate further and eventually fail.

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• Rehabilitation to improve the existing service levels and efficiencies back to the design levels. • Extensions to increase the coverage of services.

There are a number of dimensions to a financing strategy, upon which guidance is required from Moldovan stakeholders:

Factor Baseline assumtion Options Sector priorities None Water or Wastewater Regional priorities None Administrative area priorities None Catchment priorities Size of settlement Slight preference away Redistribution of investments to from Chisinau different sized settlements Priority to urban or rural areas. Health None Priority to treatment Economics None Priority to efficiency measures Level of budgetary Rising from 0.5% to What is a realistic level of support? support 2.2%, then rapidly What are the higher and lower declining boundaries? Level of international Average 450 million What is a realistic level of support? support Lei per year (2008- What are the higher and lower 2015) boundaries? Period for renovation 2008 – 2015 Longer period to reduce impact and extensions Shorter period will increase impact Affordability 6% of HH income for Lower rate will substantially reduce water and wastewater cost recovery targets Service levels Maintain existing with MDGs /The Government’s Program modest improvement Maintenance of status quo

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Contents

1 Introduction 1

1.1 Background to project 1

1.2 Sources of data 1

1.3 Contents of report 2

2 Water Resources of Moldova 3

2.1 Surface Water Resources 3

2.2 Ground water resources 4 2.2.1 Deep groundwater 4 2.2.2 Shallow groundwater 5 2.2.3 Groundwater quality 5

3 Existing Infrastructure 7

3.1 Institutional considerations 7

3.2 Settlement patterns and categorisation 7

3.3 Urban water supplies 8 3.3.1 Service levels 8 3.3.2 Water quality and treatment 14 3.3.3 Pumping stations and power consumption 15 3.3.4 Networks 15 3.3.5 Metering 17 3.3.6 Losses 17 3.3.7 Population not connected 20

3.4 Urban wastewater infrastructure 20 3.4.1 Coverage 20 3.4.2 Collection systems 21 3.4.3 Pumping stations 22 3.4.4 Wastewater treatment 23 3.4.5 On site sanitation 24

3.5 Rural Water Supplies and Sanitation 25

4 Baseline Scenario 29

4.1 Background to and development of baseline objectives 29

4.2 Population 29

4.3 Cost components of financial planning 29 4.3.1 Operation and Maintenance costs 30 4.3.2 Re-investment (annual replacements) 30

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4.3.3 Renovation 31 4.3.4 Service levels and extensions 32

4.4 Rural Water Supplies 34

4.5 Rural sanitation 36

5 Projected Baseline Expenditure 37

5.1 Expenditure 37 5.1.1 Operation and maintenance costs 38 5.1.2 Re-investment costs 39 5.1.3 Renovations 39 5.1.4 Service extensions 40

5.2 Unit costs 40

6 Financing of Baseline Scenario 41

6.1 Introduction 41

6.2 Financing Requirement 41

6.3 User Charges 42 6.3.1 Income Levels 42 6.3.2 Tariff Levels and Consumer Affordability 43 6.3.3 Projections for Future User Charges 46 6.3.4 Projected Revenues from User Charges 46

6.4 National Public Budget Support 47 6.4.1 Recent Macroeconomic Trends 47 6.4.2 Public Revenues and Expenditures 47 6.4.3 Projected National Public Budget Support 48

6.5 External Funding Sources 50 6.5.1 External Financing for Water and Sanitation 51 6.5.2 Projected External Financing Needs 51 6.5.3 Other Sources of Financing 52

6.6 Concluding Remarks 53

7 Development Scenarios 55

7.1 Policy considerations 55

7.2 Development options 56 7.2.1 Operation and maintenance 56 7.2.2 Reinvestments 56 7.2.3 Renovations 56 7.2.4 Service extensions 57

7.3 Concluding remarks 58

Appendix A - MACA Database 59

Appendix B - Summary of Rural Infrastructure 61

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Appendix C - Maps 63

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1 Introduction

1.1 Background to project

The water sector of Moldova has suffered from years of under-investment and lack of funds for maintenance. This has resulted in unreliable and poor quality water supplies and inadequate collection and treatment of wastewater. The 1996 NEAP estimated that the social and economic impact of water pollution lead to a monetary cost to the country of between 5% and 10% of GDP through higher levels of morbidity and premature deaths. The Government therefore prioritised the improvement of water and wastewater services, and the Economic Growth and Poverty Reduction Strategy (PRSP), adopted by Parliament in 2004, included the achievement of the Millennium Development Goals (MDGs) as a long term objective. A report monitoring the world wide progress of achieving the MDGs1 recommended strengthening policy, planning and resource allocation. The Feasible model developed for the OECD/EAP Task Force has been designed to assess the finance available and costs associated with fulfilling these objectives.

An Environmental Financing Strategy, financed by EAP Task Force and the Danish Ministry of Environment, was prepared for the Government of Moldova (GoM) in 2001, using an early version of the Feasible Model, which was designed for use only with urban infrastructure. A new version of the Feasible Model has recently been prepared that includes rural infrastructure, and as 60% of the population of Moldova live in rural areas, it was considered important that an update of the previous model must include the rural areas. It was agreed that this should be done in close collaboration with stakeholders in Moldova, and a contract entitled “Facilitating Policy Dialogue, and Implementing the National Financing Strategy for Urban and Rural Water Supply and Sanitation in Moldova” was concluded in August 2006 with Jacobs Ltd

1.2 Sources of data

We are indebted to a number of organisations and individuals, who have provided an enormous amount of data on the extent, operational, and financial status of water and wastewater infrastructure within Moldova. This considerably enhances the accuracy of the outputs from this study. The main sources being:

1. The Agency for Construction and Territorial Development (ACTD) 2. Moldova Apa Canal Association (MACA) (Analysis of Technical and Financial activities of Moldovan Apa Canal enterprises – 2006) 3. Ministry of Finance (MoF) 4. Bureau of National Statistics (BNS) 5. Local Specialists 6. International Benchmarking Network (IBNET) 7. Complex Scheme for Water and Wastewater in Moldova, Acvaproiect, 2002.

A great deal of detailed information about the existing infrastructure for urban water and wastewater infrastructure can be found from (2) above, which covers some 96% of Moldova’s urban population. No similar detailed Information is available for the rural areas, and for those urban areas outside the jurisdiction of the MACA.

1 IRC 2004

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Information on the rural areas has been based largely on (7) above, with the condition of infrastructure updated from spot checks to typical villages.

1.3 Contents of report

The structure of this report is designed to lead the reader from the existing physical and social conditions towards the development of the baseline scenario. The results of the analysis of the baseline scenario are then discussed before assessing the implications for realistic development policies open to the Government, and how the Government may wish alternative policies to be investigated further using the Feasible model. • Chapter 2 Water resources of Moldova • Chapter 3 Existing situation • Chapter 4 Baseline scenario • Chapter 5 Projected baseline expenditure • Chapter 6 Financing for baseline scenario • Chapter 6 Development scenarios

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2 Water Resources of Moldova

2.1 Surface Water Resources

The quality and availability of water resources plays a large part in influencing the type of water and wastewater infrastructure most appropriate and economic to develop. A brief overview of the water resources in Moldova is therefore pertinent to any sector strategy, and is provided in this Chapter.

There are four major river basins in Moldova, details of which are given in Table 2.1 below:

Figure 3.7 Major drainage basins

Table 2.1 Major river basins in Moldova River basin Length (km) Catchment (sq.km.) Total In Moldova Total In Moldova Dniester 1,362 630 68,900 19,070 Prut 976 695 27,500 7,990 Cogainic 243 125 3,910 1,030 Lalpug 142 135 3,180 3,165

The Dniester catchment is the largest basin, covering about 67% of Moldova’s land surface. It rises in the Carpathian mountains in Western Ukraine, and discharges into the Black Sea, west of the city of Odessa. The average annual discharge ranges from 224 m3/s as it enters Moldova to 245 m3/s at its exit. The river is regulated by two reservoirs; the Dniestrovsky in south-western Ukraine, and the Dubasari in Moldova. The slowing down of economic activity following independence resulted in the stabilisation of the level of pollution entering the rivers. Nevertheless, there is a need to co-ordinate water resource management including water pollution control between Moldova, Ukraine and TransNiestri.

The Prut River also rises in the Carpathian mountains in the Ukraine, and forms Moldova’s western border with Romania, until the river discharges into the Danube. Average annual flows vary from 85 m3/s in the north to 110 m3/s at its confluence with the Danube. It is regulated by the Costesti-Stanca reservoir in north western Moldova. At the northern reaches along the Moldovan border, the water quality, expressed in Total Dissolved Solids (TDS) is < 1,000 mg/l, which suggests it is a suitable raw water source for water supply projects.. The water quality however deteriorates downstream due the discharges from industries and municipalities, and represents a threat to water supplies. The improvement of the river water quality has already been identified as a priority.

All internal rivers are seasonal, becoming dry during the summer months, and are small in comparison to the above major international rivers. In addition to their seasonal nature, the high levels of mineralisation and pollution make these internal rivers unsuitable for conventional drinking water sources.

There are more than 3,500 artificial lakes and ponds in the Republic. However, water quality in the lakes tends also to be highly mineralised with high salinity, and, with increasing eutrophication levels, they are generally an unattractive source for drinking water supplies.

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The use of surface water resources for drinking water purposes is therefore largely restricted to the use of the Dniester and Prut Rivers.

2.2 Ground water resources

The basic characteristics of Moldova’s main aquifers are given in Table 2.2 below. Approximately 70% of the groundwater resources are contained within the Baden- Sarmat formation, with 10% in the Middle Sarmat formation and 10% in the Mel formation. The remaining 10% being distributed over the other aquifers.

Table 2.2 Characteristics of Moldova’s main aquifers.

Formation Period Thickness Ave depth of Range of Main Lithology/Comments (m) wells (m) yield (m3/h) contaminants (iv) Gruntovi Quaternary 2-20 10-15 0.05 – 0.12 NO3, SO4 Sand and Sandstone. Q Hardness, Most private wells draw Microbiology from this aquifer TDS (iii) Middle Neogene 20-30 100-300 2 – 10 Turbidity Sand, sandstone with N1 Sarmat Sand some clay horizons S2 Iron (ii) Lower Neogene 30-50 NM=50 2 – 5 NO3, SO4, Limestone with some N1 Baden- CM=100-200 F, TDS, sand horizons. S1 Sarmat SM=200-260 Hardness Moldova’s main aquifer containing 70% of groundwater resources (i) Mel Cretaceous 30-50 NM=50-100 2 – 100 F, TDS Mainly sandstone with K2 Silurian NCM=150- some limestone 200 Exists in northern Moldova only (v) Upper Neogene 10 Generally 3 – 10 Fine sand Clay with sand lenses. N1 Sarmat 100, but 250 Local aquifer in southern Pa in Prut valley Moldova (vi) Pont Neogene Ditto 5 – 10 Fine sand Sand with limestone N2 horizons. Local aquifer in Pa Southern Moldova Legend: NM= Northern Moldova; CM= Central Moldova; SM=Southern Moldova; NCM= North-Central Moldova [Adapted from: National Water Resources Management Strategy; Tahal, 1997]

2.2.1 Deep groundwater

Groundwater, especially from the Lower Baden Sarmat aquifer is widely exploited for water supplies. Natural recharge of this aquifer is however limited, and exploitation needs more careful consideration than has been given in the past to avoid over exploitation and permanent loss of capacity of the aquifer. In localised areas the Moldovan aquifers have already been over exploited, resulting in deep cones of depression. The viability of groundwater exploitation therefore tends to decrease with increasing size of town.

The groundwater flow direction generally follows the surface drainage pattern, from north to south, and with the western areas flowing towards the Prut, and the eastern areas flowing towards the Dniester. The central and southern areas flow towards the Danube and the Black Sea.

The development of deep groundwater for water supplies presents a number of problems, including:

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• High investment costs due to the depth of borehole construction • Relatively low yields • High pumping costs • Treatment requirements (see below regarding water quality) • The need to reduce the over-exploitation of deep aquifers in certain areas

Water abstraction from deep aquifers is not therefore likely to be viable for small and isolated communities, if unpolluted shallow groundwater is available.

2.2.2 Shallow groundwater

Shallow groundwater can be found throughout the country in the recent Quaternary sediments, composed mostly of sand and sandstone, occasionally overlaying gravel. The shallow groundwater is fed from infiltration of precipitation on the surface. However, due to relatively low precipitation compared to the potential evaporation, the potential infiltration is also low. Yield of shallow wells are thus limited to the recharge potential, and is normally limited to below 0.5 m3/hr, but this is sufficient for manual methods of abstraction.

Yields of shallow wells can be higher if the local conditions are favourable, such as in the bottom of valleys, where more significant quantities of water can often be found in the formation below dry river courses. Yields vary in accordance with local conditions, and water abstraction above 1.0 m3/hr needs careful analysis. Yields can be improved by a number of methods such as the use of radial wells, and by the use of collector systems similar to agricultural drains laid along the base of valley bottoms, as at Carpineni.

The aquifers underlying the alluvial plains of the Dniester and Prut Rivers, being fed from water infiltrating from the flood plans and rivers, and having greater transmisivity due to its coarser lithology, have greater potential, with yields in the order of 5 to 15 m3/hr.

2.2.3 Groundwater quality

In some locations deep groundwater has high levels of mineralisation that are close to, or exceeding, the Maximum Admissible Concentration (MAC) levels for potable water. Fluoride levels often reach 8-10 mg/l, which is many times higher than the WHO guideline limit of 1.5 mg/l. The high levels of TDS and Fluoride are due to the geological nature of the rocks, and not generally due to pollution. The high fluoride levels are a serious problem to the development of deep groundwater, due to its serious impact on health and its difficulty to remove.

The World Bank assisted Study on the Quality of Rural Drinking Water, 1997, analysed the water quality of 110 shallow wells and deep boreholes. The results indicated that more than 90% of the wells had at least one chemical constituent that exceeded national drinking water quality standards, and that most wells had at least two chemical constituents exceeding the standards. These included Hardness (90%), Total dissolved solids (65%), Nitrates (55%), Sulphates (55%), Selenium (40%, but to be reassessed in the Prut River Basin Management Project), Fluoride (15%) and Chloride (10%). Over 80% of the wells had positive and high concentration E,Coli counts.

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The investigations indicated a strong relationship between groundwater quality and land-use. High TDS, nitrates sulphates, chlorides and bacteria levels being manifestly higher in residential areas. On the other hand, the impact of agricultural land-use was less pronounced, and there also appeared to be no extensive contamination from pesticides.

In general, shallow groundwater of relatively good quality was found in areas above and upstream of villages.

The levels of Selenium and Fluoride appear to be related to soil and geological features rather than to human impact.

Current information available on the quality of groundwater in Moldova is far from complete. It appears that shallow groundwater in the vicinity of built up areas has a high probability of being polluted, but the quality of both deep and shallow water needs to be carefully assessed before major investments are made.

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3 Existing Infrastructure

3.1 Institutional considerations

A number of Government agencies are involved in the sector: • The Agency for Construction and Territorial Development (ACTD) is responsible for formulating legislation, and for implementing investment projects. • The Ministry of Environment and Natural Resources (MERN) is responsible for monitoring water resources and water quality • The Ministry of Local Public Administration are responsible for policy and planning for the water and sanitation sector

Water supply and sanitation services were effectively decentralised throughout Moldova on 1st January 2000, and the local municipalities now own the infrastructure and are responsible for its operation and maintenance.

In most of the urban areas, Apa Canals have been formed by the municipalities to manage the infrastructure which serve 96% of the urban population. However, the Apa Canals lack financial and institutional autonomy, and tariff levels remain well below full cost recovery levels, and barely meet operating costs. Thus leaving the Apa Canals without sufficient resources to adequately maintain their systems, which, as a result are continuing to deteriorate.

In rural areas the situation is far worse. In addition to a lack of financial resources, the small villages often do not have the human resources to manage, maintain and operate the systems (but there are some excellent exceptions). The general situation can be illustrated by the fact that although there were some 750 wastewater treatment plants (including mechanical and biological treatment) built to serve small settlements across Moldova, it is currently highly doubtful that any are now operating. Management of the systems is usually through the Mayorality. There is typically no regular billing and collection system, and when investment is required, such as to replace a pump, a special levee is required of the population to raise the money, or a request is submitted to the Environmental Fund, which has a small budget for this purpose.

3.2 Settlement patterns and categorisation

Moldova’s municipal infrastructure has been developed to suit the settlement patterns and population distribution within the country, which is heavily influenced by the capital, Chisinau. This has a population of over 650,0002, and represents 20% of the entire country’s population, and 50% of Moldova’s urban population. Balti, with a population of 123,000 is the only other city with a population of over 50,000. Apart from these two major cities, there are only 6 towns larger than 20,000. An analysis of all settlements in Moldova, categorised by size and by their urban or rural nature is given in Table 3.1 below.

2 All population figures refer to the National Bureau of Statistics estimates of 1/1/2006

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Table 3.1: Categories for towns Lower limit Upper limit Nr of settlements in category1 Capital and metropolis (Chisinau) 200,000 9,999,999 1 Large municipalities (Balti) 50,000 199,999 1 Medium municipalities 20,000 49,999 6 Small municipalities 5,000 19,999 35 Small towns with urban characteristics 0 4,999 11 Rural settlements 0 12,500 1472 1 Based on National Bureau of Statistics estimates of 1/1/ 2006

As indicated above, there are a number of settlements, classified as urban, with populations below 5,000. Although essentially rural in size, these have urban characteristics such as multi storey buildings and central water and sewerage systems. There are also some 45 settlements with populations larger than 5,000, but without multi-storey buildings or centralised water and wastewater systems, they remain essentially rural in character, and are therefore categorised as rural.

Prioritisation of towns for service level improvements depends on various factors including existing water quality, environmental impact, etc. However, these factors being equal, the planning of services for larger towns and cities are invariably given priority over smaller settlements due to their greater potential for environmental impact and their greater risk of spreading of water related diseases. The above categories are therefore used to both describe the existing systems and to elaborate development prognoses.

3.3 Urban water supplies

The following discussions on the existing urban water supplies in Moldova are largely based on the Moldova Apa Canal Association’s data base3. Selected details of the database have been summarised, and are produced in Appendix A.

