97228 DANUBE WATER PROGRAM Water and Wastewater Services in the Danube Region Czech Republic 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 Key Water and Sanitation Sector Challenges MACEDONIA X Implementing reform regarding the regulatory framework of the sector. Within the framework of the 2014-2020 Operational Program for Environment, the European Commission stipulated ex-ante conditions, requiring the Czech Republic to establish a regulatory office for the sector. Different alternatives are discussed at the governmental level, and regulatory impact assessment papers are being prepared. X Facilitating sector strategic planning despite the heterogeneity of the utility ownership structure. Around 6,000 entities (owners, public services providers) operate in the water sector (Expert estimate). To some extent, the heterogeneity of those entities in terms of size, legal status, scope of competencies, and interests prevent effective strategic planning, resource balancing, and efficient asset management of regional systems, including drought and water scarcity issues management. Further resources On water services in the Danube Region X A 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 X Detailed utility performance data are accessible, if available, at www.danubis.org/eng/utility-database On water services in Czech Republic The following documents are recommended for further reading; the documents, and more, are available at www.danubis.org/eng/country-resources/czech-republic X MZe & MŽP. 2013. Report on Water Management in the Czech Republic 2013. Prague: Ministry of Agriculture & Ministry of Environment of the Czech Republic. X MŽP. 2007. The Operational Environment Programme for the Period 2007–2013. Prague: Ministry of Environment of the Czech Republic. 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, ts 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 Miroslav Klos, local consu tant, with the support of Maria Salvetti, consultant, and David Michaud, World Bank, based on the data collection by Miroslav Klos. 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. Danube Danube Access to services: Value Year best average practice average, bottom 40% and poor 100% Context for Services 80% GDP per capita, PPP [current 27,344 2013 16,902 n.a. international $] 60% Population [M. inh] 10.512 2013 8.451 n.a. 40% Poverty headcount ratio [$2.50 0.05 2008 1.65 n.a. 20% a day [PPP] [% of pop]] Local government units 6,253 2014 1,987 n.a. Piped supply Flush toilet [municipalities] Czech Republic Danube average Danube best For which, average size [inh] 1,681 2013 4,253 n.a. Total renewable water 2008- 1,234 7,070 n.a. availability [m3/cap/year] 2012 Sector Structure Organization of Services Se f provision 6% Number of formal water 2,317 village 2,438 2013 661 n.a. administration service providers 11% Average population served 3,993 2013 9,496 n.a. 50 municipal Water services law? Yes companies 50 private concessions 10% 46% Single line ministry? No Regulatory agency? No 21 mixed Utility performance indicators capital util ties No publicly available? 27% Governmental discussion regarding the ent ty Major ongoing reforms? that is to regulate the sector Access to Services Sustainability Assessment Access to piped water (%) 100 2012 83 100 Financing Piped water Access Investment Flush toilet Access to flush toilet (%) 98 2012 79 99 Wastewater treatment Performance of Services Affordabil ty coverage Service continuity [hours/day] 24 2013 20 24 Operating Customer Nonrevenue water [m3/km/d] 5 2012 35 5 cost ratio satisfaction Water utility performance index 91 n.a. 69 94 [WUPI] Non revenue Continu ty water of service Financing of Services Staffing level Wastewater Operating cost coverage 1.18 2013 0 96 1.49 compliance Collection ratio Efficiency Quality Average residential tariff [€/m3] 2.75 2013 1.32 n.a. Czech Republic Danube average Danube best practice Share of potential WSS expen- Based on normalized indicators, closer to the border is better 2.0 2012 2.6 n.a. ditures over average income [%] Sector Danube Danube best Value Average annual investment Sustainability Average practice 62 n.a. 23 n.a. [€/cap/year] Assessment 88 64 96 State of Sector | Czech Republic Country Note | 1 DANUBE WATER PROGRAM Context for Services EU MS Danube Danube Indicator Year Source Value average average best Socioeconomic Situation Population [M. inhabitants] 2013 World Bank 2015 10.512 8.481 8.451 n.a. Population growth 1990- World Bank 2015 0.08 -0.26 -0.37 n.a. [compound growth rate 1990 – 2013] [%] 