Main directions of development

The Water sector is one of the main parts of the economy and the environmental policy of Bulgaria.

The development of the sector is of high priority for the country. Therefore, the planning of Government policy and investments in the sector is set in two national Operational programs:

Operational program ENVIRONMENT

Priority 1 – Improvement and development of waste water infrastructure – € 1.05 billion

• Projects for waste water infrastructure in settlements above 2 000 inhabitants, including Waste Water Treatment Plants (WWTPs)
• Construction of new sewerage systems, including WWTPs in settlements above 10 000 p.e. (Actions will support introduction of technologies for tertiary treatment of urban waste water in compliance with Directive 91/271/EEC).
• Reconstruction and/or extension of existing sewerage systems
• in settlements with over 10 000 p.e. and
• in settlements with 2 000 - 10 000 p.e.
• Delivery of equipment for detection and measurement of leakages
• Provision of sludge treatment facilities for the WWTPs
• Elaboration and updating of plans for river basin management
• Preparation of investment projects for financing under OP “Environment”

Operational program REGIONAL DEVELOPMENT

Priority 1 – Urban rehabilitation and development – environmental infrastructure – 187 million EUR

• Projects for water supply networks
• Rehabilitation, reconstruction and construction of water supply networks in settlements, main water supply pipelines connecting water supply networks with aquifers, improvement of drillings and water catchments;
• Construction or extension of the capacity of water storage tanks and reservoirs for ensuring provision of required water quantity, as well as steady water pressure to balance the network and guarantee a stable supply;
• Modernization of pumping stations, water control and water redirection structures
• Construction/extension of purification facilities for increasing drinking water quality;
• Provision of access to alternative water sources.

 European financial instruments for development of water supply and sewerage infrastructure

• Cohesion Fund
• European Regional Development Fund
• European Social Fund

Indicated financial framework for Bulgaria - € 6.047 billion

• Aim “Convergence”

• € 2.015 billion (Cohesion Fund)
• € 3.873 billion (European Regional Development Fund, European Social Fund)

• Aim “European Cross Border Cooperation”

• € 159 billion

Investments needs
The Main priorities In the Water Sector, which are defined in the Strategy for Management of Water Supply and Sewerage, have the following financial parameters:

• rehabilitation of the water supply infrastructure in settlements – € 2,832 million;
• building of new water sources and water supply infrastructure, including dams, drinking water treatment plants, water supply networks – € 1,137 million;
• collection and treatment of waste water – € 2,962 million;

Water supply
The estimated cost of € 1 137 million corresponds to ensuring secure water supply from surface and ground water resources; upgrading of 42 Drinking Water Treatment Plans and about 3 500 pumping stations in the country. Water resources are unevenly distributed which causes water shortages in many areas. To overcome the water supply problems in these areas the Government has plans to further explore groundwater sources and construct small dams, some of which are partially completed.

The construction of dams is part of the Government’s plan to provide water resources uniformly through the country. This plan was developed earlier but not implemented due the shortage of public funds. The Strategy proposes to construct dams in areas that suffer from water shortage. These dams are small and will be used largely for supply of drinking water and minor irrigation purposes.

Water Network Efficiency
The estimated cost of € 2 832 million represents the rehabilitation of the existing water distribution network which has not been adequately replaced over the past fifteen years. The total length of the water transmission and distribution network is 70 620 km and the asbestos cement pipes which account for 70% of the network are in very poor condition. In Western Europe typically 2-4% of the network is replaced each year. In Bulgaria, this ratio has been less than 1% and the Unaccounted For Water (UFW) is estimated to be around 60% of the production volume.

Sewerage
The estimated cost of € 2 034 million is to upgrade the existing sewerage network and expand the services to meet the requirements of the EU. The sewerage network services about 3.8 million people or about a little less than 50% of the population. The total length of the network is around 9 000 km which is not in good condition and needs to be upgraded. The government plans to build additional 16 000 km of sewers to connect 2.4 million people as part of the strategic plan to meet the EU directives.

