97254 DANUBE WATER PROGRAM Water and Wastewater Services in the Danube Region Kosovo Country Note A State of the Sector | May 2015 danube-water-program.org | danubis.org CZECH REPUBLIC UKRAINE DANUBE SLOVAKIA DANUBE AUSTRIA MOLDOVA DANUBE HUNGARY SLOVENIA CROATIA ROMANIA DANUBE DANUBE BOSNIA AND HERZEGOVINA SERBIA BULGARIA MONTENEGRO KOSOVO FYR ALBANIA MACEDONIA Key Water and Sanitation Sector Challenges XXSecuring stable and long-term financing for compliance investments. To achieve long-term compliance with the requirements of European Union legislation in the water sector, as stated in the Kosovo Water Strategy, €1.1 billion will have to be invested in the water sector over the next 20 years. This represents an annual capital expenditure of €55 million, or at least twice the current funds dedicated to investments. XXIncreasing water utility billing collection. An improvement in the cash collection ratio of water companies would increase revenues by 50%. Moreover the current tariff levels burden the budgets of disadvantaged social categories. This threatens the financial sustainability of water utilities which are unable to collect payments from 15% of residential customers belonging to those social categories. XXImproving the efficiency of utilities to enhance their sustainability. Water utility efficiency is currently limited by reduced revenues and increased operational expenses. Improving efficiency could significantly improve the sustainability of utilities by decreasing operational expenditures and providing additional funds for asset renewal and investment. Further resources On water services in the Danube Region XXA regional report analyzing the State of Sector in the region, as well as detailed country notes for 15 additional countries, are available at SoS.danubis.org XX Detailed utility performance data are accessible, if available, at www.danubis.org/eng/utility-database On water services in Kosovo The following documents are recommended as further reading; the documents, and more, are available at www.danubis.org/eng/country-resources/kosovo XXGov. KS. 2014. Kosovo National Water Strategy Document 2015 - 2034. Pristina: Government of the Republic of Kosovo. XXMMPH. 2004. Environmental Strategy and Sustainable Development for Kosovo. Pristina: Ministry of Environment and Spatial Planning of the Republic of Kosovo. XXWWRO. 2013. Annual Performance Report of Water Service Providers in Kosovo, in 2013. Pristina: Water and Wastewater Regulatory Office of the Republic of Kosovo. Acknowledgments. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on part of The World Bank concerning legal status of any territory or the endorsement or acceptance of such boundaries. This note has been prepared by Ramiz Kokollari, local consultant, with the support of Maria Salvetti, consultant, based on the data collection by Ramiz Kokollari. It is part of a regional State of the Sector review led by David Michaud, World Bank, under the Danube Water Program financed by the Austrian Ministry of Finance, whose support is gratefully acknowledged. The authors welcome comments and can be contacted through David Michaud (dmichaud@worldbank.org). Rights and Permissions. The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2422; e-mail: pubrights@worldbank.org. DANUBE WATER PROGRAM WATER SNAPSHOT Sources for all numbers in the snapshot are provided in full in the body of this country page; a complete description of the methodology is provided in the State of the Sector Regional Report, at SoS.danubis.org. Access to services: Danube Danube average, bottom 40% and poor Value Year best average practice 100% Context for Services 80% GDP per capita, PPP [current 8,740 2013 16,902 n.a. 60% international $] 1990- 40% Population [M. inh] 1.824 8.451 n.a. 2013 20% Poverty headcount ratio [$2.50 6.81 2010 1.65 n.a. a day [PPP] [% of pop]] Local government units Piped supply Flush toilet 38 2013 1,987 n.a. [municipalities] Kosovo Danube average Danube best For which, average size [inh] 48,000 2013 4,253 n.a. Total renewable water — — 7,070 n.a. availability [m3/cap/year] Sector Structure Organization of Services Self provision 7 regional water companies Number of formal water 7 2012 661 n.a. 23% service providers 67% Average population served 174,583 2013 9,496 n.a. Water services law? Yes System not Single line ministry? No [but Inter-Ministerial Water Council] managed by RWCs Regulatory agency? Yes [WWRO] 10% Utility performance indicators Yes [www.wwro-ks.org] publicly available? Major ongoing reforms? Endorsement of water strategy Access to Services Sustainability Assessment Access to piped water [%] 96 2010 83 100 Financing Piped water Access Access to flush toilet [%] 84 2010 79 99 Investment Flush toilet Wastewater Performance of Services treatment Affordability coverage Service continuity [hours/day] 22 2013 20 24 Nonrevenue water [m /km/d] 3 59 2013 35 5 Operating Customer cost ratio satisfaction Water utility performance index 65 n.a. 69 94 [WUPI] Non revenue Continuity of service Financing of Services water Operating cost coverage 1.49 2013 0.96 1.49 Staffing level Wastewater compliance Collection ratio Average residential tariff [€/m ]3 0.48 2013 1.32 n.a. Efficiency Quality Share of potential WSS expen- Kosovo Danube average Danube best practice 2.3 2010 2.6 n.a. ditures over average income [%] Based on normalized indicators, closer to the border is better Average annual investment 17 n.a. 23 n.a. Sector Danube Danube best [€/cap/year] Value Average practice Sustainability Assessment 63 64 96 State of Sector | Kosovo Country Note | 1 