Банкеръ Weekly

Briefs

BULGARIANS TO PAY HIGHER WATER PRICE NEXT SPRING

After Bulgarian people quietly swallowed the growing prices of electricity, natural gas and central heating in 2005, they will soon be delighted with new prices of water for domestic needs. Quite many reasons support a forecast like this. The unrepaired network of almost all water-supply and sewerage companies in Bulgaria is much older than the managers of the companies are. Losses of water registered by some of them even exceed 80 per cent. According to calculations of the Ministry of Regional Development and Public Works, EUR6.9BN is needed to put the water sector in somewhat normal limits.
World Bank's last year report revealed that in 2006 the price of 1 cubic metre will reach EUR0.85 (BGN1.65) and in 2007 when Bulgaria is scheduled to join the large European family it will be EUR0.97 (BGN1.89). In fact, however, the price of drinking water is already approaching these European tariffs. For example, people who live in Razgrad now pay BGN1.70 per cubic metre, those in Gabrovo pay BGN1.58, in Shoumen - BGN1.56, and in Dobrich - BGN1.49.
Prices not just in Northeastern Bulgaria but also in the whole country will be adjusted upwards next spring. The State Commission for Energy and Water Regulation (SCEWR) will willy-nilly play the role of the black messenger again.
Water will grow expensive and this is inevitable if we want to reduce the amounts lost. It is the commodity that will be most deficient in the next century. In Bulgaria there is enough of it, but we should save it. It means that its price should correspond to the expenses made, professor Konstantin Shoushoulov, Chairman of the regulatory body, told the BANKER weekly. The commission still refuses to say how much the price will be increased, but according to independent experts most water-supply and sewerage companies will register 6 to 8% increase. The major reason is the electricity for economic consumers which grew more expensive last October. Over 60% of the water utilities obtain water through pumps and electricity determines up to 30% of its price.
Undoubtedly, the SCEWR is faced by the very complicated task to balance once again the interests of the utilities and the consumers. The good news is that for the first time water price will be calculated in accordance with a clear legal base and criteria which, although late, have finally become valid. The law on water-supply and sewerage services became valid in January 2005, and the subdelegated legislation had to be prepared by the middle of last year. But the preparation of instructions on water-supply services indicators, price regulation, terms for registration of experts, control over water operators, and tariff of the commission's fees dragged on quite long.
The delay was caused because the six water commissioners were appointed right when the regulations had to be prepared. Experts were only chosen in the second half of October and regardless of the short terms we managed to prepare the draft documents and discuss them in public. The documents were also approved by the national council for trilateral collaboration and we expect that the cabinet adopts them in a few days, SCEWR Deputy Chairman Lyutskan Dalakchiev said.
There is a famous saying: The most difficult is over, the worst is to come. This is the situation with the regulatory commission, too. Once the regulations are adopted, it will start collecting new price applications from the water utilities and will have three months to fix the tariffs for the whole country. Since water prices will be fixed for a three-year period of time during which they will only change under extraordinary circumstances, logically each company will apply for the highest possible price. However, it will now depend on the expenses water utilities make on delivery and purification, repair of the network, return on capital norm and investment programs. The last of these indicators will be the main trump of water companies in their march towards passing higher tariffs through the regulatory commission.
Considering the data the BANKER weekly has at its disposal, by September 2005 the 28 regional water companies have invested BGN16.5MN in development of their networks. What is curious is the fact that the biggest investments have been made by those who ask the highest prices. The Bourgas-based company is the leader - it invested over BGN3.5MN in nine months and sells a cubic metre of water at BGN1.21. It is followed by the utilities in Veliko Tarnovo (BGN1.8MN invested and BGN1.37 tariff), in Haskovo (BGN1.5MN and BGN1.33) and in Plovdiv (BGN1.4MN and BGN0.75). At the same time investments of the company in Razgrad and Shoumen amount to BGN370,000 and these in Dobrich - to just BGN112,000.
Officially, the Botevgrad-based utility is the only one that has asked to increase its prices so far. Some time ago the Sofia concessionaire, Sofiiska Voda, also announced it wanted an increase from BGN0.85 to BGN1.54. The rest of the companies are now calculating how much the increase should be. Experts predict that most of them will probably go beyond the above mentioned 8 per cent.
The members of the SCEWR are doubtlessly aware of the fact that investments will inevitably reflect in the price of the water. On the other hand, though, the price should be accessible to all households. Moreover, additional regulations of the Law on Regulation of Water-Supply and Sewerage Services are explicit that the monthly expenditure of a household for a minimum consumption (2.8 cubic metres for a member) should not exceed 4% of the household's average monthly income. Simple calculations show that the limit may easily be exceeded even by a family of two pensioners in Razgrad, for example, who have a total monthly income of BGN150. If they consume the minimum quantity of drinking water, 6 cubic metres, they will pay more than BGN10 (not to mention that water in Northeastern Bulgaria is almost unsuitable for drinking because of the high quantities of limestone in it). Therefore, their bill goes beyond the 4% limit fixed by the law.
However, SCEWR members already see the way out of the vicious circle. We intend to solve the problem by introducing a socially endurable step - up to 3.5 cubic metres of consumed water will be paid at a lower price. That will provide a minimum comfort for drinking and everyday necessities. Water used for irrigation, swimming-pools and so on will be more expensive, professor Shoushoulov said.
The other innovation which the commission is planning to introduce is a change of ownership of the reading appliances. Water-meters are to become property of the respective utility - the old ones will be replaced and the new ones will solve the problem with the inaccurate reading.
How the water branch will accept these plans is another question. The Bulgarian Association for Water-Supply and Sewerage already protested against the fees the commission collected on the regulation. Companies claim that the amount of BGN2,000 per annum plus 0.7% of their sales, along with the other fees they are required to pay, will burden gravely the price of water. The fees the regulator proposes represent a new tax, as they are included in the end value of the service. Citizens should be protected, yet additional expenses are made, the Chairman of the branch association Tenyu Peichev commented.
The same opinion is partially shared by the Ministry of Regional Development and Public Works. In order for the price of water to be bearable, a ceiling will be fixed. However, the three main components - investments, operating costs and fees, will remain below that ceiling. The higher the amount of fees, the less money for operating and capital expenses, Plamen Nikiforov, head of the water utilities direction at the ministry said.
However, SCEWR members are firm that fees are part of their budget revenues and should be higher in order to provide the state treasury with resources, too. We have a limit for our revenues that we have to achieve every year. We should obtain a total amount of BGN2MN from the water sector, but it doesn't mean we want to blackmail the operators. That is why we agreed with slightly cutting the annual regulation fee. It will consist of a variable element - 0.55% of the revenues of water utilities for the previous year, and a constant element which has two fixed values at present. For small water utilities with an annual income below BGN500,000 it will be BGN500, and for the rest - BGN2,000. The constant element will be paid in three parts - in the beginning, in the middle and at the end of the year. In order to ease the operators, we abolished almost all fees due to review of applications and appeals, Konstantin Shoushoulov explained.
Eventually, the growth of water prices cannot be avoided and it is only a matter of time. Still, we should note that there are people who would rather pay more if only they were offered a really quality service. They simply don't want to see their money wasted.

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