Water Prices in CEE and CIS Countries. Volume II: Case Studies
Chapter 1.
Introduction
This paper constitutes the working paper on water services in Brno. The working paper is a part of the toolkit project on acceptability of water prices in central and eastern European countries.
Background
Over the past thirty years major infrastructure investments have often been implemented based upon detailed and systematic engineering analyses, but without much analysis of the prospective demand for the service. Today, an investor, whether public or private, will require that detailed studies of future demand and surveys of willingness to pay will have to be undertaken before investing in major infrastructure, such as transport infrastructure.
Within the water services sector, similar requirements are only now gaining ground. This may partly reflect that the nature of the revenue risk is different in water services. Cars can avoid a toll road by taking alternatives routes, but urban households cannot avoid receiving water / delivering wastewater from / to the monopoly water utility.
The rationale
However, water/wastewater utilities also face revenue risks, for example:
 | Reduction of water consumption by consumers; |
| Political protests impacting on the level of approved tariffs; |
| Poor collection rates for water bill, etc. |
EBRD and DANCEE have entrusted COWI to prepare a toolkit for consultants / analysts working for policy makers who want to address these, and related revenue risk issues, while designing water and wastewater service infrastructure investments. The toolkit will include practical guidelines on how to assess affordability and willingness to pay for water and wastewater services.
An integrated approach
The design (and cost) of a water and wastewater service infrastructure is not just a technical issue. Different designs lead to different service levels and cost structures, and each of the service levels are likely to be perceived differently by the consumer and thus to lead to different acceptability levels of the applied water prices. This should be integrated into an infrastructure design to reduce revenue risk and to make sure that a service level and an associated price level, acceptable to/optimal for the consumers, is applied. At the same time, affordability issues may set an overall limit for the possible increase in average tariffs and thus for the level of ambition with regard to future service levels if these are to be financed by the users. This implies that the analyses of the toolkit should be carried out concurrently with the technical analysis.
Reduction of revenue risk requires integration of design, cost and WTP considerations. This requires a close dialogue between the technical team, the affordability and WTP analysts, and the policy makers.
The research project and its case studies
COWI is carrying out the project in order to design a toolkit based on literature research, extensive consultations with stakeholders and three case studies.
The Brno case study is one of three case studies being undertaken by COWI as part of the preparation of the toolkit. The other case studies are being undertaken in Poznan (Poland) and Kaliningrad (Russia). The subjects of analyses, and the analytical methods used, have differed somewhat between the cities in order to provide the best basis for the preparation of the toolkit.
The primary purpose of each case study has been to provide insights into the design of the toolkit. The secondary purpose has been to provide city authorities with information on the link between acceptability of future (higher) water tariffs and customer perceptions of water service levels in a broad sense.
Acknowledgements
The present working paper has been prepared by Peter Christensen, Mikkel Birkeland, Karsten Vest Hansen, Michael Jacobsen and Zsuzsa Lehoczki, all COWI. Chris Heywood and Michelle Wheadon, from Accent Marketing and Research contributed to designing and implementing the stated preference survey. Ladislav Tuhovcák was instrumental in implementing the stated preference survey and provided comments on the design. Many people in Brno generously provided their time and inputs in discussions with the team. Peter Christensen (COWI) supervised the market research and Michael Jacobsen (COWI) is overall responsible for the "Acceptability of Water Prices in CEE and CIS countries" project and for this working paper.