DANUBE WATER PROGRAM Context for Services EU cand. Danube Danube Indicator Year Source Value average average best Socioeconomic Situation Population [M. inhabitants] 2013 World Bank 2015 1.824 3.053 8.451 n.a. Population growth 1990- World Bank 2015 0.00 -0.33 -0.37 n.a. [compound growth rate 1990 – 2013] [%] 2013 Share of urban population [%] 2011 KAS 2011a 39 51 63 n.a. GDP per capita, PPP [current international $] 2013 World Bank 2015 8,740 11,154 16,902 n.a. Poverty headcount ratio 2010 KAS 2011b 6.81 3.55 1.65 n.a. [$2.50 a day [PPP] [% of pop]] Administrative Organization No. of local government units [municipalities] 2013 KAS 2014 38 85 1,987 n.a. Av. size of local government units [inhabitants] 2013 Authors’ elab. 48,000 35,850 4,253 n.a. Water Resources Total renewable water availability [m3/cap/year] — — — 8,128 7,070 n.a. Annual freshwater withdrawals, domestic — — — 18 26 n.a. [% of total withdrawal] Share of surface water as drinking water source [%] 2014 ICPDR 2015 60 42 31 n.a. Economy. Kosovo is a lower-middle-income country and among the poorest in Europe, with a poverty headcount ratio of 6.8% (KAS 2011b). Kosovo is, however, among the few countries that have shown resilience since the 2008 economic crisis, with sustained economic growth of around 3% (Gov. KS 2014). This growth is due to the country’s macrofiscal stability and to the implementation of ambitious capital infrastructure spending programs. Kosovo is a small country (10,908 km2), with 1.8 million inhabitants (World Bank 2015), among which Roma, Ashkali, and Egyptian minorities face many difficulties. Remittances from the diaspora have played an important role in maintaining a sustainable economic environment by supporting household incomes and domestic demand. However, with a reported unemployment rate of 30% and a youth unemployment rate of 55.9%, the economic climate has not proved sufficient to improve the overall socioeconomic situation (Gov. KS 2014). Despite declared policy aspirations of the Government of Kosovo, the country is not yet an EU candidate. Five EU member states still have not recognized the independence of Kosovo, which is one of the stumbling blocks to further EU integration. The integration process officially began in March 2003, when the Stabilization and Association Tracking Mechanism (STM) between Kosovo and the EU was signed. Negotiations on the Stabilization and Association Agreement between the EU and Kosovo started in October 2013, and were completed in May 2014 (MMPH 2014). Governance. Kosovo is a parliamentary republic defined under a constitution adopted in 2008, after the country declared independence. Its administration is organized at the national and local levels. The country is divided into 7 districts and 38 municipalities (KAS 2014). The municipalities are responsible for local public services, and the responsibility for the provision of water supply and sanitation services is shared between the central and local governments (Law 2012/04-L-147 on Kosovo Waters). Water resources. With 1,600 m3/capita/year, Kosovo has limited renewable internal freshwater resources (MMPH 2004). To partly address hydrologic constraints, Kosovo has developed five large reservoirs (Badovci, Batllava, Gazivoda, Përlepnica, and Radoniqi), which are used for water supply, irrigation, industry, and hydropower generation. Groundwater reserves are limited and are located mainly in western Kosovo. Climate change projections indicate that climate variability will increase, with warmer temperatures and increasingly irregular precipitation, giving rise to an increase in water demand, droughts, floods, and forest fires. The recent precipitation deficit, with less than 50% of the baseline inflow, has already caused a dramatic drop in accumulations in the Batllava, Badovci, and Përlepnica reservoirs, seriously endangering the water supply for the central and eastern parts of Kosovo. Climate change factors are causing increased concern about adequate flood protection in Kosovo. According to the assessment contained in the Water Master Plan of 1983, a 1,000- year flood event could have profound impacts on river basins (the Drini i Bardhë River basin, the Ibri River basin, the Lepenci 2 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM Basin, and the Morava e Binçës basin). This assessment concludes that about 491 km of rivers are threatened by flooding in Kosovo, but only 28% is regulated (MMPH 2014). Water supply sources. Sixty percent of the drinking water in Kosovo comes from surface water (ICPDR 2015). The five reservoirs in use have a current total capacity of 500 Mm3. The quality of raw water from surface water in Kosovo is generally moderate, since the water is abstracted from artificial reservoirs. Some water sources are reportedly polluted or potentially endangered by organic contamination due to lack of wastewater treatment, neglected maintenance of the sewerage system, intensive deforestation, or agriculture. The main rivers downstream of big municipalities and industry, especially downstream of Priština, the capital, are so polluted that the water cannot be used as a source of water supply, and in some places, not even for irrigation. The main polluters of the surface waters are municipalities and industries. Municipalities and communities discharge their wastewater without treatment. There is no precise information on groundwater extraction capacity. As a result of unfavorable hydrological conditions, underdeveloped water resources, and increasing service demand, the country faces quantitative shortages (MMPH 2014). Organization