3.3.1 Service levels

(a) Connection rates

The connection rates for the different categories of towns, based on data from the MACA, are indicated in Table 3.2 and Figure 3.1 below. It also shows trends in connection rates for the period 2000 to 2005, with the National weighted average, which has reportedly risen from 73% to 80% over this period.

Table 3.2 Urban water supply connection rates Category Description 2000 2001 2002 2003 2004 2005 >200,000 (Chisinau) 82% 88% 90% 87% 87% 93% 50,000 - 200,000 (Balti) 72% 70% 73% 74% 78% 80% 20,000-50,000 (Large towns -6) 80% 78% 80% 74% 78% 72% 5,000 - 20,000 (Medium towns -30) 55% 56% 55% 54% 61% 61% 0 – 5,000 (Small towns -2) 50% 54% 53% 55% 58% 68% Weighted National average 73% 76% 77% 75% 77% 80% Source: IBNET (Using MACA data)

3 Analysis of Technical and Financial activities of Moldova Apa Canals, 2006

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Water Supply Connection Rates Figure 3.1 100% Water supply 90% connection >200,000 (Chisinau) 80% rates 50,000 - 200,000 (Balti) 20,000-50,000 (Large tow ns -6) 70% Source: IBNET 5,000 - 20,000 (Medium tow ns -30) 60% 0 - 5,000 (Small tow ns -2) Weighted National average 50%

40% 2000 2001 2002 2003 2004 2005

Two trends are evident: There has been a gradual increase in connections from an overall figure of 73% in 2005 to 80% in 2005. And, connection rates decrease with decreasing size of settlement. These rates can be compared with the MDG for water supply of 68.5% by the year 2015.

The connection rates for the individual towns vary widely as illustrated in Figure 3.2, which shows that although the levels are widely scattered, the trend line for the percentage of water connections, as expected, decreases with size of settlement.

Urban Water Supply connection levesl for Medium and smaller Figure 3.2 towns

Urban Water 100 Supply connection 90 rates by size of 80 70 population 60 50 40 Source: Consultant’s 30 analysis of MACA 20 Database 10 Percent of Percent population connected 0 0 5000 10000 15000 20000 25000 30000 35000 40000

Although there are good reasons for some of the large variations in connection levels, it is also clear that there are inequalities within the sector that need to be addressed.

The total connected population, as indicated in Figure 3.3 illustrates the dominance of Chisinau in the sector, as it accounts for 60% of all urban population connected to water Connected population (2005) Figure 3.3 600,000 Population connected to 500,000 water by category of 400,000

town 300,000

Source: MACA database and 200,000

BNS estimates of 1/1/2006 100,000

0 (Chisinau) (Balti) (Large tow ns - (Medium tow ns - (Small tow ns -2) 6) 30)

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(b) Interruptions to supply

Apart from the largest towns (Chisinau, Balti, and Ungheni) only five other towns have reliable 24 hour service supplies, and, as can be seen by the low levels of consumption in Figures 3.5 and 3.6, the interruptions may be significant. Table 3.3 and figure 3.4 indicates the average reliability for the different sizes of towns. And, also indicates a trend of slight improvement in the medium and smaller sized municipalities but deterioration in the smallest category.

Figure 3.3 Hours of supply in different categories of town Category 2000 2001 2002 2003 2004 2005 >200,000 22 24 24 24 24 24 50,000 - 200,000 24 24 24 24 24 24 20,000-50,000 15 15 15 16 15 16 5,000 - 20,000 10 9 9 11 12 13 0 - 5,000 13 12 12 11 11 11 Average 18 19 18 19 19 20

Figure 3.4

Reliability of Supplies

Source: Consultant’s analysis of IBNET data

To avoid pollution entering the distribution system it is essential to maintain the system under pressure at all times. The interruption of supplies is therefore seen as a serious threat to the quality of the water supplied.

(c) Consumption levels

Existing levels of consumption as indicated in Table 3.4 indicate low levels of consumption, especially for the smaller towns. The consumption levels are as reported by the Apa Canals, and includes both metered and non-metered consumption. Consumption can be influenced by the irregularity of supplies. Twenty four hour supplies are only available in the larger towns such as Chisinau, Balti and Ungheni. Although the system at Balti has only become reliable since 2005, which is the year to which these figures relate.

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Table 3.4: Reported consumption levels by urban category (lcd) (2005)

Settlement Per capita consumption (lcd)

Category Domestic Overall >200,000 (Chisinau) 141.6 193.5 50,000 - 200,000 (Balti) 49.0* 77.1* 20,000-50,000 (6 large towns) 55.3 78.0 5,000 - 20,000 (30 medium towns) 38.0 44.0 0 – 5,000 (2 small towns) 33.6 35.0 Average 104.5 142.7 Source: MACA Database for 2005 operations * The Balti figures relate to a period before recent rehabilitation work to improve reliability

Figure 3.5 indicates the dramatic impact of the introduction of meters in the country over the last 10 years (see section 3.3.5). The figures are for overall consumption, including domestic, institutional and industrial consumption. It is quite remarkable how the high pre-metering consumption levels have reduced to the current low levels. Some of the low per capita figures are due to irregular supplies, but metering is still far from universal, and full cost recovery levels have still to be applied. It is therefore likely that these measures will further constrain consumption.

Figure 3.5 Total consumption as per capita consumption trends

Consumption trends (lcd)

700 600 Chisinau 500 Balti 400 Large towns (6) 300 Medium towns (30) Small towns (2) 200 Weighted average 100

Per capita consumption (lcd) consumption capita Per 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: Consultant’s analysis of MACA and IBNET Databases

The reduction in consumption levels has a number of far reaching consequences including reduction in water sales, and resulting in infrastructure with spare capacity.

The individual domestic consumption rates for the towns below 50,000 are indicated in Figure 3.6. This provides a more detailed assessment of domestic consumption, for the smaller towns, showing a wide scatter of results, but all below 80 lcd, and with a trend towards decreasing consumption rates with the smaller settlements.

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Figure 3.6 Per capita consumption by size of settlement (lcd) Domestic consumption (lcd) with size 80.0 of settlement (2005) 60.0

40.0

Source: (lcd) Consultant’s 20.0 analysis of MACA -

Database consumption capita Per 010203040

Population x 1000

It should be first pointed out that none of the towns in Moldova are provided with standposts, and all consumption is therefore through connections to households.

It is therefore extremely unlikely for the above average consumption levels of below 20 lcd are correct, and these low figures are more likely to be due to under-reporting or under-measurement. It also becomes evident that, any attempt to put the Apa Canals on a sustainable cost recovery basis, must first address the issues of under- reporting consumption, and hence under-billing.

(d) Structure of consumption

Domestic consumption forms the main component of demand in all sizes of towns. Industrial consumption of water has decreased significantly over the last twenty years, this is partly due to the adjustment to the post-soviet economic situation, but also partly due to the very high tariffs applied to industrial consumers. The structure of consumption is indicated in Figure 3.7, and the corresponding revenue in Figure 3.8

Structure of consumption by category of consumer Figure 3.7 type and settlement size

100% Structure of 90% consumption 80% 70% 60% Source: Consultant’s 50% analysis of MACA 40% database 30%

% of consumption consumption of % 20% 10% 0% >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 200,000 50,000 20,000 Domes tic Commercial Other

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Structure of water sales with size of settlement (2005)

Figure 3.8 100%

Structure of revenue 80%

60%

Source: Consultant’s 40% analysis of MACA Percent of sales database 20%

0% >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 200,000 50,000 20,000

Domestic Institutions Industrial

Domestic consumption averages at about 75% of all consumption, increasing to 96% in the smallest towns. Industrial and institutional consumption are significant components for the larger towns, but reduces, as expected, to insignificant levels in the smaller towns. However, in terms of revenues, industrial consumption becomes much more significant due to the high levels of industrial tariffs, as indicated in Figure 3.9

Ratio of Industrial / Domestic Tariff Figure 3.9

Industrial / Domestic 8.00 tariff ratios 7.00 6.00 2003 5.00 2004 Source: MACA database 4.00 2005 Ratio 3.00

2.00

1.00

0.00 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Weighted 200,000 50,000 20,000 National average

This level of cross subsidisation is not sustainable to industry, and will tend to discourage some of the sector’s best customers. Recognising the issues involved, international practice has moved towards removal of such cross-subsidisation, and it is suggested that Moldova should consider a similar policy.

(e) Design capacity

The design criteria used for the design of the existing water and wastewater infrastructure adopted generous demand assumptions. The downward trend in the reported consumption over the last decade, as discussed above, has therefore resulted in low utilisation of the water production plants and network systems. For example; The 6 surface water treatment plants listed in the MACA database had an average utilization of only 24%. This implies a significant wastage of scarce investment resources, and also results in correspondingly higher unit operating costs. The situation is even worse when comparing the source capacity to reported sales for 2005 for the smaller towns, as indicated in Figure 3.10 below:

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Figure 3.10. Source capacity (m3/d) divided by sales Ratio of Soource capacity to sales (m3/d)

An important conclusion from 20 this is that any rehabilitation or replacement of existing 15 systems must be designed to 10 suit more realistic demand criteria, rather than simple 5 replacement of the same size or capacity, and makes the 0 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Average review of actual consumption 200,000 50,000 20,000 rates crucially important.

3.3.2 Water quality and treatment

The larger towns (Chisinau, Ungheni, Cahul) tend to be supplied from surface water sources, which need full treatment including coagulation, settlement, filtration and disinfection. These towns are all currently provided with infrastructure for full treatment and disinfection with more than adequate capacity to meet the current demands.

Annual abstraction by source of water and category of Figure 3.11 settlement

Abstraction by source and settlement size 100,000 80,000

60,000 Source: MACA Database 40,000

x 1000 m3/yr 20,000 0 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 200,000 50,0 00 20,000 Ground w ater Surface w ater

This infrastructure, especially the electrical and mechanical parts, is almost all in poor condition. Without rehabilitation these plants will quickly cease to be operational. Rehabilitation however is complicated by the excess capacity of most of the plants, and the need to only rehabilitate the capacity that will be utilised within the planning horizon.

Nearly all the smaller towns are supplied by groundwater sources. Many of these sources do not need treatment other than disinfection as a precautionary measure against possible contamination. However, as discussed in Chapter 2 above, there are areas within Moldova that suffer from high levels of Fluoride, Nitrates, etc., and water treatment is required according to the level of the concentration and the

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nature of the particular substance. It is estimated4 that about 10% of the groundwater schemes require such treatment, but currently no effective treatment is provided for any of these settlements.

3.3.3 Pumping stations and power consumption

The National average specific power consumption reported by the Apa Canals is 1.03 kWh/m3 of water abstracted for water supplies, which is already very high, but if one excludes Chisinau, which is relatively efficient, this figure increases to 1.5 kWh/m3.

Unit Power Consumption

Figure 3.12 4.0

3.5 Specific power consumption by volume 3.0 abstracted and by water 2.5 sales 2.0 1.5 1.0 Source: MACA Database 0.5 0.0 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Av erage

kWh/m3 consumption power Unit 200,000 50,000 20,000 kWh/m3 abstracted kWh/m3 sales

Figure 3.12 indicates the specific power consumption for the different settlement categories for both water abstracted, and for water sales. The figures for water sales is the more significant figure, as this takes account of unaccounted water, and is an accurate indicator of the actual cost that needs to be recovered from the water tariff. These figures are high. This is due partly to the total head required to pump borehole schemes (typically in the order of 190m) and partly due to the inefficiency of old pumps. If one also considers the high level of losses, one can conclude that the level of energy consumption must be over twice the level that a reasonably efficient system should consume. This clearly demonstrates a high priority to consider pump replacement and modernisation.

Old, inefficient pumping plant is responsible not only for high energy costs, but also for the unreliability of many of the systems. The renewal of electrical and mechanical plant at pumping stations should therefore be viewed as being of high priority.

3.3.4 Networks

The length of a network varies with the size and density of population. The larger settlements generally having higher population densities and therefore require a shorter length of network per capita. This is clearly demonstrated by analysis of the MACA database, as shown in Figure 3.13, where the length, expressed as length per capita, rises from 2.2 m in Chisinau, to over 7 m for the smallest towns, and goes some way to explain the economies of scale that occur with water and wastewater infrastructure.

4 Local Specialists estimation

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Figure 3.13 Length of network per capita connected Variation of length of network per capita with size of population 8

Source: Consultant’s analysis of 7 MACA Database 6

5

4

3

2 1 0 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Average 200,000 50,000 20,000

The water supply networks for the medium and smaller towns were built around 30 years ago. Internationally, in terms of municipal infrastructure, this is relatively recent. However, the materials (often unprotected steel) and workmanship were generally poor, and the lack of investment in maintenance, has resulted in a significant backlog of re-investment and renovation needed. As a result of the lack of maintenance and reinvestment, the systems have continued to deteriorate to the extent that the level of pipe bursts and losses (see below) are excessive, and the reliability of the supplies unacceptable.

Pipe bursts Figure 3.14

18 Pipe bursts 16

14 2000 Source: 12 2001 Consultant’s 10 2002 analysis of 2003 IBNET data 8 Bursts/km 6 2004 2005 4 2 0 >200,000 50,000 - 20,000-50,000 5,000 - 0 - 5,000 Average 200,000 20,000 Category of settlement

Pipe burst frequency, analysed for the five years from 2000 to 2005, by size of settlement, is illustrated in Figure 3.14, and provide some interesting observations.

• The burst frequency in Western Europe is below 0.2 bursts/km/year. The average rate of pipe bursts in Moldova is thus in the order of 40 times those of Western Europe. • There is a worrying trend of increasing bursts of approximately 5% increase per annum • Chisinau and Balti, having older networks, are significantly worse than the medium and smaller sized networks, which are generally newer. • Balti (in 2005) had the highest frequency of bursts, indicating particularly poor conditions

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This very high level of pipe bursts provides a good indication of the poor condition of the networks, and the urgency to start reinvestments into the systems to halt further deterioration and rehabilitation to improve service levels.

3.3.5 Metering

A policy of metering all connections is currently being implemented, as indicated in Figure 3.15, with most large to medium towns currently having over 50% of connections metered. Metering (% of connections)

Figure 3.15 Metering as 100 % of connections by 90 80 size of town >200,000 70 50,000 - 200,000 60 20,000-50,000 50 5,000 - 20,000 40 However, despite (or 0 - 5,000 30 because of) the Weighted National average 20 apparent success of the 10 metering policy, there 0 are a number of issues 2000 2001 2002 2003 2004 2005 that need to be addressed if the benefits of the policy are to be realised. • Quality of meters: The poor quality of meters has resulted in under measurement of consumption. • Regular calibration of meters: A policy for regularly calibrating existing meters needs to be implemented, with powers to change the water meter at the consumers’ expense. • Meter reading and billing: Systematic and transparent systems need to be put in place for meter reading and billing.

3.3.6 Losses

Losses, (or unaccounted for water UfW) as reported by the Apa Canal database, expressed as percent of water abstracted, range from a maximum of 80% (Telenesti and Drochia) to a minimum of 5 % (Cantemir), with an average of 46%, as indicated below for the medium and small towns.

Losses (which include non-revenue water) close to 0% are almost impossible to achieve, and figures below 20% in Moldova are more likely to indicate lack of (or – poor) metering in the system and under-reporting. . Well run systems in Western Europe, manage their systems using the economic level of losses (the point at which the incremental cost of reducing the losses exceeds the incremental benefits), which is generally below 20%. For example, the average losses for 20 water companies in the UK is 16%, with a minimum of 9% (smaller utilities) and maximum of 26% (Thames Water)5. However, there is increasing pressure on the western water companies to reduce losses even below the “economic” level for a number of reasons, including rising energy costs, concerns over conservation of increasingly scarce resources, accountability and pollution.

Losses, as they increase over 30% have an increasing impact on the cost of running the network in terms of energy charges and effort in repairs and maintenance.

5 BTNET Database (2003 figures)

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Losses over 50% represent systems that are highly inefficient and, unless these are due to exceptionally high levels of commercial losses, are vulnerable to pollution.

Losses in many of the smaller towns in Moldova, where the systems are relatively modern, and location of losses should be easier, appear to be particularly excessive.

Losses as % of abstraction Figure 3.16 90% 80% Distribution of losses for 70% medium and smaller towns, 60% expressed as % of 50% 40% abstraction. 30% 20% Source: MACA Database 10% abstraction of % as Losses 0% 0 10203040

Population x 1000

It would be expected that the losses in the older, and larger, networks, would be greater, and using the above criteria with Chisinau at 38% and Balti at 40% this does not appear to be the case. However, the low level of losses reported in many of the smaller towns, as discussed above, is probably due to poor quality of data rather than actual low levels of losses.

There has been considerable international debate on how unaccounted for water should be measured and compared, as it is felt that losses expressed as % of abstraction does not provide the full picture. The following text therefore looks at losses using alternative measures.

If the losses are expressed simply in terms of volume of water lost, a different picture emerges, and as shown in Figure 3.17, the water lost from Chisinau represents 75% of all unaccounted water in 2005.

Figure 3.17 Losses as % of total National losses 5,000 - 0 - 5,000 20,000 Losses as % of total volume of 20,000- Small National Losses (2005) 50,000 towns

Medium Source: Consultant’s analysis of MACA towns 50,000 - database for 2005 200,000 Balti

Chisinau

>200,000

A measure that has become more accepted as a way of measuring network efficiency is to express the losses in terms of volume of water lost per unit length of network i.e: m3/km/day. or in terms of m3/connection/day, as indicated below for the different categories of settlements:

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Losses (m3/d/km of network) Figure 3.18 60 Losses expressed as m3/km/d 50 40

30 Source: Consultant’s analysis of

MACA database for 2005 m3/day/km 20

10 0 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Average 200,000 50,000 20,000

Expressing the results in this form stresses the importance of reducing losses for the larger cities. For comparison, the average of the 20 water companies in the UK was 7 m3/km/d. The losses in Chisinau come to almost10 times this value.

