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Review of Expenses for Management of the Danish Water Sector

Summary and conclusions

This report presents a review of the annual expenditures in managing the Danish water sector. The purpose is to give an overview of the various tasks performed by both public authorities and private entities in relation to management of the groundwater and surface water resources. The review is intended as input to the process of implementation of the EU water Framework Directive.

The expenditure is estimated as the annual gross expenditure including the actual level of re-investments and new investments ^[4].

The review of the expenditure is divided into:

• Water resource type;
• Management type; and
• Implementing entity.

The classification by water resource type comprises groundwater, drinking water, wastewater, bathing and coastal water, and, finally, streams and lakes. Regarding management type, the review includes two main categories: planning, enforcement and monitoring in one category, and investment, operation and maintenance in another category. In the report, a sub-division by management types is also shown. The expenditure is allocated to the implementing body, which is the one that defrays the expenditure in the first place.

The objective of the study is to conduct a survey that illustrates the main expenditure flows within the water sector. An expenditure survey like the current one is expected to have its main application when policy makers need to assess the effect of new policy measures. Then, the expenditure survey allows for comparison with the existing level of expenditure for each of the various resource or management types.

During the expenditure survey it appeared that there are a number of obstacles to the implementation of such a review. First of all, many of the expenditure figures have been based on estimates. An example is water supply from small private consumer-owned companies. While the expenditure of the municipal water utilities is recorded at the national statistical office, statistics from the private providers are not available, and therefore, an estimate of their expenditure for water supply has been made. The estimate is based on how much water the private companies supply and an estimate of the average production costs per cubic metre.

The survey of the administrative expenditure, primarily public, is also based on a number of estimates. In general, the public accounts are not sufficiently detailed for the purpose of this survey. A large share of the expenditure is booked at general accounts covering all administrative activities.

The scope of the survey was limited to include only a static overview of the expenditure flows in the water sector in year 2000. Thus, no development trends have been assessed. Only in the cases where obvious changes have occurred, this is mentioned in the text.

Keeping the above mentioned characteristics of the expenditure survey in mind, the quantitative results are presented below. The figures displayed are annual expenditure in thousand DKK for the year 2000.

The total annual expenditure in the water sector is estimated at almost 9.9 billion DKK in year 2000. This figure excludes VAT and the tax on supplied water, but includes other green taxes ^[5]. It should also be mentioned that some expenditure is not included in the estimate. First of all, all industrial pre-treatment or process-integrated treatment of wastewater is not included. Statistics of such industrial expenditure are not available, and it would also be almost impossible to estimate the share of the costs of a specific production process that should be attributed to pollution prevention.

Similarly, the prevention activities made by the agriculture industry have also been excluded from this expenditure survey ^[6].

Source: Consultants' own estimates, see Chapter 3 for details.

Not surprisingly, the survey shows that the water services, the supply of drinking water and the wastewater collection and treatment represent the main share of the total expenditure. The provision of water supply and wastewater disposal accounts for approximately 85 % of the total expenditure. Wastewater collection and treatment alone account for 60 % of the total expenditure. In recent years, the wastewater treatment plants have been extended and upgraded to comply with a national action plan for the aquatic environment and the EU urban wastewater directive. This and an increased rehabilitation and maintenance effort in relation to the collection network are the main causes of wastewater accounting for such a relatively high share of the total expenditure.

The detailed account shown in the report reveals that new investment and rehabilitation amount to two billion DKK, or two fifths of the total wastewater expenditure. Rehabilitation of water supply infrastructure represents much less, due to the fact that there has been a higher level of recurrent maintenance. One reason being that lack of maintenance in the water supply system shows itself much more clearly as increased water losses.

Activities concerning registration and protection of the groundwater resource account for 6% of the total expenditure. Maintenance of streams and lakes represents about 6% of the expenditure, while the expenditure for coastal and bathing water management makes up only about 2% of the total expenditure.

Considering that drinking water supply and wastewater management account for around 85 % of the total expenditure, it is not surprising that the private and municipal water utilities represent a similar share of the total expenditure. Regarding supply of drinking water, the private water companies, typically small and owned by users, account for around 1 billion DKK, or one third of the drinking water supply expenditure. For wastewater there are no private companies except for some industries with direct discharge.

The 14 counties have expenditures of almost 900 million DKK per year, equivalent to about 9 % of the total expenditure. Expenditure born by the national authorities, mainly the Ministry of the Environment, amount to about 220 million DKK, which is only about 2 % of the total expenditure. The municipalities (without the utilities) account for a similar share, about 2%.

When distributing the total expenditure on management type, operational and maintenance costs appear as far the largest type. This is again due to the fact that provision of drinking water and collection and treatment of the wastewater are the largest activities.

The administrative expenditure, covering the planning, enforcement and monitoring activities, amount to 900 million DKK. The counties are responsible for the majority of these activities and their share of the administrative expenditure is about 70 %. The remaining share of the expenditure is almost equally taken by the state and the municipalities.

The expenditure survey focused on the implementing body. However, the implementing body is not the same as the financer. See below the structure of financing.

The services, i.e. water supply and wastewater collection and treatment, are financed through user charges. Danish law requires full cost recovery of operational, maintenance and investment costs. This requirement specifies that full cost recovery should be achieved over a period of more than one year. It has not been within the scope of this study to make an assessment of how this principle is implemented. To do so, detailed company accounts from all utilities would be required.

The administrative expenditures pertaining to the public sector activities are financed on the basis of the general tax revenue. There is only one exception. The counties have the right to charge the water utilities a small fee to cover the cost of groundwater mapping and monitoring. The revenue of the groundwater survey fee is estimated at 90 million DKK.

Below, the main structure of financing is illustrated. The table shows the final source of revenue, i.e. households or companies.

The user charges comprise the direct payment for services, water supply and wastewater collection and treatment. Also the wastewater pollution charge and the groundwater survey fee are included. The revenue from the wastewater pollution charge amounted to 276 million DKK in year 2000. However, the tax on supplied drinking water is not included. The annul revenue from this tax on supplied drinking water amounts to about 1.5 billion DKK.

Own financing includes the expenditure resulting from the activities that households and industry carry out themselves in connection withdrinking water supply, wastewater collection and clean-up of contaminated sites.

Altogether the private sector, households and industry, pay approximately 10 billion DKK per year in the form of user charges, green taxes and own financing. Moreover, the households pay about 1.6 billion VAT. The VAT rate of 25% applies to the user charges and the green taxes.

Fodnoter

[4] The implication is that no assessment has been made of whether the actual level of re-investments equals the real physical deterioration of the assets.

[5] The green taxes are included if they are charged to the utility and, thus, only indirectly to the consumers. The tax on supplied water is more directly charged as it is proportional to the consumption of water.

[6] It should also be mentioned that the agricultural sectors costs related to irrigation are not included.

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Version 1.0 December 2004, © Miljøstyrelsen.