of Services EU cand. Danube Danube Indicator Year Source Value average average best Number of formal water service providers 2012 WWRO 2013 7 75 661 n.a. Average population served [inhabitants] 2013 Authors’ elab. 174,583 28,963 9,496 n.a. Dominant service provider type Public, regional service providers Service scope Water supply, wastewater collection, and treatment Ownership Central government Geographic scope Nationwide Water services law? Yes Single line ministry? No [but Inter-Ministerial Water Council] Regulatory agency? Yes [WWRO] Utility performance indicators publicly available? Yes [www.wwro-ks.org] National utility association? Yes [SHUKOS for water and wastewater] Private sector participation Marginal Service provision. Provision of water and wastewater service is the Figure 1: Water services provider responsibility of Regional Water Companies (RWCs). RWCs are licensed types and market shares and corporatized public service providers. Whereas the central level owns Self provision and administers these providers, municipalities exert control over them 23% through the appointment of utility board members. With 7 operating regional wastewater companies serving 67% of the population, the water sector in Kosovo appears concentrated compared to other countries in the Danube region. The rest of the population (33%) is supplied from water systems managed by communities (nonpublic systems) or individual systems System not (Figure 1). Community-run systems are present in cases where their planned managed by RWCs integration within an RWC is not yet completed or when the community itself 10% resists integration, mostly on tariff grounds.1 The study identified many issues related to community-run systems, such as strong financial constraints and 7 regional water low collection ratios, resulting in low maintenance efforts, deterioration of companies substandard infrastructure, absence of water quality monitoring, and lack of 67% trained staff (Skat 2010). Source: Authors’ elaboration. 1 The gravitational systems prove to be tricky for integration, because the community has objections to tariffs charged by water companies (unified for the whole service area). State of Sector | Kosovo Country Note | 3 DANUBE WATER PROGRAM Policy-making and sector institutions. The water sector in Kosovo is regulated at the national level. The Kosovo water sector is organized following river basin management principles, and the country has developed a consistent strategy and master plan. The Kosovo water sector involves relationships among various actors at the national level (Figure 2), the most important of which are:: XX The Ministry of Environment and Spatial Planning, which is responsible for management and administration of Kosovar water resources, which include drafting laws and sublegal acts, development of policies and strategy, issuing and monitoring water rights, protection of water resources, and inspection (MMPH 2015). XX The Ministry of Economic Development, through its Policy and Monitoring Unit and the Board of Directors of water companies, is responsible for administration of Regional Water Companies. Whereas Policy and Monitoring Unit staff are ministerial staff, the Board of Directors is composed of experts appointed by the ministry for a three-year period following a competitive process, with applications and interviews. Half of the members, including the chairman, represent the ministry, and the rest represent serviced municipalities (MZHE 2015). XXThe Water and Wastewater Regulatory Office, which is responsible for the economic regulation of the water sector. Regulation includes licensing of water companies, tariff setting, setting minimum service standards, and monitoring of customer protection. The director and his or her deputy are appointed by Parliament, whereas the rest of the staff involved in sector regulation are permanent personnel (WWRO 2015). XX The Inter-ministerial Council for Waters, which is composed of seven members from four line ministries2 and is chaired by the prime minister of Kosovo. The council provides opinions on and recommendations for laws and other sublegal acts relating to water management and their implementation, drafting and approval of the National Water Strategy, and policy development in the field of water (KNMU 2015). XX The National Institute for Public Health (NIPH), which is responsible for monitoring drinking water quality. NIPH is part of University Clinical Center of Kosovo and has contractual arrangements with water companies for monitoring drinking water quality (NIPH 2015). Capacity and training. Stakeholder capacity has improved significantly, but further enhancement is needed, especially in technical areas. In recent years, stakeholders have gained competence and expertise in areas such as operational management, corporate governance, economic regulation, policy planning, and service compliance. Despite evident progress, further enhancement of capacities is needed, especially with respect to service providers and in the fields of efficiency improvement, capital investment planning, and service compliance. According to the 2013 Household Budget Survey published by the Statistical Agency of Kosovo, the average monthly wage in Kosovo is €336, which is considerably less than the average monthly wage of employees in RWCs (€517) (KAS 2013). A high remuneration level combined with a high unemployment rate makes employment in water utilities attractive. The workforce reluctance to leave water utilities, and the limitations on new staff recruitment for efficiency reasons, considerably