2013 Share of urban population [%] 2013 World Bank 2015 73 63 63 n.a. GDP per capita, PPP [current international $] 2013 World Bank 2015 27,344 24,535 16,902 n.a. Poverty headcount ratio 2008 World Bank 2015 0.05 1.86 1.65 n.a. [$2.50 a day [PPP] [% of pop]] Administrative Organization No. of local government units [municipalities] 2014 CZSO 2015 6,253 2,335 1,987 n.a. Av. size of local government units [inhabitants] 2013 Authors’ elab. 1,681 3,632 4,253 n.a. Water Resources 2008- FAO Aquastat Total renewable water availability [m3/cap/year] 1,234 10,142 7,070 n.a. 2012 2015 Annual freshwater withdrawals, domestic 2013 World Bank 2015 42 38 26 n.a. [% of total withdrawal] Share of surface water as drinking water source 2014 ICPDR 2015 26 16 31 n.a. Economy. The Czech Republic, an EU member since May 2004, is a stable and prosperous market economy. With a per capita GDP of $27,344 (in current international dollars), the Czech Republic is considered a high-income country and belongs to the most developed economies in Europe. The country has a population of more than 10.5 million, and a population density of 136 inhabitants/km2. Seventy-three percent live in urban areas (World Bank 2015). While Czech socioeconomic inequalities are not great, the unemployment rate is estimated at around 7% (World Bank 2015), and approximately 9% of the population lives below the national poverty line (World Bank 2015). The Roma are considered a vulnerable minority; the official number of Roma is 0.13% of the population (CZSO 2013), which is far below the estimated real number of 1.4 to 2.8% of the population (ERRC 2013). Governance. The Czech Republic is a unitary state and is divided into 14 regions (13 regions and the City of Prague). The regional authorities also perform state administration. There are 6,253 municipalities, which are the smallest territorial units (comprising one or several villages). Of this number, 205 have extended powers and perform state administration at the local level (CZSO 2015). The central authority for water management is in the Ministry of Agriculture (including water supply and sewerage services). Regional authorities perform state administration of water management. Infrastructure is mostly owned by municipalities. Towns and villages are the lowest level of self- government, and they are responsible for provision of public services. Water resources. The Czech Republic is a landlocked country, and all its water flows out of the country into neighboring states. Therefore, renewable water sources are totally dependent on atmospheric precipitation. Average volume of total renewable water resources (surface water sources and usable groundwater sources) is 1,234 m3 per capita per year (FAO Aquastat 2015). According to the Falkenmark indicator, this average volume corresponds to a situation of “water stress” which, in the case of Czech Republic, is compensated by water intakes from rivers. The Czech Republic belongs to 3 international basins (the Elbe, Oder, and Danube); 63.4% of the territory (western part) belongs to the Elbe River basin, 9.2% is located in the northern part of Moravia and is part of the Oder River basin, and 27.4% is situated southeast in Moravia and belongs to the Danube River basin (MZe & MŽP 2006). The River Basin Management Plan became a mandatory basis to compile the river sub-basin management plans in accordance with Water Framework Directive (WFD) requirements. The entire country is classified as a “sensitive area” under the EU Urban Wastewater Treatment Directive. The Czech government approved the National Program to Mitigate Climate Change Impacts, and the country has gone to great effort to implement water anti-erosion measures and to improve the water regime and water management in the country. 2 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM Water supply sources. Drinking water comes ground sources. Watercourse and water resources management has been based on hydrologic basins since the 1940s, making water resources management in the Czech Republic, including planning, fully in compliance with the global trend toward Integrated Water Resources Management (IWRM). Principles of water management are contained in the government’s 2007 Main River Basins Management Plan of the Czech Republic. Anyone who extracts surface water or groundwater must obtain a permit from the water authority. Payments and charges for surface water extraction, including the mechanism of payment, are mandated by law. Anyone who discharges wastewater into surface water or