Losses m3/conn Figure 3.19 Losses expressed as 3.50 m3/connection/say 3.00 >200,000 2.50 50,000 - 200,000 2.00 20,000-50,000 1.50 5,000 - 20,000 0 - 5,000 Source: Consultant’s 1.00 Average analysis of IBNET 0.50 database 0.00 2000 2001 2002 2003 2004 2005

The losses were further analysed using the losses/connection/day, as indicated in Figure 3.19, which also highlights the large losses in Chisinau and Balti. It also indicates however, that there has been significant effort to reduce these losses over the last five years. Nevertheless, compared to the average level of losses in the UK of 0.15 m3 per connection per day, the losses in Moldova, especially the larger cities, are still too high.

Prior to metering, water was billed using standard norms. Therefore, with the advent of metering, and the resultant lower consumption rates, the volume of unaccounted for water would be expected to increase to compensate. Figure 3.20, presents the reported unaccounted for water expressed as losses/ connection/ Metering % vs Losses

day against reported percent of 2

metering for each Apa Canal. As 1.8

expected, this shows an increase in 1.6 the level of unaccounted for water 1.4 with an increase in metering. 1.2 1 Figure 3.20 Variation of 0.8 0.6 unaccounted for water with meter Losses m3/cann/day coverage. 0.4 0.2 0 0 20406080100 % m e te re d

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3.3.7 Population not connected

The population not already connected to the water supply networks generally lie in the lower population density areas away from the town centres, and rely on shallow wells, which are often shared by a number of households. These wells typically have hinged covers and are equipped with a windlass, bucket and chain. They are generally designed to minimise the potential for pollution from surface sources, but the shallow groundwater can be impacted from agricultural practices and is also vulnerable to pollution from “on site sanitation” technologies and leaking sewers.

About 10% of people not connected to the network obtain water from springs, which if protected and provided with a sanitary zone, can provide good quality water.

3.4 Urban wastewater infrastructure

3.4.1 Coverage

Sewerage coverage in the urban towns varies from around 30% in the smaller towns to over 80% in Chisinau. Figure 3.18 summarises information on sewer connection rates in the different sized towns over the period 2000 to 2005.

Table 3.5 Urban sewerage coverage as percent of population connected

Category Description 2000 2001 2002 2003 2004 2005 >200,000 Chisinau 69% 74% 76% 74% 74% 81% 50,000 - 200,000 Balti 55% 54% 56% 57% 62% 64% 20,000-50,000 Large towns -6) 46% 50% 51% 51% 56% 55% 5,000 - 20,000 (Medium towns -30) 33% 34% 33% 32% 35% 36% 0 - 5,000 (Small towns -2) 29% 34% 31% 31% 42% 33% Average 54% 57% 58% 56% 59% 62%

Figure 3.21 Sewer connection rates Urban 90 sewerage 80

connection 70 >200,000 rates 60 50,000 - 200,000 50 20,000-50,000 40 5,000 - 20,000 0 - 5,000 Source: % connected 30 Average Consultant’s 20 analysis of IBNET 10 data 0 2000 2001 2002 2003 2004 2005

A more detailed analysis of the sewer connection rates for the medium and smaller towns shows a similar wide range of values as was found for water supplies, but, as expected, with a trend of diminishing connection rates with the smaller towns, as indicated below.

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Sewerage connection rates for medium and small Figure 3.22 settlements Sewerage connection rates for medium and small 100 settlements 90 80 70 60 50 40 30 Percent connections 20 Source: Consultant’s analysis of 10 MACA data 0 0 5000 10000 15000 20000 25000 30000 35000 40000

3.4.2 Collection systems

The total length of sewerage systems in Moldova is over 1,000 km, and is approximately 54% of the total length of water supply networks. The characteristics of the systems vary with the size of settlements, and, similar to water networks, the length per capita, and hence per capita costs increases with decrease in size of settlement, as indicated below:

Sewer length per capita

Figure 3.23 6.00

5.00 Variation of length of sewerage systems per capita with size of 4.00

population 3.00

2.00

Source: Consultant’s analysis of MACA 1. 0 0 Database 0.00 >200,000 50,000 - 20,000-50,000 5,000 - 20,000 0 - 5,000 Weight ed 200,000 average

Settlement category

A good indication of the condition of sewerage systems can be obtained by assessing the frequency of blockages, which may be caused by broken sewers, broken manholes and covers, poor operating and maintenance conditions or poor design. Sewer blockages per km/yr

Figure 3.24 14 12 2000 Urban Sewer 10 2001 blockage 8 2002 frequency 6 2003 4 2004

Blockages/km/yr 2005 Source: 2 Consultant’s 0 analysis of

IBNET - 5,000 20,000 50,000 20,000- Average 50,000 - 50,000 200,000 0 - 5,000 0 - database >200,000 Category of settlement

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Internationally, the level of blockages expected in well managed systems is expected to be around 1 blockage per km per year. Compared to this benchmark, with the possible exception of the smallest category of towns, the performance of all systems are poor, especially at Balti, where there are, on average, 4 blockages a day. The figures for the smallest towns cannot be extrapolated to other parts of the country because of the small sample (2 towns) and the possibility of under reporting.

3.4.3 Pumping stations

Most sewage pumping stations in Moldova were designed for much larger capacities than are required at present, the electrical and mechanical plant is old, inefficient, and needs to be replaced.

Figure 3.25 Specific Power consumption kWhr/m3

Specific power consumption 0.90 for wastewater collected. 0.80 0.70 0.60 0.50 Source: Consultant’s analysis of 0.40

MACA database kWhr/m3 0.30 0.20 0.10 0.00 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Weight ed 200,000 50,000 20,000 average Settlement category

The National average specific power consumption expressed in kWhrs per m3 of wastewater collected is 0.37 kWhr/m3. Observations include: • Increasing unit costs with decreasing size of settlement • Full secondary treatment using activated sludge would normally consume about 0.2 kWhr/m3. Compared to this figure, and knowing the poor condition of pumping plant, the overall average looks quite low, but is explained by the fact that most treatment plants do not operate their secondary treatment processes.

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3.4.4 Wastewater treatment

All of the settlements classified as urban, and provided with sewerage systems, have been provided with treatment plants to secondary treatment level. However, many of the smaller plants, have either ceased to operate, or only operate partially, as indicated by below: % of wastewater satisfactorily treated

Figure 3.26 100% 90% Percent of treated 80% wastewater meeting 70% required water quality 60% standards 50% 40% 30% 20% 10 % 0% >200,000 50,000 - 20,000- 5,000 - 20,000 0 - 5,000 Weight ed Source: Consultant’s analysis 200,000 50,000 average of MACA data Settlement category

The treatment plants for the largest towns (Chisinau and Balti) appear to perform reasonably well in meeting the water quality standards. However, the plants for all the other towns appear to have serious problems, and satisfy the standards for only approximately a third of the time. However, before these plants are considered for rehabilitation, it is necessary first to determine the required capacity of the plant, which will often be significantly below the existing plant capacity, as indicated below: Table 3.6 Utilisation of wastewater treatment plants

WW WW treated Capacity Utilization Category Description M3/day M3/day % >200,000 Chisinau 162.9 446.3 36% 50,000 - 200,000 Balti 26.8 60.0 45% 20,000-50,000 Large towns -6) 9.0 74.7 12% 5,000 - 20,000 (Medium towns -30) 6.2 93.3 7% 0 - 5,000 (Small towns -2) 0.1 0.3 29% Average 204.92 674.6 30%

Figure 3.27 % utilisation or wastewater treatment plant capacity Percent utilisation of wastewater treatment 100% 90% plant capacities 80% 70% 60% 50% 40% 30% 20% Source: Consultant’s 10 % analysis of MACA data 0% >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Weight ed 200,000 50,000 20,000 averag e

Settlement category

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In certain cases the utilisation is so low that it may be uneconomic to rehabilitate the plant, and a smaller plant will need to be constructed instead. However, in each case, a study of that specific treatment plant will be needed to assess the likely future flows and the most economic method of providing full treatment.

3.4.5 On site sanitation

The population who are not connected to the sewerage systems are usually households living in small houses in low density housing areas outside the centre of the settlements. The technologies employed include:

Table 3.7 Sanitation technologies

Technology Description (% usage) Buckets A small percentage of Moldova’s population use buckets for (1 to 2%) defecation and dispose the waste onto land. There is a clear risk of pollution from surface water runoff and of transfer of pathogens. Simple dry Nearly all of the urban population without connections to the pit latrine sewerage systems use simple pit latrines. (97%) These consist of a simple hole dug in the ground covered by a slab with a small hole for defecation and urination. The volume to last 10 years for a household of 4 people should be at least 2 m3.

Once full, the latrine needs to be covered and another latrine dug. Or, in the case of Chisinau and Balti, which have the equipment, they can be emptied with pit emptying machines.

This is the most common type of latrine found in Moldova, and a well maintained latrine can be a suitable solution in areas were population densities are not high.

This type of latrine is not suitable for disposal of grey water or sullage, which is normally separated and disposed on to the household’s land surrounding the building.

These latrines are often associated with flies and smells. However, this nuisance can be reduced by fitting a simple cover to the defecating hole.

The bottom of the pit should not reach groundwater level. (A 1 m depth of sand between the bottom of the pit and groundwater will provide an efficient barrier to pathogen transmission).

Depending upon ground conditions, pits should not be closer than 30 – 50m from groundwater sources.

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Improved pit This is basically the same as the simple latrine, but with a latrine screened ventilation stack to eliminate the fly and odour nuisance, but its use in Moldova is insignificant. Septic tanks Pit latrines are not appropriate for buildings with flush toilets, as (1%) they cannot cope with the quantities of wastewater generated. Septic tanks and soakaways are used in this situation. The tanks are constructed in 2 or 3 chambers which provide primary treatment, settlement and digestion of solids. The supernatant water is discharged to the ground through drain soakaway trenches. However, these systems are rarely found in Moldova, and households not connected to sewers generally do not use flush toilets.

3.5 Rural Water Supplies and Sanitation

The rural population rely almost exclusively on groundwater sources for their water supplies, and by far the majority obtain water from shallow wells. The potential groundwater yield and water quality are discussed in Chapter 2, conclusions of which are summarised below:

• The yield of shallow wells in Moldova is generally suitable for manual abstraction, but is unlikely to be sufficient for pumped supplies. • Water quality in shallow wells is impacted by its location with respect to housing rather than agriculture. High levels of Fluoride are related to geological factors rather than land use. • Higher yields can be obtained from deeper aquifers, but the investment and running costs can be deterrents to low income communities. • Groundwater quality problems in Moldova include high levels of Hardness, Total dissolved solids, Selenium, Nitrates, Sulphates, Fluoride and Chloride

The technologies used for rural water supplies and sanitation are essentially the same as used in the low density populations of the urban areas, as described in sections 3.3 and 3.4 above.

Data used for the analysis of rural infrastructure has been taken form “The Complex Scheme for Water and Sanitation in Moldova” 2002, which provides detailed information on the infrastructure that has been provided in the rural areas. It does not however provide information on the current serviceability of the infrastructure. Analysis of the data has been prepared firstly by district, then by region, and finally for the whole country.

The division between the three regions was done arbitrarily, and not by political or drainage boundaries, and was made solely to show how infrastructure varied across the country.

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Table 3.8 Regional division (for analytical purposes only) Northern Districts Central Districts Southern Districts Ocnita Ialoveni Chimislia Falesti Cosnita Cahul Glodeni Anenii Noi Cantemir Riscani Criuleni Taraclia Singerei Straseni Basarabeasca Edinet Orhei Leova Bricani Rezina Hincesti Donduseni Telensti Carseni Drochia Soldanesti Stefan Voda Floresti Ungheni Comrat Soroca Nisporeni Ciadir-Lunga Calarasi Vulcanesti

Coverage of the Northern Districts Service coverage individual districts can be seen as follows: 30.0% 25.0% Figure 3.28 20.0% Piped water and sanitation Water supply service 15.0% Standpipes coverage – Northern 10.0% Districts 5.0%

Source: Consultant’s analysis 0.0% of data from the Complex

Scheme for water and Edinet Falesti Bricani Soroca Floresti Riscani Drochia Glodeni Ochnita Singerei

sewerage in Moldova, Averages Acvaproiect, 2002 Donduseni Central Districts Service Coverage Figure 3.29 Water supply service 45.0% coverage – Central 40.0% 35.0% Districts 30.0% 25.0% Poped water and sanitation Source: Consultant’s analysis 20.0% Standpipes of data from the Complex 15.0% Scheme for water and 10.0% sewerage in Moldova, 5.0% Acvaproiect, 2002 0.0%

Orhei Rezina Ialoveni Criuleni Cosnita Telensti Average Ungheni Niporeni Calarasi Straseni Anenii Noi Figure 3.30 Soldanesti Water supply service Southern Districts Rural Service coverage coverage – Southern Districts 70.0% 60.0% 50.0% 40.0% Piped water and sanitation 30.0% Standpipes Source: Consultant’s analysis 20.0% of data from the Complex 10.0% Scheme for water and 0.0% sewerage in Moldova, Acvaproiect, 2002 Leova Cahul Comrat Taraclia Average Hincesti Causeni

Cantemir Chimislia Vulcanesti Stefan Voda Ciadir Lunga Basarabeasca

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There is a wide variation of service levels across the districts, as indicated above and in table 3.9 and figure 3.31

Table 3.9 Service level coverage characteristics by region Piped water and sanitation Standpipes Max Min Average Max Min Average North 19% 0% 5.3% 27% 0% 12% (Edinet) (Singerei) (Singerei) (Bricani) Central 15% 1% 7.5% 62% 0% 19% (Criuleni) (Cakarasi) (Telenesti) Nisporeni South 53% 0% 7.5% 65% 8% 36% (Stevan (Vulcanesti) Comrat) (Stevan Voda) Voda)

Figure 3.31 Rural Rural service levels by region

service level by 40.0% Regions 35.0% 30.0% Source: Consultant’s 25.0% Piped water supply and analysis of data from the sanitation 20.0% Complex Scheme for Standpipes water and sewerage in 15.0% Moldova, Acvaproiect, 10.0% 2002 5.0% 0.0% Average North Average Average South Average All Central rural

The data was further analysed by size of population, as indicated in Figure 3.29

Figure 3.32 Rural service levels Rural service levels by settlment population by settlement size 60.0%

50.0% 40.0% Piped water supplies and sanitation 30.0% Source: Consultant’s Standpipes analysis of data from 20.0% the Complex Scheme 10.0% for water and sewerage in Moldova, 0.0% Acvaproiect, 2002 5000- 10000 Rural 0 - 1990 - >10000 average 200-499 500-999 1000-2499 2500-4999

As expected, the service levels increase with size of settlement.

Nationally, the infrastructure provided for water and sanitation in the rural areas of Moldova has therefore been sufficient to provide 7.6% of the population with piped water and 21.6% of the population with standpipe supplies. The remaining 71.8% would mainly obtain their water form shallow wells.

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(a) Operational status of rural water supplies

It has to be stressed that the above data is based on the infrastructure as built, and it does not represent the current situation. In 2002 it was estimated that only about 50% of the piped water supply systems were operational6. And, due to further deterioration, the figure today (2007) is likely to be about 40%7. Applying this to the above data, one arrives at the following estimate of national rural coverage levels for water supplies:

• Supplied with in house piped supplies: 3% • Supplied by yard standpipes: 9% • Shallow wells and other sources: 88%

However, the groundwater quality in the shallow wells was found to be generally of poor quality8, as discussed in Chapter 2. As a result, a high proportion of the rural population do not receive water of drinking quality standard.

(b) Operational status of rural sewerage and sewage treatment

Wastewater systems in rural areas were targeted to serve local industries and institutions, and generally included only a small proportion of the domestic population. As a result, although only about 20% of the population were served, approximately 750 wastewater treatment plants were constructed across Moldova in over 50% of the rural settlements. The treatment provided constituted: • 90% mechanical • 100% biological • 94% sludge treatment • 70% disinfection • Average capacity: 150 m3/day

However, the post independence decline in industrial activities has combined with the impact of decentralisation, to result in most of these systems being neglected and falling out of use. Some collection systems are still operating, as are some pumping stations, but these now discharge direct to watercourses without treatment. The following national coverage has been assumed:

• Rural population connected to wastewater collection system: 5% • Percent of rural wastewater treated: 0% • Use of simple pit latrines: 95%

6 The Complex Scheme for Water and Sanitation in Moldova, Acvaproiect, 2002 7 Local specialists estimate based on sample surveys 8 Quality of Rural Drinking Water in Moldova, World Bank, 1997

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4 Baseline Scenario

4.1 Background to and development of baseline objectives

As described in Chapter 3, the existing infrastructure in the settlements across Moldova is in a poor condition, resulting in unsatisfactory levels of service and an adverse impact on public health and the environment. The Government has therefore placed a high priority on the improvement of water and wastewater services, and in 2004 adopted the Millennium Development Goals (MDGs) for improving water and sanitation in Moldova

In the context of this Government policy to improve water and wastewater infrastructure, it is considered that a baseline scenario reflecting the current unsatisfactory situation would not be appropriate, and that some improvements to serviceability and reduction of inequalities should be assumed. This Chapter therefore proposes some modest improvements to water quality, minimum service levels, wastewater treatment, etc., be included within the baseline scenario. The target date for these improvements has been set for the year 2015 (the target date for meeting the MDGs), it being assumed that these improvements will be gradually introduced after the commencement year of 2008.

The intention of setting these objectives is simply to provide a baseline from which other development options can be compared. It should be stressed that this does not imply any Government or official approval or obligation to this scenario.

4.2 Population

Moldova’s population has undergone major changes over the last decade, with significant numbers of people leaving to seek work in other countries. The overall impact has been a reduction in the Nation’s population over the last 10 years, and there has also been significant internal migration within the country, mainly at the expense of the rural population. However, partly as a result of repatriation of money earned abroad, the economy has improved, and provides an indicator that the conditions within the country will stabilise in the future. Nevertheless, there remains a degree of uncertainty in projecting the future population of Moldova.

In terms of investment planning, the risks involved in projecting population have to be balanced between providing infrastructure of larger capacity than required, and hence waste scarce economic resources, or providing too little capacity, which would result in service level constraints. The scenario that would appear to provide least risk, and that also would appear to be reasonably realistic, is to assume a “no growth” projection, which has therefore been adopted for the baseline scenario.