reduce staff turnover. Despite positive developments in recruiting qualified personnel, a majority of staff have only secondary education3. Given the need to address imminent efficiency challenges, such as nonrevenue water (NRW) reduction, cost efficiency improvement, and sustainable asset management, enhancing the qualifications of utility staff is a necessity. For now, donor projects play the main role in capacity building of utility staff.4 The water and wastewater association of Kosovo, SHUKOS, established in 2001, also aims at developing more structured training and capacity-building programs. Economic regulation. Since 2002, economic regulation has been under the umbrella of a dedicated Regulator for Water and Wastewater Services. Tariffs for water and wastewater service are regulated by the Water and Wastewater Regulatory Office. The tariff-setting process is carried out once every three years according to the Regulator’s guidance. The approved tariffs cover a three-year period and are reviewed in the second and third year. Service providers estimate tariffs and investment plans following a specific process, and submit their request for approval to the Board of Directors. Following the board’s endorsement, these tariffs are submitted for final approval to the regulator. The tariff-setting process is carried out among service providers, the regulator, and customer consultative committees. In principle, tariffs should provide adequate recovery of operating expenses and investments on the one hand, and remain affordable for serviced customers, 2 The Prime Minister (Chairperson), the Minister of Environment and Spatial Planning, the Minister of Economic Development, the Minister of Local Governance, the Minister of Finance. The donor community is also part of the Council albeit with no voting powers. 3 The RWC’s business plan, Hidroregjioni Jugor Prizren, indicates that 15% of staff are highly qualified and 64% have secondary education. 4 Capacity-building projects target increased cash collection, reduction of NRW, and improvement of commercial practices. 4 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM Figure 2: Water services sector organization Water & Ministry of National National level R Wastewater Regulatory R Ministry of Environment P Council for Waters I Economic Development R Institute for Public Health Office Regulates tariffs, Disusses Implements Finances Controls�drinking service quality policies policies investments water�quality Regional level R - Regulation I Local Water/sewer P - policies Local level Government S company R I - investments S - service provision Governs, approves tariffs Source: Authors’ elaboration. on the other hand. To simulate market conditions and promote Good Practice Incentives performance improvement, the regulator imposes on service providers for Performance Improvement the achievement of targets in terms of water production, water billed, To simulate market conditions for a natural nonrevenue water, operating expenses, billing, etc. In practice, service monopoly service provider, the regulator imposes providers fall short of meeting some revenue targets (20.3% of providers), the achievement of specific performance targets. collection rates (23.2%), and investments (52.8%), but exceed committed Targets refer to water production, water billed, targets for other indicators, such as NRW (6.1%) and operating expenses nonrevenue water, operating expenses, billing, (25.6%). If service providers successfully reach performance targets, they etc. These targets are also embedded in the tariff are entitled to benefit from tariff adjustments (WWRO 2015). estimations. Water companies are incentivized to reach these targets, since they can adjust their Ongoing or planned reforms. The Kosovo utility sector completed tariffs for the inflation factor. implementation of structural reforms during 2000–2007. As a In addition, each year the regulator ranks result, no further reform needs have been identified. Emphasis is now water companies according to their overall on strengthening the implementation of framework obligations, with a performance. The regulator selects the best- special focus on sector sustainability and performance improvement performing company and the company that has (WWRO 2015). most improved its performance during the year. Access to Services EU cand. Danube Danube Indicator Year Source Value average average best Water Supply Piped supply – average [%] 2010 Authors’ elab. 96 89 83 100 Piped supply – bottom 40% [%] 2010 Authors’ elab. 93 81 76 100 Piped supply – below $2.50/day [PPP] [%] 2010 Authors’ elab. 84 73 61 100 Including from public supply – average [%] 2011 KAS 2011a 67 71 74 99 Sanitation and Sewerage Flush toilet – average [%] 2010 Authors’ elab. 84 90 79 99 Flush toilet – bottom 40% [%] 2010 Authors’ elab. 80 81 70 98 Flush toilet – below $2.50/day [PPP] [%] 2010 Authors’ elab. 76 76 54 100 Including with sewer – average [%] 2011 KAS 2011a 53 53 66 94 Wastewater Treatment Connected to wastewater treatment plant [%] 2013 Expert estimate 1 9 45 95 State of Sector | Kosovo Country Note | 5 DANUBE WATER PROGRAM Service coverage. The vast majority of the population of Kosovo has access Data Availability to safe water and sanitation services. Ninety-six percent of the population has Sources used in compiling the statistical access to piped water service within their dwellings (Figure 3). Only 4% of the information on water services for population has no access to piped water systems. Water service is provided this report include the 2011 census by public companies (67%) and by independently operated systems (10%). The conducted by the Statistical Agency remaining households (23%) are supplied by individual systems. 