groundwater must also obtain a permit from the water authority. Compliance with permit conditions is overseen by the river basin manager or water authority that issued the permit, under the supervision of the Czech Environmental Inspectorate. Sanctions can be imposed for noncompliance. Organization of Services EU MS Danube Danube Indicator Year Source Value average average best Number of formal water service providers 2013 Expert estimate 2,438 1,060 661 n.a. Average population served [inhabitants] 2013 Authors’ elab. 4,057 6,643 9,496 n.a. Dominant service provider type Private concession Service scope Water/wastewater Ownership Municipalities Geographic scope Cities/regions Water services law? Yes Single line ministry? No Regulatory agency? No Utility performance indicators publicly available? No National utility association? Yes [SOVAK for water and wastewater] Private sector participation Yes / in mixed and separate model Service provision. Municipalities as owners of assets are Figure 1: Water services provider responsible for provision of public water services. Figure 1 types and market shares shows water service providers by type and market share. The Self provision most dominant operating model is a private concession (46% of 6% the population) in the form of a “separate model” based on long- 2,317 village 50 private term operating contracts. Mixed capital utilities (which provide administration concessions services to 27% of the population), refers to utilities that operate 11% 46% and own infrastructure. Municipalities, as in other countries in the 50 municipal Danube region, are shareholders in the utility and provide service companies to 10% of the population. Village administrations (departments or 10% public services) provide water services to 11% of the population, and around 6% of the population operate their own wells or water sources. More than 95% of utilities provide both water and wastewater services. The private sector is represented by 21 mixed multinational groups such as Veolia (France), Suez Environment cap tal utilities (France), Aqualia (Spain), and Energie AG (Austria). Due to 27% previous privatization processes, however, Spanish and Japanese Source: Expert estimate. shareholders are also involved in mixed models and therefore operate and own infrastructure, as well (Expert estimate). State of Sector | Czech Republic Country Note | 3 DANUBE WATER PROGRAM Policy-making and sector institutions. The sector is controlled at the national level. As shown in Figure 2, local service providers are regulated and controlled by several national-level actors with a clear line ministry, which are: X The Ministry of Agriculture, which is the line ministry in charge of water sector policy; water resources management; river basin management; watercourses and major water supply reservoirs management; and regulation of drinking water supply, sewerage, and wastewater treatment. The ministry also regulates water services quality. X The Ministry of Environment, which is responsible for protection of surface and groundwater from pollution, and regulation of wastewater discharges. X The Ministry of Finance, which provides regulation and control over surface water fees and water and wastewater tariffs. X The National Institute of Public Health, which is responsible for drinking water quality control. Figure 2: Water services sector organization National Ministry P Ministry Ministry National R of of P of R Institute of level Finance R Agriculture Environment Public Health Regulates and Implements policies Protects water Controls drinking controls tar ffs Regulates water & Regulates wastewater water quality san tation services discharges Regional level Mixed operational model I P Municipalities Regional water/sewer company R - regulation Local Own, govern Consent to tariffs S P - policies level I - investments Concession model S - service provision I Municipalities Own, govern S Municipal water/sewer company Consent to tariffs Finance investments Source: Authors’ elaboration. Capacity and training. Large utilities are key players in staff Czech Waters capacity building. International groups (Veolia, Suez, Aqualia, Energie SVS (Severočeská water company), a AG) that are involved in the Czech water sector also play an important joint-stock company in which all the role in developing staff training for all levels of managers through well- shares are held by municipalities from the established human resources principles. Some utilities cooperate with region, owns the water and wastewater