4.3 Cost components of financial planning

The Feasible Model divides expenditure into four main components:

• Operation and maintenance costs, which includes staffing and energy costs: • Re-investment costs are defined as those costs required to maintain serviceability levels of infrastructure at current levels, the major component

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of which is the annual costs required to replace old pipelines. These costs are annual costs, often expressed as a % of the asset values. • Renovation (or rehabilitation), is defined as the work required to return serviceability levels back to the original level as designed and originally constructed. Implementation of rehabilitation works is assumed to take place over the period 2008 to 2015. • Service extensions: These are calculated from the planned increase in connected population for each town. Implementation is also assumed to be spread over the years 2008 to 2015.

4.3.1 Operation and Maintenance costs

The two major elements of operating and maintenance costs are Staffing and Energy costs. Staffing costs, at an average of 38% of O&M costs in Moldova, is the largest component of O&M costs. Staffing levels in Moldova average at around 2.59 staff per 1000 people connected to water and wastewater services. Internationally, the UK has one of the lowest staffing ratios at around 0.57/1000. However, considering the different levels of automation, economies of scale and salaries, the average staffing levels in Moldova would appear to be very reasonable compared to other countries at a similar stage of development. Any potential for cost savings by reducing staffing levels would, in any case, be balanced by the requirement to employ staff with higher levels of qualification and hence higher salaries.

The other major variable component of operating and maintenance costs is the cost of energy, which averages at 28% of O&M costs in Moldova. The reduction of these costs through investment in energy saving measures is calculated automatically in the model, which assumes gradual improvement in energy efficiencies over the planning horizon due to replacement of electrical and mechanical components and to modest improvement in the level of losses. Energy costs decreases with reduction in losses through the renovation programme are also calculated automatically. The specific energy consumption for all new pumping plant has been taken as 0.5 kWh.m3.

4.3.2 Re-investment (annual replacements)

All components of water supply and wastewater systems have a useful lifespan, after which they need to be replaced. If one assumes the average lifespan of a system is “n” years, then to maintain the serviceability of the assets it is necessary to plan to replace an equivalent of 1/n of the system each year. The major component of most systems is the distribution network or sewerage collection system, which typically have a lifespan of around 50 years.

In Western Europe, when utilities can provide sufficient evidence to prove that infrastructure is more durable, these annual replacement costs can be reduced to reflect a longer serviceable life. However, with the poor condition of the infrastructure in Moldova, this is not considered prudent, and even a 50 year life is probably optimistic, but affordability requirements influence the need to assume an optimistic approach.

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4.3.3 Renovation

(a) Water quality and treatment

The larger towns (Chisinau, Ungheni, Cahul), are supplied from surface water sources, which need full treatment including coagulation, sedimentation, filtration and disinfection. These towns are all currently provided with infrastructure for full treatment and disinfection with more than adequate capacity to meet the baseline demands. However, this infrastructure, especially the electrical and mechanical parts is generally in poor condition, and without rehabilitation they will quickly cease to be operational. The baseline scenario assumes that the structural elements of treatment plants will be renovated by 25% of its replacement value, during the period 2008-2015, and the electrical and mechanical elements renovated by 50%. It should be noted that these replacement values are calculated using the required capacity, and not the existing capacity, which in most cases exceeds demand, and which would remain redundant over the planning horizon. In the case Chisinau, where a rehabilitation programme has already been completed, a lower level of renovation was assumed of 12.5%.

Nearly all the smaller towns are supplied by groundwater sources. Many of these sources do not need treatment other than disinfection as a precautionary measure against possible contamination. However, there are areas within Moldova that suffer from high levels of Fluoride, Nitrates, etc., and water treatment is required according to the level of the concentration and the nature of the particular substance. To determine the exact requirements of each settlement is beyond the scope of this study, and a generalised approach has therefore been adopted for the baseline scenario of assuming water treatment plant costs of 10% of full treatment assuming a pressurised filtration system.

(b) Pumping stations (water and wastewater pumping stations)

The average specific power consumption reported by the Apa Canals is 1.02 kWh/m3 for water and 0.37 kWh/m3 for wastewater. Without Chisinau, which is relatively efficient, these figures increase to 1.5 and 0.5 kWh/m3 respectively, representing high consumption rates and therefore costs.

As discussed in Chapter 3, old, inefficient pumping plant is responsible not only for high energy costs, but also for the unreliability of many of the systems. The renewal of electrical and mechanical plant at pumping stations is therefore viewed as being of high priority. To project the current levels of maintenance is not an option, as this would quickly result in many of the stations, and hence the entire systems, breaking down altogether. A similar approach to water treatment plants has therefore been adopted for the baseline scenario, with 25% renovation of the pumping station structures and 50% of the electrical and mechanical plant by the year 2015.

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(c) Wastewater treatment

All towns with sewerage systems have been provided with mechanical and biological wastewater treatment plants. These however tend to be of far greater capacity than actually required, and are in very poor condition. In terms of hydraulic loading, none of the treatment plants are overloaded, only two are loaded at rates of over 50% of the design capacity (Ciorescu and Basarabessca), and only seven are loaded at over 25% of design capacity. Careful consideration is therefore needed to determine how each treatment plant can be renovated or upgraded without wasting money on unutilised capacity. In terms of effluent quality, none of the towns fully meet the environmental norms, although Chisinau and Balti, which are by far the largest, come closest. Decisions on appropriate effluent quality standards need to be made and built into long-term plans.

As discussed under Pumping Stations above, a basic level of renovation needs to be introduced simply to avoid complete failure of the plants. For consistency, the baseline scenario for wastewater treatment plants has assumed similar levels to those of pumping stations, i.e.; Renovation of structural components based on 25% of the required capacity estimated using the baseline criteria for service level provisions discussed above. And, the electrical and mechanical plant renovated by 50% of the estimated capacity. Although nutrient removal for plants serving over 10,000 population equivalent is required by the EU Wastewater Directive, this has not been included in the baseline scenario. It is expected that this will however, be included in the alternative development scenarios to be investigated under the following phases of this project.

4.3.4 Service levels and extensions

As discussed in Chapter 3, prioritisation of towns for service level improvements depends on various factors, but the predominant factor is the size of the town. The Feasible Model recognises this and requires the towns to be categorised by size, and the following categorisation was adopted:

Table 4.1: Categories for towns Lower limit Upper limit Nr of settlements in category* Capital and metropolis 200,000 9,999,999 1 Large municipalities 50,000 199,999 1 Medium municipalities 20,000 49,999 5 Small municipalities 5,000 19,999 36 Rural/urban 0 4,999 11 Rural settlements 0 1472 * National Bureau of Statistics 2006

The following sections discuss the assumptions made for the urban infrastructure baseline scenario. Rural settlements are discussed separately at the end of this Chapter.

(a) Baseline connection rates and service extensions

The wide divergence of connection rates discussed in Chapter 3 (Figure 3.2) suggests a degree of inequality across the country. In many cases there may be good reasons for high connection rates in smaller settlements due to poor water quality, high morbidity levels or environmental concerns. Nevertheless, it would be

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reasonable to assume that a baseline scenario should aim at reducing some of the inequalities and target the settlements with the lowest service levels. In order to do this, the following minimum service levels, close to the average existing connection levels for each category of town, were adopted for the baseline scenario:

Table 4.2: Minimum water supply and sewerage connection levels for baseline scenario. Category Water supply Wastewater Nr of connections connections settlements Existing Minimum Existing Minimum targeted % % % % WS WW Capital and metropolis 93% 93% 91% 91% 0 0 Large municipalities 80% 80% 64% 65% 0 0 Medium municipalities 70% 70% 47% 50% 3 4 Small municipalities 60% 60% 37% 40% 17 20 Rural/urban 63% 50% 25% 30% 1 2

Those towns with higher connection rates than the above minimum levels are assumed to continue with the same connection level without further extension.

For those towns below the minimum connection rates, the lengths and diameters required for extending the distribution and collection systems to meet the minimum criteria have been estimated for each town and their costs included in the baseline scenario.

(b) Consumption levels

As indicated in Chapter 3 (Figure 3.4), consumption levels have dramatically reduced since the introduction of meters in Moldova.

In Chisinau, the current low tariff levels will have to be increased over time to reach full cost recovery levels, and this will result in further constraints to consumption levels. In Balti, the recent improvements to the water supplies are likely to result in greater consumption, but this will be modified due to price constraints. The existing consumption rates in the smaller towns are influenced by the low reliability of supplies, and it is assumed that once these constraints have been removed, the consumption rates will rise, despite higher tariffs, towards international consumption rates for small towns.

Table 4:3 Existing consumption levels and baseline target levels Category Average existing Baseline minimum consumption (1) consumption (lcd) (lcd) Capital and metropolis 208 150 Large municipalities 92 100 Medium municipalities 76 80 Small municipalities 37 65 Rural/urban 20 60 1 Source: IBNET database

(c) Unaccounted water (losses)

The economic level of losses (the point at which the annual incremental cost of losses equals the annual incremental cost of reducing the losses) is often quoted at around 20%, which could be regarded as a long-term objective, but for a baseline

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short-term scenario, this would not be realistic. Nevertheless, with the current very high levels of unaccounted for water, some water loss reduction strategy must be adopted to meet even modest improvement in service levels. The baseline scenario therefore adopts the prognosis that, by the year 2015, current levels of losses over 30% will be reduced by half. For example, for Telensti where the current level of losses is running at 80% this would reduce to 55% [30+(80-30)/2]%, but for any town with losses less than 30%, the losses are assumed to remain at existing levels.

A water loss reduction strategy has to be designed to suit the individual requirements of each network, but would typically include:

Table 4.4: Components of a typical water loss reduction programme

Problem Remedy Unmeasured legitimate use • Legal connection with no a) Reduce standpipe use (already effective payment in Moldova b) Reduce municipal use for watering c) Connection records to be regularly reviewed • Legal connection but not billed As c) above • Fire fighting demands, flushing d) Introduce appropriate measurement sewers and street cleaning policy • Defective meters e) Introduce policy for meter maintenance and calibration • Poor quality meters f) Introduce minimum standards • Incorrect meter reading and/or g) Introduce quality controls billing Losses and non-legitimate use • Leakage from distribution h) Record all reported pipe bursts system i) Introduce active leakage control including area meters, night flow measurement, pressure controls etc. j) Annual replacement policy • Illegal connections k) Include in c) and i) above during surveys • Meter tampering l) in addition to e) and f) above introduce tamper proof seals to meters. • Third party damage to network m) Monitor all third party construction work, and continuously monitor flows and pressures to detect any sudden changes.

4.4 Rural Water Supplies

The 2006 rural population, estimated by the National Bureau of Statistics, of over 2 million represents 61% of Moldova’s total population. The manor by which this population is provided with water and wastewater infrastructure is therefore very relevant to any sector strategy.

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Table 4.4: Urban and Rural population (2006) Urban Rural Total Total population 1,322,700 2,072,900 3,395,600 % of total population 39% 61% 100% Source: National Bureau of Statistics 2006

Water supply to rural settlements, as discussed in Chapter 3, is provided through a number of different technologies, depending upon the available resources and the settlement characteristics as indicated below:

Table 4.5: Existing and baseline technologies for Rural Water Supplies Rural Water Supply Technology Existing Baseline for 2015 None improved 1% 1% Hand dug wells 87% 75.5% Protected spring and gravity supply 1% 1% Borehole pumps with distribution system 11% 20% Surface water, treatment, pumps and distribution 0% 2.5% Source: Consultant’s estimates

There is a small percent of the rural population who use water supplies that are not protected from pollution, and these are classified here as “none improved”. It is expected that there will always be a section of the local communities who are either unable, or unwilling to “improve” their source of supply.

Hand dug wells, if protected from surface pollution, are normally classified as “improved” sources of water. However, the groundwater in a number of areas of Moldova does not meet international or Moldovan standards for drinking water quality. There is therefore a need to find alternative sources for those affected, and the percent of the population relying on hand dug wells will therefore decrease over the planning period.

Most springs with potential to supply villages have already been developed, and the main area of rural water supply improvements is therefore foreseen as the replacement of unsatisfactory hand dug wells. There are a number of options, the most appropriate being dependent on local conditions and size of settlement, including, in order of priority: 1. Relocation of shallow wells. 2. Development of boreholes, using water from deeper aquifers of satisfactory water quality, and the use of simple distribution systems. 3. In a number of areas of Moldova both shallow and deep aquifers have unsatisfactory water quality. In these cases it is proposed to provide communities with small treatment plants, where consumers may collect a basic level of about 5 lcd of drinking water. The untreated water from shallow wells is usually suitable for washing and laundry water, which constitutes the main quantity of household water demand. 4. Where these methods are not possible (or uneconomic), the development of surface water sources, with full treatment, will have a role. However, due to economic considerations, this is unlikely to be significant in rural areas.

The estimated existing and baseline assumptions for 2015 are indicated in Table 7.

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4.5 Rural sanitation

The existing and projected assumptions for baseline technologies for rural sanitation in Moldova are listed below, which assume that sewerage and sewage treatment in rural areas will not be prioritised in the near future

Table 4.6: Existing and baseline technologies for Rural Sanitation Rural Water Supply Technology Existing Baseline for 2015 Not improved 10 0 Simple pit latrine 40 30 Improved pit latrine 40 60 Septic tanks 10 10 Source: Consultant’s estimates

“Not improved” is any system which does not provide adequate protection from the spread of pollution from excreta. With growing awareness of the method of transmittal of diseases, it is expected that these practices will virtually disappear.

A simple pit latrine, if kept clean, can provide a safe method of waste disposal. Nevertheless it is expected over time, with better awareness of environmental health, that many of these will be improved.

Households with house connections to water supplies will have too much wastewater to be accommodated in pit latrines, and require some other form of wastewater disposal. The use of septic tanks and soak-away trenches is the first level of technology above the pit latrine. They provide a simple primary level of treatment with settlement and anaerobic digestion. The digested sludge however needs to be removed on a regular basis to ensure the system works properly and the soakaway system does not become blocked.

The baseline assumptions of “modest improvement” to the rural sanitation infrastructure, are that the use of “not improved” and “simple latrines” will decline in favour of “improved latrines”, as indicated in Table 8.

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5 Projected Baseline Expenditure

5.1 Expenditure

The total annual expenditure of the baseline scenario is indicated in Figure 5.1.

Figure 5.1 Total annual expenditure of baseline scenario

Total expenditure by sector (Lei x 1000)

1,800,000

1,600,000

1,400,000

1,200,000

1,000,000 WW Sum 800,000 WS Sum

600,000

400,000

200,000

0

Expenditure by sector The majority of expenditure is on water supply (61%) and only 39% on sanitation

Figure 5.2 Expenditure by sector

WS WW

Reinvestment costs represent the highest total component of expenditure at 45% of the total. This is followed by operation and maintenance costs at Expenditure by type of expenditure 39%, then renovations at 12% and extension at 4%, as indicated in Figure 5.3

O&M Figure 6.3 Distribution of expenditure by Reinvestment Renovations type of expenditure Extensions

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Expenditure by size of settlement is Expenditure by size of settlement dominated by Chisinau (57%) followed by the towns below 20,000 population (22%) the medium sized towns (20,000 to 50,000) Capital/metropol area

(10%), Balti at 8% and a relatively small Large municipalities proportion on rural infrastructure Medium municipalities

Rural areas/villages Figure 5.4 Expenditure by size of Small municipalities settlement.

5.1.1 Operation and maintenance costs

The model estimates operation and maintenance costs to start at around Lei 500 million per year, and to stabilise to just below Lei 400 million after the impact of improvements in efficiencies and reductions in losses. Total savings due to these improvements are approximately Lei 100 million per year. There is a small increase in O&M costs due to the extensions, but as these extensions are verry modest, this increase is not significant. Total O&M costs (Lei x 1000) Figure 5.5 Total operating costs 600,000

500,000

These figures can be compared 400,000 with the current operating costs, WW Sum 300,000 which are around Lei 300 million WS Sum (EURO 18 million). There are a 200,000 number of possible reasons for 100,000 the difference: 0

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 • Current constraints to financing of operations and maintenance • Significant interruptions in supply leading to lower energy and chemical costs • Plant and equipment not operating, leading to lower energy, chemical and staffing costs • Maintenance is not appropriate and hence at lower cost • Over estimate by the model

It was expected that current financial constraints on the Apa Canals, interruptions to supply, and non-operating equipment will all result in significantly lower actual operational expenditure than would be desirable. Although the gap is possibly more than expected, it is plausible, considering the constraints under which these systems are currently managed.

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5.1.2 Re-investment costs

The annual reinvestment (or replacement) costs are a function of the infrastructure replacement value and age. The estimated re-investment costs to maintain the infrastructure at its current level is about Lei 500 million. There is a decrease in reinvestment costs during the renovation programme, since the renovations will reduce the overall age of the infrastructure, but the overall trend is upwards, which reflects the gradual increase in replacement value over time, due to increased extensions, back to a value of approximately Lei 500 million per annum by 2026,

Figure 5.6 Annual Sector Re-investments (lei x 1000)

reinvestment costs by sector 600,000

500,000

400,000 The costs are based on an WW Sum 300,000 average life of 50 years for WS Sum 200,000 pipelines and civil works and 20 years for plant and 100,000 machinery. These costs are 0 not currently included in 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 operational budgets, which is why the general condition of the systems has been deteriorating. It should be stressed that this level of investment is aimed at halting further deterioration, rather than improving serviceability levels. Nevertheless, by targeting replacement of those components in worst condition, some marginal improvement should result. It should also be stressed that, if this level of investment is not made in the future, the systems in Moldova will continue to deteriorate to the extent that they will cease to operate at all. In other words, a “do nothing” approach is not an option.

5.1.3 Renovations

The renovation programme is designed to replace the worst parts of the networks and the most inefficient plant and equipment to bring a portion of the water and wastewater infrastructure back to the operating condition it was in when first built.

Figure 5.7 Renovation costs Sector Renovations (Lei x 1000)

450,000 The costs shown in Figure 5.7 400,000 of approximately Lei 400 million 350,000 300,000 for seven years, are at a level to 250,000 WW Sum renovate approximately 25% of 200,000 WS Sum 150,000 the infrastructure over the 100,000 period 2008 to 2015. This level 50,000 of renovation should be 0 sufficient to remove 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 infrastructure in the poorest condition, increase efficiencies and reduce losses. Thereby improving the overall service levels to consumers. The level of investment in renovation is discretionary, and is dependent on the level of service improvement required, and/or the level of finance available. It does not however include any extension of services to population not already connected.