53% of the of Kosovo, the Kosovo Water Strategy population is covered by public sewage and wastewater collection. 84% of the 2014–2033, Annual Performance population has access to improved sanitation services. Wastewater treatment Reports issued by the Water and covers 1% of the population and is provided by public service operators (Expert Wastewater Regulatory Office, Historical estimate). Service coverage differs in urban and rural areas; 100% of the urban Investment Trends in the Water Sector population has access to a public water supply compared to 66% of the rural in Kosovo, and the Coverage Study population, and 60% of the urban population has access to public wastewater and Assessment of Water Supply and service compared to 42% of the rural population (WWRO 2013). Sanitation Systems in Kosovo. Equity of access to services. Compared to urban inhabitants, rural inhabitants have lesser access to public water and sewerage services, and poor households encounter hardships paying water bills. Access to public service in Kosovo is unequal between urban and rural areas due to historical reasons, though the situation is continuously improving thanks to sizable infrastructure investment. Moreover, 84% of the poorest segment of the population (living on less than $2.50/day) has access to piped water supply and 76% to flush toilets (Authors’ elaboration). Affordability remains a serious concern for the poorest segment of the population, however, especially since there is no water bill exemption or assistance scheme in place for these populations. There is no statistical information available regarding access to water and sanitation for marginalized minorities. 100% Total Figure 3: Access to 90% 96% water and sanitation: Bottom 40% Total total population, 80% 93% 84% bottom 40% of the Bottom 40% population and poor 70% 80% Source: Authors’ elaboration, KAS 2011a and expert estimate. 60% 50% Poor Poor 40% 84% 76% 30% 67% 53% 20% 10% 1% 0% Piped water Public supply Flush toilet Sewer Wastewater treatment Value Value Year Source Water Wastewater Number of treatment plants 9 2 2013 Expert estimate Length of network [km] 3,836 1,660 2013 Expert estimate Average connections per km of network 67 103 2013 Expert estimate Service infrastructure. The water infrastructure is relatively well developed, yet the situation for wastewater is not satisfactory. Thanks to persistent investments, the old and obsolete water network infrastructure is being replaced, with continuous improvements in that respect. The wastewater network is half the length of the water network, and substantial investment is needed to improve it. The most critical situation, though, relates to the wastewater treatment service, for which the infrastructure is inadequate (WWRO 2013). 6 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM Performance of Services Service Quality EU cand. Danube Danube Indicator Year Source Value average average best Residential water consumption [liters/capita/day] 2013 WWRO 2013 93 165 122 n.a. Water supply continuity [hours/day] 2013 WWRO 2013 22 19 20 24 Drinking water quality 2013 WWRO 2013 98 83 93 99.9 [% of samples in full compliance] Wastewater treatment quality — — — n.a. 79 100 [% of samples in full BOD5 compliance] Sewer blockages [number/km/year] 2013 IBNet 2015 5.0 9.3 5.0 0.2 Customer satisfaction 2013 Gallup 2013 60 63 63 95 [% of population satisfied with services] Quality of service. Water service quality is relatively good, with further possible improvement. Yet the lack of wastewater collection, and especially treatment infrastructure, affects the quality of wastewater service. According to the 2013 performance report, microbiological compliance for the whole water sector was 98.4%, and physical-chemical compliance rose to 97% (WWRO 2013). In most cases of breach, bacteriological water quality has been downgraded by the presence of coliform and e-coli. Service continuity in 2013 was 22 hours/day (WWRO 2013). Customer satisfaction. Customer satisfaction surveys are conducted yearly. It is mandatory for each public water company to conduct an annual customer satisfaction survey and to report the outcomes to the Ministry of Economic Development. The results of the 2013 survey show 40% of customers are very satisfied with service, 43% are satisfied, 14% are moderately satisfied, and only 4% are not satisfied (MZHE 2015). According to the Gallup international poll, 60% of the Kosovar population is satisfied with the water service provided. This rate is lower than other countries in the Danube region (Gallup 2013). Efficiency of Services EU cand. Danube Danube Indicator Year Source Value average average best Nonrevenue water [%] 2013 WWRO 2013 57 50 35 16 Nonrevenue water [m /km/day] 3 2013 IBNet 2015 59 41 35 5 Staff productivity [water and wastewater] [number of 2013 WWRO 2013 6.6 11.5 9.6 2.0 employees/1,000 connections] Staff productivity [water and wastewater] [number of 2013 IBNet 2015 0.7 2.4 1.7 0.4 employees/1,000 inh. served] Billing collection rate [cash income/billed revenue] [%] 2013 WWRO 2013 71 85 98 116 Metering level [metered connections/connections] [%] 2013 WWRO 2013 91 81 84 100 Water Utility Performance Index [WUPI] n.a. Authors’ elab. 65 59 69 94 Overall efficiency. The efficiency of service providers is moderate, with significant room for improvement. Despite steady improvements in recent years, efficiency gains can still be made. For instance, nonrevenue