universities in studies and pilot projects, and many use specialized infrastructure in the North Bohemian agencies to provide professional trainings for their staff. Many utilities region. It has formulated a long-term went through vocational training supported by EU grants. The Water strategy for asset renewal, and for Supply and Sewerage Association of the Czech Republic (SOVAK CR) quality and technical standards for its organizes courses and conferences on water-sector-related topics. infrastructure. It is active in the field of Czech utilities are generally considered to be stable employers, and water management and communicates technical staff turnover is relatively low. Municipal political cycles may effectively with both municipalities and sometimes influence top-level management staff. the public (http://www svs cz/en/). Economic regulation. The water sector is regulated by the Ministry of Finance according to binding rules and conditions established for tariff calculation, and monitors compliance through its regional financial authorities. The provider is entitled to include in the draft tariff “economically justified costs” and “reasonable profit.” “Economically justified costs” are costs directly associated with the operating activities and the renewal of infrastructure. “Reasonable profit” is profit providing an adequate return on invested capital and generating resources for renewal and development of water infrastructure. Tariffs are usually calculated on an annual basis. The utility submits the tariff proposals to the owner of the infrastructure, which then approves the new tariff for a particular year. Tariffs apply to all customers within a given tariff area. Infrastructure owners in a 4 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM separate operating model implementing EU projects (under OPE) are obliged to apply the “financial model” for tariff setting. Regional financial authorities provide formal and factual control of tariffs in utilities (sometimes in-depth), and breach of financial rules is subject to penalties. Ongoing or planned reforms. Discussions regarding the reform of the regulatory framework of the Czech water sector are underway. The Czech water supply and sanitation sector is fragmented into thousands of entities (owners and utilities) providing or operating public water services. Nevertheless, the sector is efficient because the 50 largest utilities provide services to around 90% of the population (Expert estimate). The EU OPE 2007–2013 introduced principles (concession contract modification, financial model for tariff setting) for municipalities that applied for co-financing of their infrastructure projects. The European Commission stipulated ex-ante conditions within the OPE for 2014–2020, requiring the Czech Republic to establish a regulatory office for the sector. Different alternatives are discussed at the governmental level, and regulatory impact assessment papers are being prepared. A decision is expected in the near future. Access to Services EU MS Danube Danube Indicator Year Source Value average average best Water Supply Piped supply – average [%] 2012 Authors’ elab. 100 91 83 100 Piped supply – bottom 40% [%] 2012 Authors’ elab. 100 85 76 100 Piped supply – below $2.50/day [PPP] [%] 2012 Authors’ elab. 100 77 61 100 Including from public supply – average [%] 2013 CZSO 2015 94 83 74 99 Sanitation and Sewerage Flush toilet – average [%] 2012 Authors’ elab. 98 83 79 99 Flush toilet – bottom 40% [%] 2012 Authors’ elab. 98 74 70 98 Flush toilet – below $2.50/day [PPP] [%] 2012 Authors’ elab. 100 63 54 100 Including with sewer – average [%] 2012 MZe & MŽP 2013 83 67 66 94 Wastewater Treatment Connected to wastewater treatment plant [%] 2012 MZe & MŽP 2013 83 62 45 95 Service coverage. The population of the Czech Republic has full access to water and sanitation services. Ninety- four percent of the population is connected to public water systems, and the rest use their own wells. Around 83% of the population is connected to public sewerage systems (Authors’ elaboration). Equity of access to services. The entire population has access to water and sanitation, regardless of social or ethnic status. This means that 100% of the poorest segment of the population (those living on less than $2.50 a day PPP) has access to piped water supply and flush toilets (Figure 3). Service infrastructure. Water and sanitation assets are in good condition due to considerable investment; however, aging infrastructure should be addressed in the near future. Operational