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5.1.4 Service extensions

Cost estimates have been prepared to reduce the inequalities of towns with the lowest connection rates, and to increase the percent of people connected in towns up to the minimum levels suggested in Chapter 4.

The estimated cost of Lei 120 million per year over the 7 year programme is again discretionary, and is dependent on the level of coverage required and / or the level of finance available.

Sector extensions (Lei x 1000)

140,000 Figure 5.8 Cost of Service 120,000 Extensions 100,000 80,000 WW Sum 60,000 WS Sum 40,000 20,000 0

2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

5.2 Unit costs

The average long-term unit cost of water and wastewater, which is a useful indicator to the required average long-term tariff for water in present value terms, varies considerably form town to town, with some very high figures due to low connection rates. The costs tend to increase with decreasing size of settlement. A breakdown of the average incremental costs resulting from the baseline scenario is given below:

Table 5.1 Average incremental costs of water and wastewater by settlement size and component.

Category Average long-term costs Lei/m3 O&M Re- Renova- Exten- Total invest tion sion Capital (Chisnau) 7 7 2 0 16 Large municipality (Balti) 9 11 6 1 27 Medium municipalities 9 11 5 6 34 Small municipalities 17 21 12 5 40 Average 8 9 3 1 22

Table 5.2 Average incremental costs of water and wastewater by sector Category Average long-term costs Lei/m3 Water Wastewater Total Capital (Chisnau) 10 5 16 Large municipality (Balti) 14 13 27 Medium municipalities 17 17 34 Small municipalities 27 21 40 Average 13 8 22

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6 Financing of Baseline Scenario

6.1 Introduction

This section of the report examines the scope for financing the proposed baseline scenario, which comprises investments in improved operations and maintenance practices, reinvestments, renovation and modest service extensions to arrest the decline in the integrity of the existing water supply and wastewater infrastructure and undertake basic improvements in services.

There are three basic mechanisms at the disposal of the Government to finance the proposed investments. These include:

• User charges for supply of water and wastewater services • Public budget support for icapital investments and operations • External donor contributions for capital investments

There are other mechanisms such as the existing Environmental Fund which presently contributes mainly to improvements in rural water supplies. However, the resources available for such purposes are very modest in comparison with the magnitude of requirements. This section focuses on assessing the potential for financing the resources needed over the medium to long term from each of the main mechanisms currently used for financing the requirements of the sector.

6.2 Financing Requirement

Total annual financing requirements for the baseline scenario for rehabilitation and improvements of water supply and wastewater sectors are shown in Figure 6.1. The total expenditures over the period are estimated to be Lei 22.7 billion (€ 1.4 billion). The costs are projected in real terms in 2006 prices, which means there is no allowance for price escalation. Including price escalation at the prevailing rate of 10% per annum over the long term would have produced fairly meaningless expenditure profile.

Figure 6.1 Total Annual Financing Requirements for Baseline Scenario

1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0

20 011 200620072008200920102 2012201320142015201620172018201920 202120222023202420252026

Water Supply Wastewater

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6.3 User Charges

The most fundamental mechanism for recovering the costs of water and sanitation services are the user charges levied on direct beneficiary of services. In an ideal situation, the tariffs levied on consumers should fully recover the economic cost of services generating sufficient revenues for service providers to undertake all necessary maintenance and capital investments to improve service levels and maintain the integrity of existing assets. However, this has rarely been achieved in the economies in transition. There are numerous factors that have contributed to tariffs levels remaining well blow the cost recovery levels. The key consideration has been low levels of household incomes and concern that domestic consumers could not afford to pay for cost recovery tariffs. The other major influence at work has been “politicising of tariffs” by local government officials that have often linked tariffs for water and wastewater services to their political campaigns offering to keep tariffs at low levels. The only groups of consumers not to usually find favour with decision makers are commercial and industrial enterprises that are often penalised by prohibitive tariff levels, usually 3 to 4 times higher than domestic tariffs. There is a general misconception that somehow profit making enterprises can sustain very high tariff levels without detrimental impact on their productivity and competitiveness. The prevailing situation in Moldova is no exception to the general trends in other transition economies.

6.3.1 Income Levels

The distribution of average monthly disposable household income per capita for both rural and urban areas of Moldova in 2005 is shown in Table 6.1. According to the definition of the Bureau of National Statistics, the disposable income represents monetary income as well as income obtained from subsistence activities and transfers from other members of the family.

Table 6.1 Distribution of Monthly Household Disposable Income Per Capita

Income Brackets Urban Areas Rural Areas (Lei per capita per month) % %

Up to 100 1.9 6.7 101 – 200 4.1 16.1 201 – 300 7.3 18.3 301 – 400 11.1 13.8 401 – 500 14.2 12.8 501 – 600 12.4 10.3 601 – 700 8.3 7.3 701 – 800 7.6 3.6 801 – 900 6.1 2.8 901 and over 27.0 8.4

Source: Bureau of National Statistics

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Figure 6.2 Distribution of Monthly Household Income Per Capita

The distribution of urban income is skewed by a 30.0% relatively large proportion of 25.0% households in the top income 20.0% bracket. There doesn’t seem to 15.0% be very much divergence 10.0% between the rural and urban 5.0% incomes in the upper income 0.0% brackets where the rural 50 150 250 350 450 550 650 750 850 950 incomes closely track urban Urban Areas Rural A reas incomes except for the top income bracket However, overall differences in the lower income and the top income brackets are very significant as shown in the figure above. Table 6.1 illustrates these differences between rural and urban income more starkly.

Table 6.2 Variations in Disposable Monthly Household Income Per Capita

Income Categories Share of Population Difference in % points Urban Rural Below 300 Lei 13.3% 41.1% 27.8% Between 300 and 800 Lei 53.6% 47.8% 5.8% Above 800 Lei 33.1% 11.1% 22.0%

6.3.2 Tariff Levels and Consumer Affordability

Affordability threshold is defined as a maximum share of income that households should have to spend on adequate water supply and wastewater services. Majority of international financing institutions and EU agencies adopt affordability criteria which recommend that household expenditure on water and wastewater services should not exceed 5% to 6% of its monthly income.

An analysis is undertaken to determine the present consumer affordability levels for the urban water supply and wastewater systems in the country. The current level of per capita expenditure on water and wastewater services is estimated using the average domestic tariffs for each district multiplied by the average per capita consumption. The table below summarises the key input parameters and the results of the analysis.

It is shown that the combined domestic water and sanitation tariffs for the individual districts range from 5 Lei/m3 to over 25 Lei/m3. In some of the districts the expenditure for water and wastewater is very low due to inadequate and unreliable supplies.

The results highlight that on the basis of these estimates, the current levels of expenditures on water and waste services are well below the affordability thresholds commonly used to set tariffs. With the notable exception of three systems, which show expenditures for water and wastewater to be at the affordability threshold of

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5% to 6% of monthly income, the expenditure levels in the remaining areas account for less than 3% of monthly per capita income in most cases. However, it should be noted wherever the tariffs are very high such as in Comrat, Drochia, Riscani and Telenesti, the supplies appear to be restricted depressing the average consumption and thereby reducing consumer expenditure to well below affordability threshold. The other factor at work is that increased consumer metering has also contributed to better demand management by consumers themselves.

Table 6.3 Summary Results of Current Affordability Analysis

Average Average per capita per capita Average % of income % of income % of income District water Sanitation Monthly Monthly monthly for water for WW for Tariff Rariff cost WS cost WW District WS & WW Lei/m3 Lei/m3 Lei/cap/month Lei/cap/month Income Lei Chisnau 4.13 1.35 17.5 5.7 829 2.1% 0.7% 2.8% Balti 5.56 2.14 8.2 3.1 701 1.2% 0.4% 1.6% Cahul 8.99 4.64 15.3 7.9 462 3.3% 1.7% 5.0% Soroca 5.37 8.39 3.0 4.6 438 0.7% 1.1% 1.7% Ungheni 2.55 7.43 5.3 15.5 477 1.1% 3.3% 4.4% Edinet 9.13 7.24 5.0 4.0 445 1.1% 0.9% 2.0% Orhei 8.60 8.19 10.6 10.1 504 2.1% 2.0% 4.1% Comrat 7.46 15.21 7.7 15.8 445 1.7% 3.5% 5.3% Ceadir-Lunge 6.77 6.46 6.1 5.8 445 1.4% 1.3% 2.7% Straseni 6.00 6.10 1.0 1.0 491 0.2% 0.2% 0.4% Causeni 6.31 7.46 4.7 5.5 406 1.1% 1.4% 2.5% Drochia 14.32 11.24 7.3 5.7 551 1.3% 1.0% 2.4% Vulcanesti 5.07 1.5 - 445 0.3% 0.0% 0.3% Hincesti 8.33 7.61 5.4 4.9 387 1.4% 1.3% 2.7% Floresti 6.25 6.86 5.0 5.5 502 1.0% 1.1% 2.1% Falesti 10.23 3.75 6.2 2.3 404 1.5% 0.6% 2.1% Calarasi 7.69 7.51 4.3 4.2 472 0.9% 0.9% 1.8% Taraclia 4.65 7.87 3.3 5.5 435 0.7% 1.3% 2.0% Rezina 8.66 8.89 10.0 10.2 545 1.8% 1.9% 3.7% Singerei 5.38 5.59 5.4 5.6 374 1.4% 1.5% 2.9% Nisporeni 10.82 5.45 1.2 0.6 398 0.3% 0.2% 0.5% Basarabeasca 4.32 4.51 7.0 7.3 664 1.1% 1.1% 2.1% Riscani 13.35 13.17 3.8 3.8 358 1.1% 1.1% 2.1% Glodeni 7.47 8.20 2.6 2.9 401 0.6% 0.7% 1.4% Leova 6.30 7.07 4.2 4.7 353 1.2% 1.3% 2.5% Cricova 3.57 5.16 5.2 7.5 829 0.6% 0.9% 1.5% Donsuaeni 10.00 6.35 3.1 1.9 466 0.7% 0.4% 1.1% Stauceni 3.30 1.29 4.3 1.7 829 0.5% 0.2% 0.7% Bricani 10.32 8.57 5.1 4.2 357 1.4% 1.2% 2.6% Anenii Noi 5.41 11.76 9.3 20.3 515 1.8% 3.9% 5.8% Stefan Voda 5.59 10.89 2.3 4.5 358 0.6% 1.3% 1.9% Criuleni 6.39 6.93 6.3 6.8 422 1.5% 1.6% 3.1% Telenesti 10.04 15.35 4.0 6.1 337 1.2% 1.8% 3.0% Cojusna 3.00 10.05 - - 829 0.0% Soldanesti 6.01 1.2 - 345 0.3% 0.0% 0.3% Ciorescu 4.25 2.09 6.7 3.3 - Lipcani 5.89 8.18 2.1 2.9 - Cantemir 6.36 2.53 2.7 1.1 413 0.7% 0.3% 0.9% Cainari 3.59 3.24 - - - Floreni 4.55 2.66 5.0 2.9 -

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Figure 6.3 Combined Water and Sanitation Tariffs (Lei/m3)

30.00 25.00 20.00 Sanitation 15.00 Water 10.00 5.00 -

The relatively high levels of tariffs in some districts generally reflect the high costs of operating these systems. Figure 6.3 also demonstrates the economies of scale associated with systems in the larger cities of Chisinau and Bati by the comparatively low tariff levels. However, other factors may also be at work in suppressing the tariff increases in these cities. Figure 6.4 Average Domestic Tariffs by Size of Settlement

The figure reinforces the earlier Average water and sanitation tariffs by size of observation regarding the settlement economies of scale. It shows a strong correlation between systems serving smaller population levy higher tariffs for 18 . 4 water and wastewater services. 16 . 4 14 . 4 The exceptions are very small Sanitation 12 . 4 systems where lower tariffs Water may also reflect lower service 10 . 4 8.4 levels. m3 per Lei 6.4

4.4 2.4

0.4 >200,000 50,000 - 20,000- 5,000 - 0 - 5,000 Average 200,000 50 ,0 00 20,000

Figure 6.5 Average Per Capita Expenditure on Water and Sanitation

The figure shows that lower tariffs in the larger urban Average expenditure on water and sanitation by size of settlement concentrations do not result in lower levels of expenditure due

to the higher consumption 5.00% rates. Consequently, while lower tariffs encourage 4.00% increased consumption, the Sanit ation 3.00% consumers are still able to Wat er manage demand by keeping expenditures within affordable 2.00%

limits. This is supported by the 1. 0 0 % historical trend of substantial 0.00%

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fall in average consumption in cities such as Chisinau coupled with widespread consumer metering

6.3.3 Projections for Future User Charges

It is the stated policy of the Government that user charges should be gradually increased to levels of full cost recovery, which would enable service providers to effectively maintain water and wastewater systems and undertake improvements to increase service levels and efficiency. However, this only forms a policy guideline. Under the decentralised system the final responsibility for operations and maintenance of systems and decisions concerning tariff levels rests with local government establishments. The proposal to establish an independent regulator for the water sector would help to take it out of the political forum. The regulator would be able to protect the interest of both service providers and consumers and contribute to gradual improvements in water and wastewater services.

6.3.4 Projected Revenues from User Charges

The Feasible Model performs the task of projecting revenues from user charges based on maximum affordable tariffs for each system. The maximum affordability is assumed to be 3% for water supply and 3% for wastewater services of the disposable per capita income. Relatively high affordability thresholds reflect the urgent need to arrest the deterioration in water and wastewater infrastructure and contribute towards some element of cost recovery. Information concerning distribution of different income categories, projected consumption levels and assumptions concerning collection ratios for each system which are inputs to the Model. The Feasible Model manipulates this information to project the revenues.

The total annual projected revenues from user charges for water supply and wastewater services for all systems are shown in Figure 6.6. The figures for 2006 are actual revenues collected. The projections are based on constant 2006 prices to be consistent with the assumptions for the projected expenditures for the baseline scenario.

Figure 6.6 Projected Revenues from User Charges (Lei ‘000)

700,000 600,000 500,000 400,000 300,000 200,000 100,000 0

0 6 06 08 09 11 12 14 15 16 17 18 21 23 24 010 025 20 200720 20 2 20 20 201320 20 20 20 20 2019202 20 202220 20 2 202

Water Supply Wastewater

The projected revenues increase until the user charges reach the affordability threshold and remain constant for the remaining period. This results from the

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assumption that the real incomes remain constant over the period of the analysis. The alternative would have been to make some arbitrary assumptions about annual increases in real income in the long term, which would have to be matched by equally arbitrary assumption about real increases in costs of operations and maintenance and capital investments. It is considered that the assumptions of constant prices and incomes reduces the risk of wide divergences in the key parameters and adds to the robustness of the analysis.

The contribution of user charges is estimated to generate revenues of Lei 7.1 billion from water supplies and Lei 4.5 billion from wastewater services in constant 2006 prices over the 20 year period. However, the total revenues of Lei 11.6 billion are far short of the total expenditure of Lei 22.7 billion over the period.

6.4 National Public Budget Support

One of the measures used by the Government for improvements in the water supply and wastewater sectors is to provide funds from the national budget for capital investments. For most utilities this has been the main source of finance for capital investments. To assess the scope for the Government to continue to provide this support over the long term a brief summary of macroeconomic background is also given.

6.4.1 Recent Macroeconomic Trends

The economic trends for Moldova over the three year period from 2003 to 2005 show continued macroeconomic stability and sustained growth in GDP together with reduction in the level of inflation and relative stability of national currency exchange rate against the key currencies. Over this period the trends demonstrate:

• GDP increased by 7% annually in real terms • Annual rate of inflation declined from 15.7% in 2003 to 10% in 2005 • Average annual exchange rate appreciated by 9% averaging Lei 12.6 to 1 US $ in 2005.

Industrial output increased by 6% per annum over this period while production in agricultural sector remained stagnant. The share of the services sector increased to about 54% of GDP, driven largely by increases in purchasing power of the population as result of increased economic activity and growing remittances from overseas. The exports of goods and services increased by 44% between 2003 and 2005 but imports also increased by 58% creating a trade balance deficit of US $ 1,211 million or about 41% of GDP. However, transfers from overseas covered 76% of the trade balance deficit.

According to the forecasts of the Medium Term Expenditure Framework (MTEF) for 2007 to 2009, the real GDP is projected to increase by 6% annually driven by growth in service sectors and industrial production. Inflation is forecast to continue to fall to 7% by 2009 and the exchange is expected to remain stable. The monthly average salary is projected to increase by 12% annually to Lei 2,860 in 2009.

6.4.2 Public Revenues and Expenditures

Table 6.4 summaries the selected statistics from the MTEF and highlights recent trends in national public budget support for the water and wastewater sectors. Public revenues increased by an average of 30% annually between 2003 and 2005. Their share in the GDP also increased from 34.1% to 39.5 over this period. The

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increases in revenues resulted largely from tax revenues which grew from 27.3% of GDP in 2003 to 39.5% by 2005 helped by strong economic growth, increases in foreign trade and rapid rise in the level of wages. Measures to improve tax compliance specifically for indirect taxes, local fees and duties, have also had a significant impact.

Helped by the increases in public revenues, the public expenditure has also increased rapidly by over 23% per annum between 2003 and 2005. Social expenditure, which includes education, health and social care took up majority of it accounting for over 60% of the overall expenditure during this period. The proportion taken up by economic expenditure increased from 10% in 2003 to 13.5% in 2005. The share going to Utilities and Housing Services increased from 3.7% to 4.7% over this period. Expenditure on capital investments on water supply and sanitation sectors increased from Lei 4 million in 2003 to Lei 33 million in 2005, which represented a modest 0.2% of total overall expenditure in that year.