water levels in 2013 reached 57%, negatively affecting service costs and service level (WWRO 2013). This high level of NRW is due to a combination of factors including outdated infrastructure, outdated metering devices, data- State of Sector | Kosovo Country Note | 7 DANUBE WATER PROGRAM handling errors, and water misuse. Staff productivity in 2013 was 6.6 employees per 1,000 connections (WWRO 2013). The billing collection rate was 71%, revealing internal utility inefficiencies and unresolved affordability issues with customers (WWRO 2013). Recent trends. Efficiency of water and wastewater utilities is improving, but at a modest pace. Implementation of a performance monitoring platform in Kosovo in 2005 has enabled tracking and monitoring performance development of water and wastewater utilities. During 2005–2013, the billing collection ratio and the metering level increased steadily, allowing better measurement of water consumption and generation of more revenues for utilities. However, other indicators, such as NRW, showed no efficiency gains (Figure 4). The staffing level and operating ratio remained stable, with limited improvement. As a result, operations costs still prevent further efficiency gains (WWRO 2013). Figure 4: Evolution of key indicators in a subset of Kosovar utilities 80% 65% 60% 70% 55% Non revenue water (%) Collection ratio (%) 60% 50% 45% 50% 40% 40% 35% 30% 30% 25% 20% 20% 2005 2007 2009 2011 2013 2005 2007 2009 2011 2013 9 95% 8 90% Staffing/1000 connections 7 85% Metering level (%) 6 80% 5 75% 4 70% 3 65% 2 60% 1 55% 0 50% 2005 2007 2009 2011 2013 2005 2007 2009 2011 2013 Source: WWRO 2013. 8 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM Financing of Services Sector Financing EU cand. Danube Danube Indicator Year Source Value average average best Sources of Financing Overall sector financing [€/capita/year] Authors’ elab. 22 29 62 n.a. Overall sector financing [share of GDP] [%] Authors’ elab. 0.34 0.34 0.45 n.a. Percentage of service cost financed from tariffs Authors’ elab. 34 67 67 n.a. Percentage of service cost financed from taxes Authors’ elab. 37 17 13 n.a. Percentage of service cost financed from Authors’ elab. 29 16 20 n.a. transfers Service Expenditure Average annual investment [share of overall Authors’ elab. 77 32 38 n.a. sector financing] [%] Average annual investment [€/capita/year] Authors’ elab. 17 9 23 n.a. Estimated investment needed to achieve targets 2014-2034 Gov. KS 2014 29 37 43 n.a. [€/capita/year] Of which, share of wastewater management [%] Authors’ elab. 69 70 61 n.a. Overall sector financing. Tariffs fully cover O&M expenses but the sector relies on external funding for capital investment. Water and wastewater utilities are organized according to self-financing principles (application of cost recovery tariffs). Yet due to inefficiency, service providers cannot recover O&M expenses, which must be complemented by subsidies. The municipal service Mitrovica receives local subsidies to cover its O&M expenses. Investments represent 77% total sector spending and are funded through transfers and national taxes fund (Figure 5). Figure 6 graphically displays the main sources of funding of water and wastewater utilities, using the OECD’s three Ts methodology (tariffs, transfers, and taxes). 100% Figure 5: Overall utility sector financing 90% (2009–2013) Transfers 80% 29% Source: Authors’ elaboration. 70% Investment 60% 77% Taxes (national) 50% 35% 40% Taxes (local) 30% 2% 20% Tarifs (utility) O&M 10% 34% 23% 0% Financing Spending Investment needs. Investments in the water and wastewater sector are substantial, but are still insufficient to meet demand. In the Kosovo Water Strategy, investments needed are estimated to exceed €1 billion over the next 20 years, which represents a total effort of 17.3% of GDP and a yearly effort of 0.86% of GDP. Investment needed for State of Sector | Kosovo Country Note | 9 DANUBE WATER PROGRAM water amounts to €350 million—€128 million for extension of water supply, €93 million for drinking water treatment, and €143 million for rehabilitation of the existing network. Investments needed for wastewater amount to €740 million, including €300 million for sewerage extension, €220 million for wastewater treatment, and €220 million for rehabilitation of existing sewers. To meet these needs, investment needs to be doubled over the projected period to €29/capita/year (Gov. KS 2014). Figure 6: Main sources of funding of water & wastewater services Loans repayments (funded by national taxes) EU funds IFI loans Water and wastewater National Budget regulatory office Subsidies (funded Transfer Transfer by national taxes) Regulatory fee Water and wastewater utilities Subsidies National (funded by taxes local taxes) Tariff Consumers and polluters Local taxes Local govrnment budget Source: Authors’ elaboration. Investments. The main funding for investments comes from donors, international financial institutions, and the government, with modest contributions from utilities. Since the end of the conflict in 1999, more than €250 million has been invested in the water and wastewater sector, representing €17/capita/year and 0.3% of GDP per year. Seventy-four percent of those investments were funded by international donor institutions and 26% by the central government budget through taxes. Since 2009, the funding scheme has been more balanced, with a noticeable increase in the government’s contribution to 54%, a decline in donor grants to 42%, and water company funding of 4% of all investments (Figure 7). Cost Recovery and Affordability EU cand. Danube Danube Indicator Year Source Value average average best Cost Recovery Average residential tariff 2013 WWRO 2013 0.48 0.57 1.32 n.a. [incl. water and wastewater] [€/m3] Operation and maintenance unit cost [€/m3] Authors’ elab. 0.22 0.45 1.20 n.a. Operating cost coverage 2013 WWRO 2013 1.49 1.01 0.96 1.49 [billed revenue/operating expense] Affordability Share of potential WSS expenditures over 2010 Authors’ elab. 2.3 1.6 2.6 n.a. average income [%] Share of potential WSS expenditures over 2010 Authors’ elab. 3.4 2.5 3.8 n.a. bottom 40% income [%] Share of households with potential WSS 2010 Authors’ elab. 3.8 1.6 14.1 n.a. expenditures above 5% of average income [%] 10 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM 30 Figure 7: Evolution of investments levels, sources, 25 and uses (M€) Source: Authors’ elaboration. 