conditions are considered satisfactory in terms of reliability and quality of service provided by utilities. However, even though huge investment expenditures were made in the last decade, a sustainable renewal rate has not been achieved yet. Infrastructure owners invested significant sums to meet environmental and drinking water standards. Some facilities are oversized due to decreasing water consumption. Aging of assets is becoming an issue for the infrastructure, which was built in the 1970s and 1980s. State of Sector | Czech Republic Country Note | 5 DANUBE WATER PROGRAM 100% Figure 3: Access to water and sanitation: 90% total population, 80% bottom 40% of the population and poor 70% Total, Total bottom bottom Source: Authors’ elaboration, 40%, 40% CZSO 2015 and MZe & MŽP 2013. 60% poor 98% 100% 50% 94% 83% 83% 40% Poor 30% 100% 20% 10% 0% Piped water Public supply Flush toilet Sewer Wastewater treatment Value Value Year Source Water Wastewater Number of treatment plants 2,231 2,674 2013 MZe 2014 Length of network [km] 75,481 43,618 2013 MZe 2014 Average connections per km of network 27 35 2013 CZSO 2015 Performance of Services Service Quality EU MS Danube Danube Indicator Year Source Value average average best Residential water consumption [liters/capita/day] 2013 CZSO 2015 87 113 122 n.a. Water supply continuity [hours/day] 2013 IBNet 2015 24 24 20 24 Drinking water quality [% of samples in full 2013 SZU 2014 99,8 96 93 99.9 compliance] Wastewater treatment quality [% of samples in full 2013 Eurostat 2014 99 79 79 100 BOD5 compliance] Sewer blockages [number/km/year] 2013 IBNet 2015 0.26 3.0 5.0 0.2 Customer satisfaction [% of population satisfied 2013 Gallup 2013 81 78 63 95 with services] Quality of service. Quality of service in the Czech Republic is generally Czech Data Availability very good. Water supply is continuous 24/7 (IBNet 2015), with appropriate Most information is publicly water pressure. The same goes for wastewater collection and treatment. available. However, data are mainly Drinking water quality is fully in compliance with national and European summarized, so obtaining specific standards. No water sample exceeding permissible limits was recorded in details is occasionally difficult. For 2012. Less than 0.1% of customers living in very small settlements have example, only a summary of an been supplied with water benefiting from quality derogation (SZU 2014). overview of tariffs is available. 6 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM The quality of wastewater discharged is monitored and independently measured by the authorities. Where effluent quality limits have not been met, penalties are applied. For some utilities, when operation management contracts have been concluded, a set of performance indicators have been defined in the contract and should be reported on by the operator. However, customers are not publicly informed about those indicators, and they are not displayed on the utility website. Customer satisfaction. Eighty-one percent of the population is satisfied with the service provided in their city (Gallup 2013). This number is significantly higher than in most countries in the region. Customer satisfaction surveys are not carried out at the national level. Some utilities provide a satisfaction survey themselves or through specialized firms and publish concise outcomes on their websites, mostly showing positive results. Efficiency of Services EU MS Danube Danube Indicator Year Source Value average average best Nonrevenue water [%] 2012 CZSO 2015 22 34 35 16 Nonrevenue water [m /km/day] 3 2012 CZSO 2015 5 14 35 5 Staff productivity [water and wastewater] [number of 2013 IBNet 2015 5.2 8.7 9.6 2.0 employees/1,000 connections] Staff productivity [water and wastewater] [number of 2013 IBNet 2015 0.8 1.0 1.7 0.4 employees/1,000 inh. served] Billing collection rate [cash income/billed revenue] [%] 2013 IBNet 2015 95 102 98 116 Metering level [metered connections/connections] [%] 2013 IBNet 2015 100 96 84 100 Water Utility Performance Index [WUPI] n.a. Authors’ elab. 91 80 69 94 Overall efficiency. The efficiency of Czech water and sanitation utilities is relatively high and is based on the usage of modern techniques, procedures, equipment, commercial practices, and significant investments in infrastructure. It could be that the involvement of international operators in the large Czech utilities led to overall improvement of the sector. Overall efficiency is naturally much higher in larger utilities and there are also regional differences deriving