Table 6.4 Selected Statistics from MTEF (Lei million)

Actual Planned

2003 2004 2005 2006 2007 2008 2009

Overall Revenues 9,417 11,322 14,528 16,105 19,232 21,278 23,970 Overall Expenditures of which: 9,147 11,252 13,949 16,479 19,478 21,557 23,874

Social Expenditure 5,709 7,035 8,828 10,472 12,012 13440 14741 Economic Expenditure of which: 999 1,346 1,964 2,049 2,286 2,070 1,994 Utilities and Housing Services of which: 353 523 693 732 783 642 634 Water Supply and Sanitation 4 13 33 86 33 NA NA

Source: Ministry of Finance

MTEF projects that during 2007 to 2009 the public revenue will increase at an average annual rate of 14.9% to Lei 24 billion. Tax revenue will remain the main source of public revenues increasing from 86% of the total revenue in 2006 to 90% in 2009. Projected growth in GDP and increases in imports are expected to lead to a significant increase in indirect taxes.

The forecast shows that the Social Expenditure will continue to maintain its share of the total overall expenditure at around 62% throughout this period. However, the proportions allocated to Economic Expenditure and Utilities and Housing Services are forecast to decline over this period. The details for expenditures allocated to water and sanitation are not available for 2008 and 2009.

6.4.3 Projected National Public Budget Support

It should be noted MTEF is a rolling three year financial forecast, which sets out general fiscal characteristics and a strategic framework for the development of National Public Budget for the medium term. The provisions for allocation of expenditures can change significantly on annual basis to reflect changes in national priorities. This has been the case in recent years when the Government had to

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address the difficulties in energy sector by reallocating significant resources to improve efficiency of energy supplies in the country.

In a recent policy statement the Government stated the need to address the deteriorating status of the water and sanitation sectors by shifting the allocation of resources towards the programmes with greater impact on economic growth and poverty alleviation. Investments for improvements in water supply and sanitation services would comply with both of these objectives.

The Feasible Model calculates the financing gap and shows the resources needed to finance the Baseline Scenario. To assess public budget support, the Feasible Model requires a wide range of assumptions and data input for regional GDPs, proportion of public revenues, levels of capital expenditure for each region and assumptions concerning proportion of expenditures that should be allocated in each year for capital investments and operating needs. However, the whole exercise is based on assumptions about the proportion of expenditure the public budgets could support in each region in each year over the next 20 years. On the basis of the overriding assumption that the Government would give high priority to the water and sanitation sectors, the projected national public budget support is shown in Figure 6.7.

Figure 6.7 Projected National Budget Support

600,000 500,000 400,000 300,000 200,000 100,000 0

7 5 08 12 1 20 2 2006200720 20092010201120 201320142015201620 2018201920 202120222023202420 2026

Water Supply Wastewater

The projected national public budget support totals Lei 4.0 billion and Lei 2.1 billion for water supply and wastewater respectively over the 20 year period. The figure for 2006 is the planned expenditure. The annual budget support reflects the expenditure pattern and the remaining financing gap after the projected revenues from user charges are taken into consideration. The total contributions of user charges at Lie 11.6 billion and public budget support at Lei 6.2 billion still leave a financing gap of Lie 4.9 billion to be provided by other sources.

In comparison with actual support in recent years, the projected national budget support is very substantial. In 2007 and 2008 it accounts for 1.7% of the overall public expenditure compared with the planned expenditure of just 0.5% in 2006. In 2009 it would increase to around 2.2% and gradually decline as a proportion of total overall expenditure between 2010 and 2015 and reducing considerably after 2016 as the expenditure requirements for the baseline scenario are reduced.

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The projected increases in budget support are very large but the starting base is insignificant as the budget contribution over the last few years has been very modest. It is difficult to envisage any other alternative available to Government but to commit increasing proportion of national public budget if it wishes to address the problems of water and wastewater sectors.

6.5 External Funding Sources

The external funding sources for Moldova comprise grants from international donors and loans from international financing institutions (IFIs). The recent trends in donor and IFIs support show there has been a sharp increase in the level of grants provided by donors both for budget support and for funding on going projects.

Table 6.5 External Donor and IFI Financing

Actual Forecast

2003 2004 2005 2006 2007 2008 2009 Total 411 404 787 738 947 490 243

Grants 73 125 460 241 309 138 66 Loans 338 279 327 497 638 351 177 Budget Support 1 19 283 18 121 0 0

Grants 1 19 283 18 121 0 0 Loans 0 0 0 0 0 0 0 Project Assistance 410 385 504 720 826 409 243

Grants 72 106 177 223 188 138 66 Loans 338 279 327 497 638 351 177

Source: Ministry of Finance

Between 2003 and 2005, the Government received a total Lei 1,602 million (approximately € 100 million) in grants and external loans. Of this total, 41% were grants and the remaining 59% were loans for financing capital investments for projects.

It is forecast that the Government would benefit from total external grants and loans of Lei 2,418 million (€ 147 million) during the period 2006–09. The grant component is expected to decline to 31% of the total external financing while the loans are expected to increase to 69%. Grants for budget support are expected to decline and cease altogether after 2007 and all external financing would be used for project assistance.

The ratio of state debt repayments to state budget tax revenues is projected to decline from 17% in 2006 to 11% in 2009.

The forecast for grants and external loans may change following the signing of the Memorandum on Economic and Financial Policies between the Government and the International Monetary Fund (IMF). It is anticipated this will lead to increased financing from external sources.

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Table 6.6 shows a cross country comparison for external development financing in 2005. In terms of countries of similar size, the contribution of external financing is relatively modest for Moldova. However, with the exception of Ukraine and Kazakhstan all other countries were members of EU or had a pre-accession status and benefited substantially from EU structural or cohesion funds. Nevertheless, Moldova compares favourably with non EU countries like Ukraine and Kazakhstan in terms external financing on per capita basis.

Table 6.6 Cross Country Comparison for External Financing

Indicators Moldova Ukraine Lithuania Latvia Bulgaria Romania Poland Kazakhstan

Population, total (million) 3.4 47.5 3.4 2.3 7.8 21.7 38.2 15.0

development assistance and official aid 65 360.1 252.2 164.6 622.4 915.7 1501 0 265.0 (current dollars) (million) development assistance and official aid 19.1 7.6 74.2 71.6 79.8 42.2 39.3 17.7 per capita (current dollars) Source: World Bank

6.5.1 External Financing for Water and Sanitation

The contribution of external donor to support the water and sanitation sectors has been relatively modest. Swiss Cooperation Bureau has given a grant of US $ 2.3 million in 2006 for water supply improvements in six towns. Turkey has also committed grant funds for water supply improvements but the size of the grant will not be known until technical studies are completed. It is understood that Japanese International Cooperation Agency is also expected to make a grant contribution in the near future for water supply and sanitation projects.

The World Bank agreed in 2003 to provide an IDA loan of US $ 12 million for financing a pilot project for water and sanitation. The project objectives are rehabilitation of water supplies in five towns and strengthening of water utilities operations. The Kuwait Fund has also been active in Moldova. In 2004 it signed an agreement to provide a loan of approximately US $ 6.5 million for water supply and sanitation improvements in six towns. The Government has also signed a Collaboration Agreement with the European Investment Bank for future support for water supply and sanitation sectors. EBRD has been active in water supply and sanitation projects in the past.

On the whole the involvement of external donors and particularly bilateral donors, who could provide much needed grant funds for the sectors, has been fairly insignificant.

6.5.2 Projected External Financing Needs

It would be difficult to make meaningful assumption about how future external funding may be subdivided into loans and grants. Projected external financing is

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therefore treated as one category and Figure 6.8 shows the projected annual external financing needs to make up the remaining financing gap.

Figure 6.8 Projected External Financing Needs (Lei ‘000)

600,000 500,000 400,000 300,000 200,000 100,000 -

09 10 11 12 21 22 23 24 0 0 200720082 2 20 20 2013201420152016201720182019202020 20 20 20 20252026

External Financing

The projections show relatively large contribution by external donors and IFI’s to meet the needs of the water and wastewater sectors and make up the financing gap left after the revenues from user charges and support from the national public budgets are taken into account. On the basis of these projections, a total of Lei 4.3 billion (€ 260 million) of external financing is needed over the whole 20 year period, excluding the requirements for 2006. The projected external financing requirements would take up most of the forecast external financing assistance between 2007 and 2009 and a significant proportion until about 2016 to fulfil the expenditure needs of the baseline scenario. Table 6.7 shows the external assistance on per capita basis for the water and wastewater sectors. This is very ambitious in comparison with external financial support for the water and wastewater sectors in recent time. However, the international donors have the capacity to make a substantial contribution provided Moldova is proactive in canvassing their support. This has been amply demonstrated by low income countries in other parts of the world

Table 6.7 Projected External Assistance Per Capita in US $

2007 2008 2009 2010 2011 2012 2013 2014 2015 7.4 6.7 13.6 12.1 10.9 9.6 8.4 7.1 6.0

6.5.3 Other Sources of Financing

There is little scope for attracting funds from the private sector in the short to medium term for investments in water and wastewater infrastructure. There may be prospects for private sector participation in the longer term but the existing infrastructure would need to substantially improved and become more efficient before private sector could be attracted. The prospects of private sector investors undertaking capital investment on the basis of a long term lease arrangement and making a acceptable return on their investments by applying full cost recovery tariffs in not a realistic option in the foreseeable future. There are so called private water and wastewater companies which operate at present but their involvement is limited to management type contracts and does not involve capital outlay.

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6.6 Concluding Remarks

Figure 6.9 summarises the projected revenues from user charges, funds from national budget and financing from external sources. Altogether they cover the financing requirements of the baseline scenario. In assessing the contribution of each source of funding, the following should be noted:

• Projected revenues from user charges levied on the consumers for water supply and wastewater services cover 52% of the total requirements over the 20 year period. The user charges are projected to reach the affordability threshold by 2015. This implies that 6% of average household disposable per capita income would be taken up by expenditures on water and wastewater services by that year. Analysis shows that a large proportion of consumers currently spend on average around 3% of their income on water and wastewater services. One alternative would be to assume that the user charges could be increases rapidly to reach affordability threshold much sooner. However, this may be resisted both by consumers and those responsible for implementing tariff increases at local government level.

• National public budget support is projected to increase significantly over the first few years from about 0.5% of the overall budget expenditure at present to around 2.2% by 2010 and gradually decline until 2015, and more rapidly thereafter. It would account for 28% of the total financing requirements over the period In the absence of this magnitude of commitment from the public budget, the remaining financing gap would be too substantial for the external donors to mange.

• Financing of water and wastewater sectors from external donors and IFI’s has been modest. The projected financing from external sources would take up most of the forecast external financing assistance between 2007 and 2009 and a significant proportion until about 2016 to fulfil the expenditure needs of the baseline scenario. It would contribute to 22% of the total financing requirements In absence of any other viable financing source, there is no other option but to channel most of external financing into the water supply and wastewater sectors. More external financing could be harnessed following the signing of the Memorandum on Economic and Financial Policies between the Government and the IMF. There is also a significant scope for increasing the contribution of grant funding by more effective coordination of donors and a clearly defined strategy for attracting funding.

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Figure 6.9 Summary of Financing Sources for Baseline Scenario (Lei ‘000)

1,800,000 1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0

9 6 06 0 17 20 23 25 2 0 0 20 2007200820 20102011201220132014201520162 2018201920 2021202220 20242 20

User Charges Budget Support External Finance

If it is considered that the direct beneficiaries should carry the burden of all rehabilitation and improvements of water supply and wastewater services, the analysis show that the long term average incremental costs for the whole baseline scenario is Lei 23 / m3 in present value terms. This implies that if this level of average tariff was applied throughout the country for water and wastewater in real terms over the next 20 years, it would fully recover costs of the baseline scenario. However, if full costs recovery tariffs were applied to individual systems they would range from Lei 30 to 60 per m3 for water supply and wastewater services. These levels of charges would far exceed the willingness and the ability of the majority of the consumers to pay.

It should be emphasised that the baseline scenario in essence represents a fairly minimum intervention needed to address the requirements of the water and wastewater sectors. Nevertheless, it needs challenging initiatives to finance the requirements. The projections shown here for increases in user charge revenues, public budget support, and external financing are substantially greater then achieved before.

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7 Development Scenarios

7.1 Policy considerations

There are a number of policies, which are not options, but changes that are required to improve the operating environment within the water and wastewater sectors in Moldova upon which any financial strategy will depend. These include:

1. Full cost recovery from user charges: Although probably not realistic in the short- term, this should be a medium to long-term target. In order of priority, using the baseline figures as indicative levels, the user charges should recover: a. Full operation and maintenance costs, (Approximately 1.3 x current average tariff). b. Re-investment costs to halt further deterioration of the infrastructure (O&M + Reinvestment costs = approximately 2.8 x current average tariff). c. Renovation costs, to improve service levels, (O&M + Reinvestment + Renovation costs = approximately 3.2 x current average tariff) d. Service extension costs, to extend services to people not currently connected (a+b+c+d = approximately 3.4 x current average tariff) 2. Tariff regulation: Full cost recovery can only be achieved if the water utilities are able to increase their tariffs to recover their costs. To avoid undue political interference in this process, it has been proposed9, that the authority for approving tariffs should be shifted from the municipal councils to a national regulatory agency. We strongly support this view. 3. Removal of inequalities: The cost of infrastructure in some communities, due to their physical location and their necessary high pumping, treatment costs, or long supply pipelines, will always be higher than others, and a full cost recovery tariff will remain unaffordable to the population. One method of addressing this problem is to have regionally managed operations with a uniform regional tariff. For example: Under the baseline scenario it was estimated that a number of individual municipalities would have to raise their tariffs to over 50 Lei/m3 (EUR 3/m3) to obtain full cost recover for water and wastewater, a tariff which is evidently not affordable. On the other hand, if a uniform tariff were set across the whole country, a tariff of 23 Lei/m3 (EUR 1.4/m3) would result in an internal rate of return of 8%. Consideration of regionalisation options for the management of water and wastewater infrastructure would appear to be indicated. 4. Management: Decentralisation has left many municipalities unprepared for the management, operation and maintenance of the infrastructure for which it is now responsible. Consideration of regional operating companies, as suggested in (3) above, could help solve both the financial and human resource constraints that many of the smaller settlements experience. 5. The current policy of metering consumers should be strengthened by introduction of tighter controls on meter standards, meter reading and quality controls. 6. International finance: The limited financial resources available to the Government means that any significant improvement programme for water and wastewater infrastructure will have to rely on international finance. To make this possible, institutional arrangements for implementing internationally financed

9 Urban Water and Sanitation Sectors Strategy Note, January 2007, World Bank

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projects will need to be changed and strengthened to implement projects in accordance with internationally accepted practice and procedures.

7.2 Development options

Following submission of this report it is intended to hold a Steering Committee meeting with major stakeholders to discuss possible alternative development scenarios. The objective being to agree on a number of scenarios to be examined in the next phase of this project, the results of which will be compared to availability of finance so that a realistic and affordable financing policy for the sector can be developed. The following sections discuss various components of expenditure, and raises issues on which guidance is sought from the Steering Committee.

7.2.1 Operation and maintenance

The recovery of about 60% of projected operating and maintenance costs represents the current situation in Moldova. However, even recovery of full O&M costs is below the minimum financing level required to halt further deterioration of the country’s infrastructure assets. The recovery of operations and maintenance costs is therefore seen as the first essential component of all scenarios likely to be considered, and no alternative scenarios for operation and maintenance costs are foreseen, other than the changes which will automatically result from different levels of renovation and service level improvements.

7.2.2 Reinvestments

The level of reinvestments adopted for the baseline scenario, are higher than used for a well maintained system in Western Europe where infrastructure is of proven longer economic life. The reason for this is the poor state of the infrastructure in Moldova, due to poor materials and workmanship. The baseline assumption of 50 year economic life of water and wastewater networks is considered optimistic, and the resulting reinvestments are considered a minimum level to halt further deterioration. Any longer period, and hence lower annual budget, would be even more optimistic and therefore more unrealistic. On the other hand, a shorter, (and possibly more technically realistic) assumption of economic life, to say 25 years, would result in doubling the annual costs. However. as there are already affordability constraints, this was also not considered economically realistic for the baseline scenario. Nevertheless, a scenario assuming a shorter life expectancy should possibly be included in one of the alternative scenarios to be undertaken in the next phase of the project.

An operating budget that includes both operation and maintenance costs and reinvestment costs is the minimum budget that will keep the infrastructure at its current level of operating efficiency. It does not include for renovation costs that would improve the service levels, or extensions. Full cost recovery of a scenario to recover both O&M costs and reinvestment costs, as shown by the model, would require tariff levels of approximately 2.8 times those currently applied in Moldova.

7.2.3 Renovations

Since the capacity of existing infrastructure is greater than existing demand, the current unsatisfactory service levels can be linked directly to the condition of the infrastructure rather than its capacity. Improvement in service levels to existing

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consumers can therefore be linked directly to investment in renovating the existing infrastructure.

The baseline scenario assumed the following objectives:

1. Improved reliability: (replacement of pumps and poorest sections of pipeline) 2. Improve water quality: (as (1) above plus renovation of treatment plants) 3. Reduce energy consumption: (included with (1) above) 4. Renovation to water infrastructure given equal priority to wastewater infrastructure. 5. No priority to settlement size: renovation therefore in proportion to existing replacement value of infrastructure.

As a result, the following baseline levels for renovation were assumed to take place over the period 2008 to 2015:

• 25% of water supply and wastewater collection networks (12.5% for Chisnau) • 50% of pumping equipment (25% for Chisnau) • 25% of treatment plants (12.5% for Chisnau)

These are considered to be minimum levels of investment required to improve efficiencies, reduce losses and energy consumption and improve reliability.

Alternative development scenarios, for which Government and stakeholder guidance is sought include:

• Alternative priorities (health and environmental concerns given greater priority than the baseline priorities, which were chosen on more economic considerations) • Priority given to water or wastewater infrastructure • Priority given to larger or smaller settlement sizes • Level of expenditure: higher or lower than the baseline scenario • Period of expenditure

7.2.4 Service extensions

The service extension objectives of the baseline were to increase connection rates in those towns with lowest service levels up to certain minimum levels, as discussed in Chapter 4.

The Millennium Development Goals, were to halve the proportion of people without improved water and sanitation by the year 2015, and the connection targets were set at 68.5% and 90% respectively. This target has already been exceeded for urban water supplies, but is a long way from being reached for rural supplies. The options to meet these targets are discussed in Section 5.7. In terms of sanitation, the objective of 90% is high, but could be achieved, at least cost, through a National campaign to improve existing on-site sanitation facilities.