20 15 Use sanitation Use water 10 Source national 5 Source international 0 Source sub-national 2009 2010 2011 2012 Cost recovery. Water and wastewater service providers fall short of funding for investment projects. Kosovo’s legal framework requires application of full cost recovery principles for water tariff setting. Service tariffs foresee the achievement of several targets, implying improvement in billing and cash collection efficiency, reduction of water losses, optimization of costs, and implementation of investment plans. Yet these targets are not achieved, causing reduced available cash and increased O&M expenses. As a consequence, water companies hardly meet running operating expenses and have to limit capital investment. To a large extent, this gap is covered through government funding and donor grants. Some operational subsidies are provided to the Mitrovica Water Company to cover costs incurred for water provision for the northern part of the city5. (Gov. KS 2014) Figure 8: Evolution of average tariff and share of potential expenditure in income 1.2 5% Residential 1 Industrial 4% 3.4% Average tariff (€/m3) 0.8 3% 0.6 2.3% 0.4 2% 0.2 1% 0 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 Average Bottom 40% Source: WWRO 2013 and authors’ elaboration. Tariffs. Since 2006, Kosovo has set tariffs according Reformation of Water and Wastewater Utility Sector to cost recovery principles, supervised by a regulator. During 2001–07, Kosovo embarked on water and wastewater Since 2006, tariffs have been designed according utility sector reforms. Small municipal companies offering to sound economic principles and are set for one water and wastewater services in addition to other municipal year. Three tariff-setting reviews have been carried services underwent an unbundling transformation process. out—during 2007–08, 2009–11, and 2012–14. Tariff Establishment of the Water and Wastewater Regulatory structures for both water and wastewater service Office in 2004 complemented the reform process. Seven contain a standing fee and a volumetric charge. These regional water companies were then established according fees can be set at different levels in each of the 7 to commercial principles, with clean-cut assets, consolidated water utilities, and water price can differ depending on accounts, and two management levels. 5 The northern part of Mitrovica, which is mostly populated by the Serb minority, is supplied with bulk water from Mitrovica Regional Water Company due to technical conditions. Government subsidies pay for these water services. State of Sector | Kosovo Country Note | 11 DANUBE WATER PROGRAM customer type (residential, commercial, or institutional). For instance, the standing fee amounts to €1/month for residential customers and €3/month for commercial and institutional customers. Tariffs as set by the regulator are supposed to cover running and capital costs. In practice, however, due to problems in billing collection and low cost efficiency of utilities, they hardly cover O&M costs, falling short of securing adequate capital funds (WWRO 2013). Affordability. Water and sanitation services are affordable for a majority of the Kosovar population, except for poor households. The mean water and sanitation invoice potentially represents 2.3% of household average income. But this ratio amounts to 3.4% for households in the bottom 40% of monthly income connected to public service (Figure 8). The situation is further aggravated for social categories that are not exempt from water bills and receive no supporting subsidies. Water Sector Maturity and Main Challenges To evaluate and reflect the sustainability of services in the Figure 8: Sector Maturity Assessment, Kosovo region, an overall sector sustainability assessment was conducted taking into account four main dimensions: Financing Access Piped water access to services, quality of services, efficiency of Investment Flush toilet services, and financing of services. Each of these dimensions is measured through three simple and objective indicators. For each indicator, best practice values Wastewater Affordability treatment are established by looking at the best performers in the coverage region, and countries closest to those best performers are deemed to have a more mature sector. A more Operating Customer complete description of the methodology to assess sector cost ratio satisfaction sustainability is included in the Annex of the State of the Sector Regional Report from the Danube Water Program. The outcomes of this assessment for the Kosovo water Non revenue Continuity sector are presented in Figure 9, which also shows average water of service and best practices in the Danube region. As a result, the Kosovo sector sustainability score is 63, which is close to