from geographic and physical conditions. There are 5.2 employees per 1,000 connections (IBNet 2015), which is into among Danube best practice. Figure 4: Evolution of nonrevenue water and collection ratio 100% 35 30 Collection ratio (%) 25 95% 20 15 90% 10 5 85% 0 2006 2008 2010 2012 2000 2005 2010 2015 Sources: CZSO 2015 and IBNet 2015. NRW [%] NRW [m3/km/day] State of Sector | Czech Republic Country Note | 7 DANUBE WATER PROGRAM Recent trends. All indicators show that the efficiency of the sector and of individual utilities has risen over the last two decades. The collection ratio is relatively high (ranging from 95% to 97%) and stable, regardless of small fluctuations in recent years (IBNet 2015). Utilities faced challenges that pushed them to be more efficient. On the one hand, average national water consumption dropped over the last 10 years from 103 liters per capita per day (l/capita/day) to 87 l/capita/ day (CZSO 2015). On the other hand, tariffs increased 80-fold over the last 23 years (Expert estimate). Financing of Services Sector Financing EU MS Danube Danube Indicator Year Source Value average average best Sources of Financing Overall sector financing [€/capita/year] Authors’ elab. 124 101 62 n.a. Overall sector financing [share of GDP] [%] Authors’ elab. 0.62 0.55 0.45 n.a. Percentage of service cost financed from tariffs Authors’ elab. 60 65 67 n.a. Percentage of service cost financed from taxes Authors’ elab. 18 10 13 n.a. Percentage of service cost financed from Authors’ elab. 22 25 20 n.a. transfers Service Expenditure Average annual investment [share of overall Authors’ elab. 50 42 38 n.a. sector financing] [%] Average annual investment [€/capita/year] Authors’ elab. 62 42 23 n.a. Estimated investment needed to achieve targets 2015-2022 Expert estimate 49 65 43 n.a. [€/capita/year] Of which, share of wastewater management [%] Authors’ elab. 78 64 61 n.a. Figure 5: Overall utility sector financing, 2012 Overall sector financing. Tariffs are the largest 100% financing source for the sector (Figure 5). Some Transfers villages or small municipalities support their utility 90% 22% operations with funding from their municipal budgets 80% in order to keep tariffs affordable. Such subsidies are Taxes (national) Investment currently estimated to represent up to 5% to 10% of 70% 5% 50% total utility operational expenditures (Expert estimate). Taxes (local) 13% Utilities receive no subsidies or additional taxes or 60% fees to cover their operations and maintenance costs. 50% Infrastructure owners force utilities to maximize rent, which is paid for use of the infrastructure. Rent and 40% Tar ffs (utility) national and international subsidies are used only 30% 60% for infrastructure asset renewal and investment. O&M 50% Fees (water discharge, water extraction) and taxes 20% are redistributed through the State Environmental 10% Fund to be invested in infrastructure. The main sources of funding of water and wastewater utilities 0% Financing Spending are described in Figure 6, using the OECD three Ts methodology (tariffs, transfers, and taxes). Source: Authors’ elaboration. 8 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM Figure 6: Main sources of funding of water & wastewater services Loan repayments (funded by national taxes) EU funds IFI loans State Budget River basin administration Transfer State Budget Extraction National Subsidies Fee taxes Water and wastewater utilities Rent paid in concession model Tar ff Consumers and polluters Local taxes Local govrnment budget Source: Authors’ elaboration. Investment needs. The Czech Republic has already complied with EU water and wastewater directives. Future priorities will be ensuring a smooth supply of good-quality drinking water to residents and other customers, and effective sewage disposal, and sustainable services through reliable infrastructure based on affordable tariffs with minimal support from public finance. About €49 per inhabitant per year until 2022 would be sufficient to achieve the Czech National Strategy objectives (Expert estimate). Investments. The investment rate allocated for infrastructure expenditure is very high. Around €62 per person is invested every year in infrastructure (Authors’ elaboration). Investments are targeted to meet European/Czech standards, with 78% of investment going to wastewater management (Authors’ elaboration). Tariffs are the basic funding source for investments, supplemented with EU funds and state subsidies, which play an important role. Infrastructure owners also co-finance projects