In order to develop alternative scenarios during the second phase of this study, guidance is sought on Government policy and priorities in the following areas: • Sector priorities: o Priority between extension of water supply networks and sewerage reticulation systems

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o Water quality o Wastewater treatment • Regional and rural priorities o Are there any particular areas of concern that need to be addressed • Level of investments • Period of investments

7.3 Concluding remarks

It can be seen that the recovery of full operation and maintenance costs can be a realistic short-term target, and that the recovery of re-investment costs could be a medium-term target. Alternative scenarios could consider other views on affordability limits, asset lives and target dates.

In terms of financing requirements for renovations and extensions the baseline scenario, is similar to the Government’s “Program of water supply and sewerage systems of the Republic of Moldova’s settlements till 2015”. Nevertheless, there are significant concerns over whether the required baseline internal funding (increasing from 0.5% to 2.2% of public budget then declining from that level quite rapidly) and external funding (around 4500 million Lei/year) is realistic. The Steering Committee is invited to provide their views on realistic levels of budgetary support and for international financing.

There are a number of dimensions to a financing strategy, upon which guidance is required from Moldovan stakeholders:

Factor Baseline assumtion Options Sector priorities None Water or Wastewater Regional priorities None Administrative area priorities None Catchment priorities Size of settlement Slight preference away Redistribution of investments to from Chisinau different sized settlements Priority to urban or rural areas. Health None Priority to treatment Economics None Priority to efficiency measures Level of budgetary Rising from 0.5% to What is a realistic level of support? support 2.2%, then rapidly What are the higher and lower declining boundaries? Level of international Average 450 million What is a realistic level of support? support Lei per year (2008- What are the higher and lower 2015) boundaries? Period for renovation 2008 – 2015 Longer period to reduce impact and extensions Shorter period will increase impact Affordability 6% of HH income for Lower rate will substantially reduce water and wastewater cost recovery targets Service levels Maintain existing with MDGs /The Government’s Program modest improvement Maintenance of status quo

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Appendix A - MACA Database

Extracts from “Analysis of operational and financial activity of Moldova Apa Canal members Association” for the year 2005 Water Supply

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Extracts from “Analysis of operational and financial activity of Moldova Apa Canal members Association” for the year 2005 Sanitation

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Appendix B - Summary of Rural Infrastructure

Summarised Rural water and wastewater infrastructure data per district 1 Population Population provided with facilities Water delivery, м3/day Total of supplied With pipeline and With pipeline and With centralized With standpipes Localities inhabitant with water, design actual recommended s , people people % people % people % people % % Ochnita 30 41809 0 585 1.4% 0 0.0% 2315 5.5% 5257 12.6% 8686 1640 6999 Falesti 75 85461 0 14623 17.1% 0 0.0% 0 0.0% 0 0.0% 7240 985 13489 Glodeni 34 58679 0 3287 5.6% 1587 2.7% 0 0.0% 8246 14.1% 3433 942 8655 Riscani 54 64972 0 1912 2.9% 803 1.2% 743 1.1% 6837 10.5% 9570 1631 10308 Singerei 70 89673 0 0 0.0% 0 0.0% 0 0.0% 23895 26.6% 14627 3825 13939 Edinet 45 64088 0 11616 18.1% 330 0.5% 290 0.5% 652 1.0% 10090 2110 10317 Bricani 37 58138 0 1785 3.1% 200 0.3% 0 0.0% 0 0.0% 3770 560 8664 Donduseni 29 43002 0 420 1.0% 30 0.1% 1150 2.7% 2765 6.4% 5500 740 7124

Northern districts Drochia 39 69283 0 0 0.0% 0 0.0% 0 0.0% 10781 15.6% 7080 870 10290 Floresti 74 91466 0 2067 2.3% 46 0.1% 370 0.4% 21008 23.0% 18820 5965 14418 Soroca 69 75481 0 64 0.1% 0 0.0% 0 0.0% 8355 11.1% 4005 1195 11285 Ialoveni 35 88321 13.04348 1585 1.8% 1660 1.9% 450 0.5% 15594 17.7% 18070 2520 13359 Cosnita 12 34498 0 515 1.5% 4545 13.2% 800 2.3% 2730 7.9% 12150 2325 5400 Anenii Noi 42 76657 0 2327 3.0% 8267 10.8% 5553 7.2% 27188 35.5% 28300 5310 12855 Criuleni 43 65131 0 8703 13.4% 1272 2.0% 0 0.0% 10914 16.8% 14110 2380 10665 Straseni 38 81351 0 1642 2.0% 0 0.0% 980 1.2% 9781 12.0% 9395 2032 12331 Orhei 74 102841 0 6454 6.3% 6346 6.2% 0 0.0% 28905 28.1% 23930 4970 16610 Rezina 43 50383 0 1288 2.6% 1806 3.6% 0 0.0% 8444 16.8% 7385 925 7863 Telensti 45 67093 0 70 0.1% 3792 5.7% 300 0.4% 28176 42.0% 17320 2415 9926

Central districtsCentral Soldanesti 24 31401 0 300 1.0% 310 1.0% 0 0.0% 1578 5.0% 2745 450 4843 Ungheni 48 42278 24.77477 1110 2.6% 105 0.2% 500 1.2% 5785 13.7% 3695 1292 6976 Niporeni 35 55457 0 7440 13.4% 0 0.0% 0 0.0% 0 0.0% 1873 1320 8599 Calarasi 64 113208 0 900 0.8% 100 0.1% 0 0.0% 15719 13.9% 11275 3170 16941 Chimislia 33 49817 0 943 1.9% 172 0.3% 0 0.0% 18564 37.3% 11638 1750 7871 Cahul 54 90222 0 380 0.4% 3488 3.9% 0 0.0% 38178 42.3% 14393 2857 13954 Cantemir 48 62840 0 0 0.0% 384 0.6% 0 0.0% 11964 19.0% 4934.5 1282.5 9404 Taraclia 25 33014 88.69858 0 0.0% 240 0.7% 0 0.0% 20342 61.6% 7450 3415 5099 Basarabeasca 9 19403 0 950 4.9% 1200 6.2% 5000 25.8% 12177 62.8% 3000 545 3513 Leova 39 51976 0 300 0.6% 2325 4.5% 150 0.3% 10985 21.1% 8595 1420 8907 Hincesti 62 119738 43.07745 900 0.8% 141 0.1% 0 0.0% 26089 21.8% 12327 2857 17645 Causeni 24 79092 100 2020 2.6% 690 0.9% 1435 1.8% 41620 52.6% 18300 3899 13091 Stefan Voda 17 65479 0 28735 43.9% 5658 8.6% 740 1.1% 5319 8.1% 18211 4348 12524 Southern Districts Comrat 13 66555 79.99379 100 0.2% 1402 2.1% 0 0.0% 43340 65.1% 9863 1387.5 10517 Ciadir Lunga 6 26821 0 0 0.0% 616 2.3% 0 0.0% 12498 46.6% 3810 570 4229 Vulcanesti 6 5878 0 0 0.0% 0 0.0% 0 0.0% 1836 31.2% 710 369 935 total 1395 2221506 349.5881 103021 5.1% 47515 2.4% 20776 1.1% 485522 36.2% 356300.5 74272 349545 Avg North 556 742052 0 36359 4.9% 2996 0.4% 4868 0.7% 87796 11.8% 92821 20463 115488 Avg Central 503 808619 37.81825 32334 4.0% 28203 3.5% 8583 1.1% 154814 19.1% 150248 29109 126368 Avg South 336 670835 311.7698 34328 5.1% 16316 2.4% 7325 1.1% 242912 36.2% 113231.5 24700 107689

Averages Avg all 1395 2221506 349.5881 103021 4.6% 47515 2.1% 20776 0.9% 485522 21.9% 356300.5 74272 349545

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Summarised Rural water and wastewater infrastructure data per district Waste Water Collection System Territory population Waste Sewerage system capacity Existing treatment technologies (rated in p BOD gravity gravity gravity gravity gravity captured captured water м3/day demand mechanic posttreatm sludge pressure pressure pipelines, pipelines pressure by by collection recommen biological design actual mg/l al ent treatment pipelines, pipelines, STP (points) pipelines, sewerage sewerage ratio % ded Ochnita1004600190.8 0 2300 1400 2838 0 10 14 6 14 Falesti600440186.8 0 200 15 4765 0 6 6 4 6 Glodeni 7 0 23 8 0 0 102 0 1050 103 3052 0 26 22 23 22 Riscani 9 4 12 4 0 0 97.3 0 1950 280 3852 0 17 17 22 12 Singerei 4 2 4 26 40001204275482408448 Edinet004080706.11 0 400 0 3495 0 4 4 4 4 Bricani110026081.208001702666 0 12 11 9 11 Donduseni 70298047.80650401942099810

Northern districts Drochia931170000850433196 0 7 18 21 21 Floresti 38 11 12 10 0 0 121.3 0 1717 2642 5391 0 46 52 30 34 Soroca100251020007851223123 0 27 20 38 16 Ialoveni3297000139.7 0 5110 970 4464 0 26 39 34 38 Cosnita736000100.9 0 8950 6420 2014 0 12 14 12 17 Anenii Noi 27 18 22 0 4 0 572.4 0 11870 9890 5054 0 53 46 50 44 Criuleni 15 5 8 15 0 0 94.9 0 7500 2895 3799 0 24 26 27 27 Straseni 25 9 9 10 0 0 75 0 6105 2350 3831 0 33 30 40 41 Orhei 20 14 8 6 6 0 118.2 0 2050 1172 5407 0 24 26 18 24 Rezina 4 7 16 6 0 0 20.8 0 850 50 2497 0 18 16 16 17 Telensti 12 13 0 24 4 0 78.4 0 850 450 2970 0 7 12 13 8

Central districts Soldanesti 0 0 0 10 200000144900000 Ungheni 92230064.501600 15 2791 0 9 10 13 16 Niporeni1004020121.9 0 1100 50 2838 0 8 13 14 14 Calarasi 66 4 21 16 0 0 20.8 0 4170 1170 4957 0 70 68 80 64 Chimislia214400012.102400 0 2326 0 18 24 26 24 Cahul 28 10 11 6 0 0 135.5 0 4930 472 4509 0 10 40 36 21 Cantemir 12 4 11 18 0 0 7.9 0 1800 230.7 2667 0 8 21 8 4 Taraclia1264810044.407007701887 0 8 16 12 12 Basarabeasca 50000020.506000151204464 Leova 3388440190.3 0 3860 290 3458 0 39 22 38 41 Hincesti 31 4 19 8 14 0 5.4 0 5660 160 5329 0 57 44 55 40 Causeni282502080.803900 679 4828 0 26 35 35 33 Stefan Voda1528220595.3 0 11300 3030 6046 0 19 19 25 21 Southern DistrictsSouthern Comrat220500046.604595 302 3979 0 9 30 28 21 Ciadir Lunga 120300019.201760 1140 1566 0 9 16 16 12 Vulcanesti 20200000400029404222 total 559 144 280 222 82 0 4098.81 0 102882 41595.7 119616 0 667 750 773 703 Avg North 111 20 97 86 32 0 1533.31 0 10822 9090 39144 0 172 177 169 158 Avg Central 227 84 103 90 18 0 1407.5 0 50155 25432 42071 0 284 300 317 310 Avg South 221 40 80 46 32 0 1158 0 41905 7073.7 38401 0 211 273 287 235

Averages Avg all 559 144 280 222 82 0 4098.81 0 102882 41595.7 119616 0 667 750 773 703

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Appendix C - Maps

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Groundwater resources

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Annex D. National Public Budget

Annex D.1 Evolution of the National Public Budget, 2003-2009, MDL million

Completed Planned Estimated

2003 2004 2005 2006 2007 2008 2009

A. Revenues, overall 9 417 11 322 14 528 16 105 19 232 21 278 23 970

Total revenues, net of grants 9 344 11 197 14 068 15 761 18 923 21 140 23 905 Revenues, total (net of grants, transfers, special means and funds) 8 329 10 161 12 826 14 673 17 790 19 986 22 741 Including, net of SSIF and MHIF 6 349 7 343 9 406 10 331 12 718 13 995 15 678

1. Current revenues 9 344 11 197 14 068 15 761 18 923 21 140 23 905

1.1 Fiscal revenues 7 530 9 423 11 758 13 755 16 762 18 930 21 616

1.1.1 Direct taxes 3 373 4 589 5 278 6 474 7 362 8 584 9 983 Including net of SSIF and MHIF 1 399 1 801 1 904 2 156 2 315 2 617 2 946 1.1.1.1 Income tax from business activities 578 780 802 878 969 1 121 1 279 1.1.1.2 Income tax paid by natural persons 623 797 869 1 039 1 108 1 258 1 427 1.1.1.3 Land taxes 168 191 196 204 201 201 201 1.1.1.4 Real estate taxes 31 34 36 34 37 38 39 1.1.1.5 MHIF insurance premiums 2 324 425 525 766 899 1 061 1.1.1.6 SSIF Contributions 1 972 2 464 2 949 3 794 4 281 5 068 5 976

1.1.2 Indirect taxes 4 157 4 834 6 480 7 281 9 400 10 346 11 633 1.1.2.1 VAT 2 792 3 428 4 623 5 577 7 427 8 193 9 272 1.1.2.1.1 Cash inflows within the country 1 176 1 445 1 578 2 029 2 371 2 566 2 899 1.1.2.1.2 Reimbursements -758 -996 -1 006 -1 000 -1 100 -1 255 -1 471 1.1.2.1.3 Levied by the customs office 2 374 2 978 4 052 4 548 6 156 6 882 7 844 1.1.2.2 Excise-duties 888 910 1 172 1 125 1 237 1 316 1 442 1.1.2.2.1 Cash inflows 964 1 014 1 272 1 230 1 359 1 447 1 581 1.1.2.2.2 Reimbursements -76 -104 -100 -104 -122 -131 -140 1.1.2.3 Foreign trade taxes 477 496 685 578 736 838 920

1.2 Non-fiscal revenues 799 738 1 068 918 1 028 1 057 1 124 1.2.1 Net income of the National Bank 221 6 192 120 120 130 140 1.2.2 Other revenues - Government budget 308 390 483 471 579 595 647 1.2.3 Other revenues - ATU budgets 7 28 29 22 23 23 23 1.2.4 Other revenues - SSIF 0 2 17 2 2 2 2

1.2 Non-fiscal revenues 1 015 1 036 1 242 1 088 1 133 1 153 1 164 1.2.1 Net income of the National Bank 80 100 154 136 163 175 182 1.2.2 Other revenues - Government budget 935 936 1 088 952 970 978 981

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Completed Planned Estimated

2003 2004 2005 2006 2007 2008 2009 2. Grants 73 125 460 344 309 138 66 2.1 Grants for budget support 1 19 283 125 121 0 0 2.2 Grants for projects financed from outside funds 72 106 177 219 188 138 66

(i) B. Spending, overall 9147,3 11252,3 13949,3 16479,0 19478,5 21557,7 23874,3 Spending without net crediting 9199,1 11309,7 13994,2 16518,8 19502,3 21598,2 23908,9 Spending without government debt repayment 8567,8 10479,5 13478,8 15871,8 18925,1 21001,6 23251,2 1. General destination government services 609,4 748,2 919,6 804,2 947,4 919,1 921,5 Including customs office 98,9 121,4 137,3 128,4 183,6 232,5 254,7 2. External operations 175,1 157,3 256,2 250,6 220,2 219,0 219,2 3. Justice and constitutional lawfullness 75,7 92,6 126,7 134,6 145,4 149,8 152,3 4. Public order enforcement, defense, and state security 744,8 789,6 921,5 936,2 957,0 976,9 999,4 National defense 130,8 137,2 156,6 177,9 165,5 171,4 177,7 Public order enforcement and national security 614,0 652,4 764,9 758,3 791,5 805,5 821,7 5. Social expenditure 5709,0 7034,6 8827,5 10472,6 12011,5 13439,7 14741,3 Education 1840,9 2162,8 2697,0 2907,7 3194,4 3377,0 3418,7 Culture, arts, sports, and youth-targeting actions 203,2 266,2 315,4 355,8 384,2 421,2 426,8 Healthcare 1095,2 1339,7 1572,4 2031,0 2535,1 2821,6 3135,8 Social care and support 2569,7 3265,9 4242,7 5178,1 5897,8 6819,9 7760,0 6. Science/research and innovations 66,1 83,3 139,5 168,8 268,8 362,0 469,3 7. Economic expenditure 998,8 1345,9 1964,5 2049,3 2286,4 2069,9 1994,2 Agriculture, forestry, fishery, and water services 299,8 263,6 577,3 636,4 742,6 729,0 737,2 Including, a vine plantations creation support fund 0,0 26,4 79,9 60,0 112,6 112,6 112,6 Industry and constructions 15,2 17,9 20,5 23,2 25,8 26,2 26,8 Transports, roads services, communications, and information management 128,7 182,8 217,7 294,6 338,7 332,5 335,2 Including, a roads fund 93,7 130,4 149,9 170,0 185,4 199,5 213,6 Utilities and residential housing services 352,7 523,0 692,8 732,1 783,6 642,4 634,5 Fuel and energy sector 84,2 230,5 346,6 253,4 263,2 184,6 103,1 Other economy related actions 118,2 128,1 109,6 109,6 132,5 155,2 157,4 8. Environment protection, and hydrometeorology 39,2 50,6 54,2 68,4 91,0 93,9 79,0 9. Government debt repayment 579,5 772,8 470,5 607,2 553,4 556,1 623,1 -internal 322,5 399,0 193,2 338,9 341,0 344,9 326,3 -external 257,0 373,8 277,3 268,3 212,4 211,2 296,8 - in USD million 18,5 30,1 21,1 21,3 16,6 16,6 23,6 10. Other sectors 201,5 234,8 314,0 200,9 227,2 225,8 216,4 Filling up of government reserves 42,8 63,5 59,2 59,6 58,5 58,5 58,7 Expenditure not attributed to other key groups 158,7 171,3 254,8 141,3 168,7 167,3 157,7 including other costs 158,7 123,8 254,8 141,3 168,7 167,3 157,7 11. Net crediting -51,8 -57,4 -44,9 -39,8 -23,8 -40,5 -34,6 12. Expenditure for salary raise within public sector 826,0 1794,0 2586,0 3493,2