Wastewater Staffing level compliance the Danube average sustainability of 64. The assessment shows that, on average, the country performs well in terms Eficiency Collection ratio Quality of access to piped water and flush toilets, continuity of service, staffing level and operating cost ratio. The main Kosovo Danube average Danube best practice deficiencies identified through the sector sustainability assessment are the investment level, nonrevenue water, Source: Authors’ elaboration. and wastewater treatment coverage (Authors’ elaboration). The main sector challenges are: XXSecuring stable and long-term financing for compliance investments. Kosovo Water Strategy Objective No. 2.5 “Approximation of National Legislation with EU Directives” establishes the principle of “Achiev[ing] long-term compliance with the requirements of European Union legislation in the water sector.” To achieve this objective, €1.1 billion will have to be invested in the water sector over the next 20 years. This represents an annual capital expenditure of €55 million, or at least twice the current funds dedicated to investments (Gov. KS 2014). This will require an increase in utility internal funding sources and in government grants. Another option might lay in borrowing soft loans and attracting private investment. 12 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM XXIncreasing water utility billing collection. The Kosovo regulatory framework requires water companies to charge full-cost tariffs and that no customer is exempt from water bill payment regardless of their social category. An improvement in the cash collection ratio of water companies would increase revenues by 50%. The current level of tariffs burdens the budget of disadvantaged social categories, which receive no assistance in paying their water bills. This situation threatens the financial sustainability of water utilities, since revenues from tariffs are used to recover operational costs. Indeed, water companies indicate that it is almost impossible to collect water bill payments from 15% of customers in the socially disadvantaged categories (Gov. KS 2014). XXImproving the efficiency of utilities to enhance their sustainability. Performance improvement of key indicators remains modest compared to historical trends. The existing level of efficiency is limited by reduced revenues and increased operational expenses. As a consequence, most utility cash is spent in recovering recurrent costs, with minimal O&M efforts, which adversely affects service quality. There is great potential associated with efficiency improvement, since nonrevenue water and energy cost reduction could decrease operating costs by 25%. This would result in a significant improvement of utility sustainability, with greater O&M efforts and additional available funds for asset renewal and investment (Gov. KS 2014). Sources XXGallup. 2013. World Poll. Accessed 2015. http://www. XX—. 2014. Climate Change Framework Strategy for gallup.com/services/170945/world-poll.aspx. Kosovo. Pristina: Ministry of Environment and Spatial XXGov.KS. 2014. Kosovo National Water Strategy Planning of the Republic of Kosovo. Document 2015 - 2034. Pristina: Government of the XX—. 2015. Ministry of Environment and Spatial Planning of Republic of Kosovo. the Republic of Kosovo. Accessed 2015. http://mmph- XXIBNet. 2015. The International Benchmarking Network rks.org. for Water and Sanitation Utilities. Accessed 2015. http:// XXMZHE. 2015. Ministry of Economic Development of the www.ib-net.org. Republic of Kosovo. Accessed 2015. http://mzhe.rks- XXICPDR. 2015. International Commission for the gov.net. Protection of the Danube River. Accessed 2015. http:// XXNIPH. 2015. National Institute of Public Health of the www.icpdr.org. Republic of Kosovo. Accessed 2015. http://www.niph- XXKAS. 2011a. Kosovo Agency of Statistics: Kosovo kosova.org. Population and Housing Census. Accessed 2015. XXSkat.2010. Coverage and Sustainability Study of Rural https://ask.rks-gov.net/eng. Water Schemes in South Eastern Kosovo. St. Gallen: XX—.2011b. Results of Household Budget Survey. Pristina: Swiss Resource Centre and Consultancies for Kosovo Agency of Statistics. Development. XX—. XXWorld Bank. 2015. World Development Indicators. 2013. Results of Household Budget Survey. Pristina: Kosovo Agency of Statistics. Accessed 2015. http://databank.worldbank.org/data/ views/reports/tableview.aspx. XX—.2014. Kosovo in Figures 2013. Pristina: Kosovo XXWWRO. 2013. Annual Performance Report of Water Agency of Statistics. Service Providers in Kosovo, in 2013. Pristina: Water XXKNMU. 2015. The Office of the Prime Minister of the and Wastewater Regulatory Office of the Republic of Republic of Kosovo - Inter-Ministerial Water Council. Kosovo. Accessed 2015. http://www.kryeministri-ks.net/tfu. XX—. 2015. Water and Wastewater Regulatory Office of the XXMMPH. 2004. Environmental Strategy and Sustainable Republic of Kosovo. Accessed 2015. http://www.wwro- Development for Kosovo. Pristina: Ministry of ks.org. Environment and Spatial Planning of the Republic of Kosovo. Kosovo Country Note The World Bank / IAWD Danube Water Program supports smart policies, strong utilities, and sustainable water and wastewater services in the Danube Region by partnering with regional, national, and local stakeholders, promoting an informed policy dialogue around the sector’s challenges and strengthening the technical and managerial capacity of the sector’s utilities and institutions. DANUBE WATER PROGRAM www.danube-water-program.org | www.danubis.org | SoS.danubis.org office@danube-water-program.org