Wastewater
The estimated cost of € 928 million is to upgrade WWTPs. Currently, wastewater generated by about 35% of the population is treated trough 61 WWTPs. Fifty of these plants are biological treatment plants whereas the rest are plants with mechanical treatment. The strategic plan of the Government is to treat waste water generated by 85% of the population.

Opera tio nal needs
The sector needs to address the following operational issues:

• Increased Operation and Maintenance: Given the economic difficulties over the last fifteen years, the Regional Water Companies were not able to allocate sufficient resources towards Operation and Maintenance (O&M) costs. Currently, the O&M costs have been around € 0.30/m3. The plan is that this lost will reach 0.70/m3 in 2014. Thus it is important to increase tariffs to allow for a higher level of O&M costs;
• Reducing Administrative Losses: The high UFW resulting in water losses is a drain to the economy. While the water distribution network rehabilitation program will help to reduce the physical losses, equal emphasis should be put on the reduction of commercial losses which account for a significant portion of the UFW. Incentives to reduce the commercial losses should be considered, including the introduction of the private sector would be dependent on the volume of collections; and
• Increased Collection Rate: The present bill collection rate (with arrears) is 86%. This represents the ratio of all collections including overdue payments and the annual billings. On an annual basis the collection rate is around 75%. The dues to the utilities are from public institutions, central and local government buildings, industry-some of which are public, and the population. According to accounting standards in Bulgaria, overdue payments are not written off and provisions are not made to account for this loss.

* For the first item, the tariffs need to increase to allow for more operation and maintenance expenses. For the other two items, there needs to be an increased emphasis on operational efficiency which may be supported by the private sector.

The above investment program and operations will be implemented by the Regional Water Companies (RWCs). Thus, it is essential that the RWCs function in an efficient manner. To this end, the staff and management in the RWCs should receive adequate training on technical and financial matters. Adequate incentives should be in place for the RWCs to provide good quality service. Representative of the RWCs should also be familiar with the recent developments and practices in the EU countries regarding operations and investments. This knowledge will help to strengthen operation of the Bulgarian RWCs.

 REFORMS IN THE WATER SECTOR

Planned changes in the legal framework

Draft Act on Water Supply and Sewerage

• Defines the ownership of the water supply and sewerage infrastructure as public property of the state and the municipalities
• Defines the forms of management of the water supply and sewerage infrastructure and the choice of operators on regional level
• Defines the responsibilities of the state and the municipalities in the choice of water supply and sewerage operators and the control over their activities
• Formulates the main principles and rules in the relations between the operators and the consumers of water supply and sewerage services

Institutional Reforms needed

• clarify the roles of the Ministry of Regional Development and Public Works and Ministry of Environment and Water. Currently both these ministries are responsible for policy setting and implementing policies;
• make the water regulator functional as soon as possible to regulate tariffs and service standards. The law of establishing the water regulator became effective on January 20, 2005. To make the regulator functional, the regulator must receive institutional support and secondary legislation has to be in place;
• clarify the asset ownership issue in Regional Water Companies where the ownership is shared between the State and the municipalities which leads to delays in decision making. A model to establish Operating companies and separate the assets between the State and the municipalities has been discussed. Appropriate legislation should be adopted to implement this model; and
• attract the private sector as soon as possible trough good examples so that a proper signal about the Government’s willingness to reform the sector is sent to the markets

Financial Reforms needed

• The Ministry of Finance could develop a financial framework that would specify the following or the short, medium and long terms: level of public expenditure support, allowable public debt given that utility borrowings will contribute towards this debt stock, and volume of sovereign guarantees.
• The program of fiscal decentralization should continue to address the core problem in financing sector – lack of resources at local level. Municipalities should be given more autonomy to raise local revenues which in turn will help them to support investments in the sector. Proper financial management system should be put in place to account or the higher level of resources to be raised and utilized at the local levels;
• To generate the interest of the private sector it may be necessary to use financial intermediaries (FI) that will be backed by the central government, as needed. No new institutions should be created and the present commercial banks should be able to provide this function. The Fis could raise their capital from the market or from the International Financial Institutions (IFIs).