from traditional commercial loans, but only in justified cases and to optimize available means and investment priorities. The rate of investment over previous years has been relatively stable (Figure 7). Figure 7: Evolution of investments levels, sources, and uses 1000 Source: International Use: Water Source: Sub-national Use: Sanitation 800 Source: National Investment (M€) 600 400 200 0 2008 2009 2010 2011 2012 Source: Authors’ elaboration. State of Sector | Czech Republic Country Note | 9 DANUBE WATER PROGRAM Cost Recovery and Affordability EU MS Danube Danube Indicator Year Source Value average average best Cost Recovery Average residential tariff 2013 MZe 2014 2.75 2.18 1.32 n.a. [incl. water and wastewater] [€/m3] Operation and maintenance unit cost [€/m3] Authors’ elab. 2.10 1.77 1 20 n.a. Operating cost coverage 2013 IBNet 2015 1.18 1.10 0.96 1.49 [billed revenue/operating expense] Affordability Share of potential WSS expenditures over 2012 Authors’ elab. 2.0 3.1 2.6 n.a. average income [%] Share of potential WSS expenditures over 2012 Authors’ elab. 2.8 4.7 3.8 n.a. bottom 40% income [%] Share of households with potential WSS 2012 Authors’ elab. 3.0 24.7 14.1 n.a. expenditures above 5% of average income [%] Cost recovery. The Czech water policy includes a strategic Czech Waters objective to achieve “full cost recovery for WSS,” with The Statutory City of Brno and Brněnské vodárny a reference to the requirements of Article 9 of the WFD. The level kanalizace (BVK) structured and implemented the of “cost recovery for the WSS” is assessed in the economic reconstruction project of a 500,000 p.e. per wastewater analysis of river basin management plans under the WFD, treatment plant, which was co-financed by a €75 million together with the “polluter pays” principle. Service providers European Bank for Reconstruction and Development receive no national or international subsidies to recover (EBRD) loan. The BVK utility was the borrower, and two operating costs. Nevertheless, to keep tariffs affordable, some major shareholders (Statutory City of Brno and Suez villages and small municipalities support their utility operation Environment company) provided loan guarantees, with municipal budget funds of up to 5 to 10% of total operating including guarantees for project completion (capital expenditures (Expert estimate). However, financial authorities increases, pledge of shares, pledge of property, etc). may apply penalties in such cases. The Act on Water and The project was successfully completed in 2005, both Wastewater Systems and Price does not allow cross-subsidies on time and on budget (http://www.bvk cz/en/about- between residential and industrial tariffs. company/waste-water-treatment/brno-modrice-wwtp/). Figure 8: Evolution of average tariff (absolute and share of potential expenditure in income) 2.8% 5% 2.6% 2.4% 4% Average tariff (€/m3) 2.2% 2.0% 3% 2.8% 1.8% 2.0% 2% 1.6% 1.4% Residental 1% 1.2% 1.0% 0% 2004 2006 2008 2010 2012 Average Bottom 40% Sources: MZe 2014 and authors’ elaboration. 10 | The Danube Water Program | WB & IAWD DANUBE WATER PROGRAM Tariffs. There is only one tariff for households and industries, and cross-subsidies are not permitted. Tariffs have gradually and continuously increased, in real terms, for more than two decades, and the national average water price exceeds €2.50/m3 (MZe 2014). Regional differences exist, and the highest tariffs already exceeded 100 CZK, or €3.6/ m3 (MZe 2014). Current tariff levels result from massive investments made over the last 20 years to pay for the more than 2,000 new wastewater treatment plants built, and the 25,000 km of new sewer pipes laid to meet environmental standards (Expert estimate). Tariffs are also high due to the high fixed costs of the sector, and the decrease in water consumption. Tariffs are expected to continue to increase over the next few years as increasing attention is paid to renewing existing facilities. Affordability. In 2012, water and sanitation services remained affordable at 2% of average household income. The social affordability threshold is set at 2%, and is reviewed by the State Environmental Fund under projects co- financed by EU funds. A methodology, including affordability limits, has been published for all regions of the country. For households in the bottom 40%, however, water and sanitation expenditure potentially represents on average up to 2.8% of income (Authors’ elaboration). Water Sector Sustainability and Main Challenges To evaluate and reflect the sustainability of services in the