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Completed Planned Estimated

2003 2004 2005 2006 2007 2008 2009

Overall balance (deficit -; surplus +) 269,8 69,9 578,4 -374,4 -246,5 -280,0 96,2

D. Primary deficit (cash register) 849,3 842,7 1 048,9 232,8 306,9 276,1 719,3

Financing of public sector -269,8 -69,9 -578,4 374,4 246,5 280,0 -96,2

Net internal 19,4 819,9 158,3 51,6 49,9 31,2 -18,8 NBM 0,0 594,0 -127,0 -118,8 -118,8 -118,8 -118,8 Net commercial banks 32,5 250,4 256,2 180,0 170,0 150,0 100,0 Direct crediting -66,6 50,7 56,1 0,0 0,0 0,0 0,0 Government securities 99,1 199,7 200,1 180,0 170,0 150,0 100,0 Net non-banking -13,1 -24,5 29,1 -9,6 -1,3 0,0 0,0

Net external -134,6 -601,5 -53,4 101,0 164,2 -135,0 -435,3 Disbursements 338,4 278,5 327,0 485,4 638,3 351,4 176,9 For investment projects 338,4 278,5 327,0 485,4 638,3 351,4 176,9 For budget support 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Amortization 473,0 880,0 380,4 384,4 474,1 486,4 612,2

Funds from the selling and privatization of public assets 111,2 100,6 176,3 67,8 176,0 125,0 102,0 Privatization based upon individual projects 0,0 20,7 0,0 0,0 0,0 0,0 0,0 Other revenues from privatization and sales 111,2 79,9 176,3 67,8 176,0 125,0 102,0

Reconciliation of balance accounts 265,8 388,9 859,6 -154,0 143,6 -258,8 -255,9

67

® EAP Task Force

Annex D.2 Evolution of the National Public Budget, 2003-2009, % in GDP

Completed Planned Estimated

2003 2004 2005 2006 2007 2008 2009

A. Overall revenues 34,1 35,3 39,5 36,4 39,0 38,0 37,9

Revenues, total, net of grants 33,8 35,0 38,3 35,7 38,4 37,7 37,8 Revenues, total (net of grants, transfers, special means and funds) 30,2 31,7 34,9 33,2 36,1 35,7 35,9

Including, net of SSIF and MHIF 23,0 22,9 25,6 23,4 25,8 25,0 24,8

1 Current revenues 33,8 35,0 38,3 35,7 38,4 37,7 37,8

1.1 Fiscal revenues 27,3 29,4 32,0 31,1 34,0 33,8 34,1

1.1.1 Direct taxes 12,2 14,3 14,4 14,6 14,9 15,3 15,8 Including net of SSIF and MHIF 5,1 5,6 5,2 4,9 4,7 4,7 4,7 1.1.1.1 Income tax from business activities 2,1 2,4 2,2 2,0 2,0 2,0 2,0 1.1.1.2 Income tax paid by natural persons 2,3 2,5 2,4 2,4 2,2 2,2 2,3 1.1.1.3 Land taxes 0,6 0,6 0,5 0,5 0,4 0,4 0,3 1.1.1.4 Real estate taxes 0,1 0,1 0,1 0,1 0,1 0,1 0,1 1.1.1.5 MHIF insurance premiums 0,0 1,0 1,2 1,2 1,6 1,6 1,7 1.1.1.6 SSIF Contributions 7,1 7,7 8,0 8,6 8,7 9,0 9,4

1.1.2 Indirect taxes 15,1 15,1 17,6 16,5 19,1 18,5 18,4 1.1.2.1 VAT 10,1 10,7 12,6 12,6 15,1 14,6 14,6 1.1.2.1.1 Cash inflows within the country 4,3 4,5 4,3 4,6 4,8 4,6 4,6 1.1.2.1.2 Reimbursements -2,7 -3,1 -2,7 -2,3 -2,2 -2,2 -2,3 1.1.2.1.3 Levied by the customs office 8,6 9,3 11,0 10,3 12,5 12,3 12,4 1.1.2.2 Excise-duties 3,2 2,8 3,2 2,5 2,5 2,3 2,3 1.1.2.2.1 Cash inflows 3,5 3,2 3,5 2,8 2,8 2,6 2,5 1.1.2.2.2 Reimbursements -0.3 -0.3 -0.3 -0.2 -0.2 -0.2 -0.2 1.1.2.3 Foreign trade taxes 1,7 1,5 1,9 1,3 1,5 1,5 1,5

1.2 Non-fiscal revenues 2,9 2,3 2,9 2,1 2,1 1,9 1,8 1.2.1 Net income of the National Bank 0.8 0.0 0.5 0.3 0,2 0,2 0,2 1.2.2 Other revenues - Government budget 1,1 1,2 1,3 1,1 1,2 1,1 1,0 1.2.3 Other revenues - ATU budgets 1,0 1,0 0,9 0,7 0,6 0,5 0,5 1.2.4 Other revenues - SSIF 0,0 0,1 0,1 0,1 0,0 0,0 0,0 1.2.5 Other revenues - MHIF 0,0 0,0 0,0 0,0 0,0 0,0 0,0

1.3 Special means and funds 3,7 3,2 3,4 2,5 2,3 2,1 1,8 1.3.1. Special funds 0,3 0,3 0,4 0,3 0,3 0,3 0,3 1.3.2. Special means 3,4 2,9 3,0 2,2 2,0 1,7 1,6

2. Grants 0,3 0,4 1,3 0,8 0,6 0,2 0,1 2.1 Grants for budget support 0,0 0,1 0,8 0,3 0,2 0,0 0,0 2.2 Grants for projects financed from outside funds 0,3 0,3 0,5 0,5 0,4 0,2 0,1

68

® EAP Task Force

Completed Planned Estimated

2003 2004 2005 2006 2007 2008 2009

(ii) B. Spending, overall 33,1 35,1 38,0 37,3 39,5 38,5 37,7 Spending without net crediting 33,3 35,3 38,1 37,4 39,6 38,6 37,8 Spending without government debt repayment 31,0 32,7 36,7 35,9 38,4 37,5 36,7 1. General destination government services 2,2 2,3 2,5 1,8 1,9 1,6 1,5 Including customs office 0,4 0,4 0,4 0,3 0,4 0,4 0,4 2. External operations 0,6 0,5 0,7 0,6 0,4 0,4 0,3 3. Justice and constitutional lawfullness 0,3 0,3 0,3 0,3 0,3 0,3 0,2 4. Public order enforcement, defense, and state security 2,7 2,5 2,5 2,1 1,9 1,7 1,6 National defense 0,5 0,4 0,4 0,4 0,3 0,3 0,3 Public order enforcement and national security 2,2 2,0 2,1 1,7 1,6 1,4 1,3 5. Social expenditure 20,7 22,0 24,0 23,7 24,4 24,0 23,3 Education 6,7 6,8 7,3 6,6 6,5 6,0 5,4 Culture, arts, sports, and youth-targeting actions 0,7 0,8 0,9 0,8 0,8 0,8 0,7 Healthcare 4,0 4,2 4,3 4,6 5,1 5,0 5,0 Social care and support 9,3 10,2 11,5 11,7 12,0 12,2 12,3 6. Science/research and innovations 0,2 0,3 0,4 0,4 0,5 0,6 0,7 7. Economic expenditure 3,6 4,2 5,3 4,6 4,6 3,7 3,2 Agriculture, forestry, fishery, and water services 1,1 0,8 1,6 1,4 1,5 1,3 1,2 including, a vine plantations creation support fund 0,0 0,1 0,2 0,1 0,2 0,2 0,2 Industry and constructions 0,1 0,1 0,1 0,1 0,1 0,0 0,0 Transports, roads services, communications, and information management 0,5 0,6 0,6 0,7 0,7 0,6 0,5 Including, a roads fund 0,3 0,4 0,4 0,4 0,4 0,4 0,3 Utilities and residential housing services 1,3 1,6 1,9 1,7 1,6 1,1 1,0 Fuel and energy sector 0,3 0,7 0,9 0,6 0,5 0,3 0,2 Other economy related actions 0,4 0,4 0,3 0,2 0,3 0,3 0,2 8. Environment protection, and hydrometeorology 0,1 0,2 0,1 0,2 0,2 0,2 0,1 9. Government debt repayment 2,1 2,4 1,3 1,4 1,1 1,0 1,0 -internal 1,2 1,2 0,5 0,8 0,7 0,6 0,5 -external 0,9 1,2 0,8 0,6 0,4 0,4 0,5 - in USD million 0,1 0,1 0,1 0,0 0,0 0,0 0,0 10. Other sectors 0,7 0,7 0,9 0,5 0,5 0,4 0,3 Filling up of government reserves 0,2 0,2 0,2 0,1 0,1 0,1 0,1 Expenditure not attributed to other key groups 0,6 0,5 0,7 0,3 0,3 0,3 0,2 including other costs 0,6 0,4 0,7 0,3 0,3 0,3 0,2 11. Net crediting -0,2 -0,2 -0,1 -0,1 0,0 -0,1 -0,1 12. Expenditure for salary raise within public sector 0,0 0,0 0,0 1,9 3,6 4,6 5,5

C. Overall balance (deficit -; surplus +) 1,0 0,2 1,6 -0,8 -0,5 -0,5 0,2

D. Primary deficit (cash register) 3,1 2,6 2,9 0,5 0,6 0,5 1,1

Financing of public sector -1,0 -0,2 -1,6 0,8 0,5 0,5 -0,2

Net internal 0,1 2,6 0,4 0,1 0,1 0,1 0,0

69

® EAP Task Force

Completed Planned Estimated

2003 2004 2005 2006 2007 2008 2009 NBM 0,0 1,9 -0,3 -0,3 -0,2 -0,2 -0,2 Net commercial banks 0,1 0,8 0,7 0,4 0,3 0,3 0,2 Direct crediting -0,2 0,2 0,2 0,0 0,0 0,0 0,0 Government securities 0,4 0,6 0,5 0,4 0,3 0,3 0,2 Net non-banking 0,0 -0,1 0,1 0,0 0,0 0,0 0,0

Net external -0,5 -1,9 -0,1 0,2 0,3 -0,2 -0,7 Disbursements 1,2 0,9 0,9 1,1 1,3 0,6 0,3 For investment projects 1,2 0,9 0,9 1,1 1,3 0,6 0,3 For budget support 0,0 0,0 0,0 0,0 0,0 0,0 0,0 Amortization 1,7 2,7 1,0 0,9 1,0 0,9 1,0

Funds from the selling and privatization of public assets 0,4 0,3 0,5 0,2 0,4 0,2 0,2 Privatization based upon individual projects 0,0 0,1 0,0 0,0 0,0 0,0 0,0 Other revenues from privatization and sales 0,4 0,2 0,5 0,2 0,4 0,2 0,2

Reconciliation of balance accounts 1,0 1,2 2,3 -0,3 0,3 -0,5 -0,4

70

® EAP Task Force

Annex no. D.3 Evolution of the National Public Budget, 2003-2009, % in total

Completed Planned Estimated 2003 2004 2005 2006 2007 2008 2009

Overall revenues 100,0 100,0 100,0 100,0 100,0 100,0 100,0

Total revenues without grants 99,2 98,9 96,8 97,9 98,4 99,4 99,7 Total revenues (without grants, transfers, 88,4 89,7 88,3 91,1 92,5 93,9 94,9 special means and special funds) Including without SSIF and MHIF 67,4 64,9 64,7 64,1 66,1 65,8 65,4

1. Current revenues 99,2 98,9 96,8 97,9 98,4 99,4 99,7

1.1 Fiscal revenues 80,0 83,2 80,9 85,4 87,2 89,0 90,2

1.1.1 Direct taxes 35,8 40,5 36,3 40,2 38,3 40,3 41,6 Including net of SSIF and MHIF 14,9 15,9 13,1 13,4 12,0 12,3 12,3 1.1.1.1 Income tax from business activities 6,1 6,9 5,5 5,4 5,0 5,3 5,3 1.1.1.2 Income tax paid by natural persons 6,6 7,0 6,0 6,5 5,8 5,9 6,0 1.1.1.3 Land taxes 1,8 1,7 1,3 1,3 1,0 0,9 0,8 1.1.1.4 Real estate taxes 0,3 0,3 0,3 0,2 0,2 0,2 0,2 1.1.1.5 MHIF insurance premiums 0,0 2,9 2,9 3,3 4,0 4,2 4,4 1.1.1.6 SSIF Contributions 20,9 21,8 20,3 23,6 22,3 23,8 24,9

1.1.2 Indirect taxes 44,1 42,7 44,6 45,2 48,9 48,6 48,5 1.1.2.1 VAT 29,6 30,3 31,8 34,6 38,6 38,5 38,7 1.1.2.1.1 Cash inflows within the country 12,5 12,8 10,9 12,6 12,3 12,1 12,1 1.1.2.1.2 Reimbursements -8,0 -8,8 -6,9 -6,2 -5,7 -5,9 -6,1 1.1.2.1.3 Levied by the customs office 25,2 26,3 27,9 28,2 32,0 32,3 32,7 1.1.2.2 Excise-duties 9,4 8,0 8,1 7,0 6,4 6,2 6,0 1.1.2.2.1 Cash inflows 10,2 9,0 8,8 7,6 7,1 6,8 6,6 1.1.2.2.2 Reimbursements -0.8 -0.9 -0.7 -0.6 -0.6 -0.6 -0.6 1.1.2.3 Foreign trade taxes 5,1 4,4 4,7 3,6 3,8 3,9 3,8

1.2 Non-fiscal revenues 8,5 6,5 7,4 5,7 5,3 5,0 4,7 1.2.1 Net income of the National Bank 2,3 0.1 1,3 0.7 0.6 0.6 0.6 1.2.2 Other revenues – state budget 3,3 3,4 3,3 2,9 3,0 2,8 2,7 1.2.3 Other revenues - ATU budgets 2,8 2,8 2,4 1,9 1,6 1,4 1,3 1.2.4 Other revenues - SSIF 0,1 0,3 0,2 0,1 0,1 0,1 0,1 1.2.5 Other revenues - SSIF 0,0 0,0 0,1 0,0 0,0 0,0 0,0

1.3 Special means and funds 10,8 9,1 8,5 6,8 5,9 5,4 4,9 1.3.1. Special funds 0,9 0,9 1,1 0,8 0,8 0,8 0,8 1.3.2. Special means 9,9 8,3 7,5 5,9 5,0 4,6 4,1

2. Grants 0,8 1,1 3,2 2,1 1,6 0,6 0,3

1

® EAP Task Force

Completed Planned Estimated 2003 2004 2005 2006 2007 2008 2009 2.1 Grants for budget support 0,0 0,2 1,9 0,8 0,6 0,0 0,0 2.2 Grants for projects financed from outside funds 0,8 0,9 1,2 1,4 1,0 0,6 0,3

(iii) B. Spending, overall 100,0 100,0 100,0 100,0 100,0 100,0 100,0 Spending without net crediting 100,6 100,5 100,3 100,2 100,1 100,2 100,1 Spending without government debt repayment 93,7 93,1 96,6 96,3 97,2 97,4 97,4 1. General destination government services 6,7 6,6 6,6 4,9 4,9 4,3 3,9 Including customs office 1,1 1,1 1,0 0,8 0,9 1,1 1,1 2. External operations 1,9 1,4 1,8 1,5 1,1 1,0 0,9 3. Justice and constitutional lawfulness 0,8 0,8 0,9 0,8 0,7 0,7 0,6 4. Public order enforcement, defense, and state security 8,1 7,0 6,6 5,7 4,9 4,5 4,2 National defense 1,4 1,2 1,1 1,1 0,8 0,8 0,7 Public order enforcement and national security 6,7 5,8 5,5 4,6 4,1 3,7 3,4 5. Social expenditure 62,4 62,5 63,3 63,6 61,7 62,3 61,7 Education 20,1 19,2 19,3 17,6 16,4 15,7 14,3 Culture, arts, sports, and youth-targeting actions 2,2 2,4 2,3 2,2 2,0 2,0 1,8 Healthcare 12,0 11,9 11,3 12,3 13,0 13,1 13,1 Social care and support 28,1 29,0 30,4 31,4 30,3 31,6 32,5 6. Science/research and innovations 0,7 0,7 1,0 1,0 1,4 1,7 2,0 7. Economic expenditure 10,9 12,0 14,1 12,4 11,7 9,6 8,4 Agriculture, forestry, fishery, and water services 3,3 2,3 4,1 3,9 3,8 3,4 3,1 including, a vine plantations creation support fund 0,0 0,2 0,6 0,4 0,6 0,5 0,5 Industry and constructions 0,2 0,2 0,1 0,1 0,1 0,1 0,1 Transports, roads services, communications, and information management 1,4 1,6 1,6 1,8 1,7 1,5 1,4 Including, a roads fund 1,0 1,2 1,1 1,0 1,0 0,9 0,9 Utilities and residential housing services 3,9 4,6 5,0 4,4 4,0 3,0 2,7 Fuel and energy sector 0,9 2,0 2,5 1,5 1,4 0,9 0,4 Other economy related actions 1,3 1,1 0,8 0,7 0,7 0,7 0,7 8. Environment protection, and hydrometeorology 0,4 0,4 0,4 0,4 0,5 0,4 0,3 9. Government debt repayment 6,3 6,9 3,4 3,7 2,8 2,6 2,6 -internal 3,5 3,5 1,4 2,1 1,8 1,6 1,4 -external 2,8 3,3 2,0 1,6 1,1 1,0 1,2 - in USD million 0,2 0,3 0,2 0,1 0,1 0,1 0,1 10. Other sectors 2,2 2,1 2,3 1,2 1,2 1,0 0,9 Filling up of government reserves 0,5 0,6 0,4 0,4 0,3 0,3 0,2 Expenditure not attributed to other key groups 1,7 1,5 1,8 0,9 0,9 0,8 0,7 including other costs 1,7 1,1 1,8 0,9 0,9 0,8 0,7 11. Net crediting -0,6 -0,5 -0,3 -0,2 -0,1 -0,2 -0,1 12. Expenditure for salary raise within public sector 0,0 0,0 0,0 5,0 9,2 12,0 14,6

2