Банкеръ Weekly

Briefs

TENSION IN WATER SUPPLY SECTOR AGAIN

One more hike of water prices in Sofia is very likely this year. The expected increase will be by BGN0.12-0.13/cu m. This will happen if the Sofia Municipality approves the additional investment programme of the Sofia Water company. According to Georgi Faitondjiev, Director of the firm's Use and Maintenance department, the hike will be only this year. The arguments for such a measure are well-known: the necessity of rehabilitation and modernization of the extremely outworn Water Supply and Sewage infrastructure. However, the successive price leap should be approved not only by the Sofia councillors, but also by the new regulatory body that is to begin work in spring. As the BANKER weekly already wrote in its previous issue, the State Commission for Energy Regulation (SCER) will undertake the price formation in the water supply sector as well. The most discussed option so far is that to be effected through the establishment of a new water directorate that will be monitoring and controlling the use of the water resource in the country and will be looking after the movement of prices in various regions, approve the general terms of the agreements, and keep a register of the signed contracts for water supply and sewage services. The Minister of Regional Development and Public Works Valentin Tserovsky has personally proposed to apply that option, as thus the State's expenses would be considerably lower. Until now the ministry intended to set up an independent national water regulator under the control of the Council of Ministers and financed by the budget. This was projected in a special draft bill, which under the legislative programme of the Government, published on January 5, 2004, had to be considered in May, 2004. However, it will probably remain on paper and the Energy Act will be amended to include provisions regulating the expansion of SCER's rights.These changes are not very much to the liking of firms in the branch. Such a decision is extremely unappropriate, Ivan Grechenliev, a member of the Management Board of the Bulgarian Association of Water Supply and Sewage said in front of the BANKER weekly. According to him, the establishment of a new directorate with the SCER instead of setting up an independent body won't save money, as in both cases the structure is yet to be created and experts for it should be sought. There is a great difference between the energy and the water market. A new Water Act should be first passed in order to clear out the relations between the Ministry of Environment and Waters and the Ministry of Regional Development and Public Works (MRDPW), and not involve a third party Mr. Grechenliev claims. In fact, in some of the developed western countries a single body regulates both the energy and the water sector, and in some countries its structure includes telecommunications regulators as well. These are the so-called utility regulators, controlling the supply of services in all spheres of the former natural monopolies. The transfer of responsibility for the water prices to the energy regulator may turn out to be the key to approving MRDPW's strategy for the development and management of the water supply sector. The use of an already existing regulatory body (although in another sector) will considerably reduce the amount of money that the budget should set aside for the water supply and sewage sector.The MRDPW announced that the document had been coordinated with all institutions with the exception of the Finance Ministry. Pundits said that some specifications were yet to be made about the necessary amendments to the legislative regulations and the structures for management of the water supply and sewage sector, and the strategy would be afterwards moved for approval by the Cabinet. It was worked out back in August 2003 and projected investments of BGN6.7BN by the year 2015 for rehabilitation of the transiting network, reduction of expenses and establishment of water treatment stations. About 60% of them had to be ensured by the Treasury and EU's pre-accession funds, by credits and state taxes. The balance of BGN2.7BN-plus had to come from private investments. During the first stage (till the year 2010) more than BGN2BN had to be utilized, BGN700MN of which from EU's pre-accession funds and BGN103MN from the budget. The draft strategy did not specify where the other more than BGN1BN would come from. After the interdepartmental coordination, the investments in the sector will be probably significantly curtailed, but hardly so much to be ensured by the Treasury without a problem. In the last three years the budget subsidies for capital expenses of the water supply and sewage sector through MRDPW's investment programme have been continuously going down. They were BGN5.6MN last year, down from BGN131.7MN, in 2001. Experts in the branch claim that in 2004 investments will amount to the modest BGN2MN. Therefore, quite logically the efforts and hopes of experts from the MRDPW are directed to the attraction of money from the EU funds. On October 13, 2003 the European Bank for Reconstruction and Development (EBRD), the Finance Ministry, the MRDPW and its subordinate water supply and sewage companies in Plovdiv and Bourgas signed an agreement for cooperation in the construction, improvement and expansion of the infrastructure for drinking and waste water. The agreement includes two stages. During the first one each of the water and sewage utilities will get from the EBRD a loan of EUR10MN without a state guarantee, which will enable them to implement 25% of the projects. The remaining 75% will come as a grant from the EU's ISPA programme. During the second stage the EBRD is to release a new credit to another four to seven water supply and sewage companies. The total worth of all these loans will reach EUR60MN. EUR32.5MN under the ISPA programme and EUR24.5MN from the European Investment Bank are earmarked for implementation of the Construction of Water Treatment Stations in the Maritsa River Basin project. The other way for collection of money for modernization of the water network in Bulgaria - by hiking water prices - is trivial and not very popular. Four domestic companies have applied that measure since the beginning of 2004. As of January 1 the price of water in Kurdjali was increased by 1% to BGN1.02/cu m. Prices in Smolyan were raised by 1.3% and the citizens of Yambol will be already paying BGN1.20/cu m. The concessionaire Sofia Water hiked prices in the capital to BGN1.02/cu m as of the New Year. Experts from the MRDPW explained that the price rise was necessitated because of the higher rates of the components included in the expenses for the production, treatment and supply of drinking water to consumers. They told the BANKER weekly that no price increase was projected by the other water companies. Any necessary hikes will be approved by a panel of experts, set up by an order of the Minister of Regional Development and Public Works. The necessity of setting up a body that will undertake the control on water prices, the quality of services connected with the supply and treatment of drinking and waste water, is undeniable but it is not the most urgent problem in the sector to be solved. For potential investors (mostly foreign) it is far more important to have a clearly regulated legislative framework. This is the only way for creating a transparent procedure for the entering of serious foreign capitals and firms into the sector. Otherwise, the failure in the concessioning of water companies in Varna and Shoumen may be repeated.

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