region, an overall sector sustainability assessment was done taking into account four main dimensions: access to services, quality of services, efficiency of services, and financing of services. Each of these dimensions is measured through three simple and objective indicators. For each indicator, best practice values are established by looking at the best performers in the region, and countries closest to those best performers are deemed to have a more mature sector. A more complete description of the methodology to assess the sector 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 Czech Republic water sector are displayed in Figure 9, which also shows average and best practices in the Danube region. The Czech sector sustainability score is 88, which is much higher than the Danube average sector sustainability of 64, and is among the best practices in the region. The assessment shows that, on average, the country performs very well in terms of access to piped water and flush toilets, continuity of service, wastewater compliance, staffing level, collection ratio, and nonrevenue water. The main deficiencies of the Czech water sector identified through the sector sustainability assessment are operating cost ratio and affordability (Figure 9). Financing Piped water Access Figure 11: Sector Sustainability Assessment, Czech Republic Investment Flush toilet Source: Authors’ elaboration. Wastewater treatment Affordability coverage Operating Customer cost ratio satisfaction Non revenue Continu ty water of service Czech Republic Staffing level Wastewater Danube average compliance Efficiency Collection ratio Quality Danube best practice State of Sector | Czech Republic Country Note | 11 DANUBE WATER PROGRAM The main sector challenges are: X Implementing reform regarding the regulatory framework of the sector. Within the framework of the 2014-2020 Operational Program for Environment, the European Commission stipulated ex-ante conditions, requiring the Czech Republic to establish a regulatory office for the sector. Different alternatives are discussed at the governmental level, and regulatory impact assessment papers are being prepared. X Facilitating sector strategic planning despite the heterogeneity of the utility ownership structure. Around 6,000 entities (owners, public services providers) operate in the water sector (Expert estimate). To some extent, the heterogeneity of those entities in terms of size, legal status, scope of competencies, and interests prevent effective strategic planning, resource balancing, and efficient asset management of regional systems, including drought and water scarcity issues management. Addressing this situation could help implement more efficient sector planning. Sources X CZSO. 2013. Census 2011. Prague: Czech Statistical X ICPDR. 2015. International Commission for the Office. Protection of the Danube River. Accessed 2015. http:// X —. 2015. Czech Statistical Office. Accessed 2015. www.icpdr.org. http://www.czso.cz. X MZe & MŽP. 2006. River Basin Planning - Working X ERRC. 2013. Czech Republic - A Report by the European proposal on Environmental Impact Assessment. Prague: Roma Rights Centre - Country Profile 2011-2012. Ministry of Agriculture & Ministry of Enviroment of the Budapest: European Roma Rights Centre. Czech Republic. X Eurostat. 2014. European Commission Directorate- X —. 2013. Report on Water Management in the Czech General Eurostat: Statistics Explained - Water Statistics. Republic 2013. Prague: Ministry of Agriculture & Accessed 2015. http://ec.europa.eu/eurostat/ Ministry of Environment of the Czech Republic. statistics-explained/index.php/Water_statistics. X MZe. 2014. Report on Water and Wastewater Systems X FAO Aquastat. 2015. Food and Agriculture Organization in the Czech Republic 2013. Prague: Ministry of of the United Nations - AQUASTAT Database. Accessed Agriculture of the Czech Republic. 2015. http://www.fao.org/nr/water/aquastat/data/ X SZU. 2014. Annual Report on Water Quality 2013. query/index.html?lang=en. Prague: National Institut of Public Health of the Czech X Gallup. 2013. World Poll. Accessed 2015. Republic. http://www.gallup.com/services/170945/world-poll. X World Bank. 2015. World Development Indicators. aspx. Accessed 2015. http://databank.worldbank.org/data/ X IBNet. 2015. The International Benchmarking Network views/reports/tableview.aspx. for Water and Sanitation Utilities. Accessed 2015. http:// www.ib-net.org. 12 | The Danube Water Program | WB & IAWD Czech Republic 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