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Benchmark af kloakområdet

Summary and conclusions

• Methodology
• Data Sources
• Results
• Conclusions

In 2003, the water supply and wastewater treatment sectors in Denmark were assessed by the Danish Competition Authority. This analysis of the sewage sector completes a mapping of potential for improvement in efficiency in the Danish water sector. The analysis includes only a part of the wastewater sector, with regard to transport of wastewater, i.e. sewage systems and retention basins, pumping stations and other facilities concerned with drainage, but the analysis does not cover wastewater treatment plants.

The objective of the analysis is to describe and explain possible cost effectiveness potential in the sewage sector in consideration of the objectives for quality and environmental impact.

Methodology

For this kind of analysis it is obvious to apply benchmarking, e.g. comparing municipalities in the survey with the best municipalities. In this context, the best municipalities are those providing the best sewage services and improving the cost-effectiveness of environmental measures. It should, however, be noted that this kind of benchmarking does not take into account that even the most efficient municipality in the analysis could also be inefficient.

The benchmarking is based on the DEA method (Data Envelopment Analysis) supplemented by statistical analysis. The advantage of the DEA method compared to other benchmarking methods is that the DEA method takes into account the services provided, and the costs as well as environmental impacts - without explicitly pricing environmental impacts.

The DEA model specifies the relationship between a number of inputs and a number of outputs. The most efficient municipalities produce outputs with the smallest number of inputs. Wherever possible, the parameters included must reflect the resources (input), applied for production of the desired services (output).

The result of the DEA-analysis is an efficiency score - showing the efficiency potential - for each municipality in the analysis. However, the scores give no explanation of the differences in efficiency in the individual municipalities. Thus, the DEA analysis is supplemented by a statistical analysis assessing the relationship between the efficiency scores and different parameters with regard to physical conditions and priorities in the individual municipalities.

Often, part of the inefficiency arises from the municipality not having an optimal size. The part of the potential lost owing to incorrect scale can be calculated by comparing the DEA scores using different assumptions and production activities. In this analysis, the preferred model has a variable scale but does not allow for diseconomies of scale. This is because, while some municipalities are too small to be able to run an efficient sewage sector, there are no reasonable arguments for special drawbacks when it comes to large municipalities.

The DEA potentials (gross) can be divided in three sub-elements. A scale potential, a non-feasible potential and a net potential based on the statistical analysis of gross potentials. Finally the potentials in the municipalities will be upgraded to a national level on the basis of the sewered population.

Data Sources

The data sources applied are primarily the surveillance programme under the Action Plans for the Aquatic Environment, Stratistics Denmark, data from the Danish Environmental Protection Agency and an analysis prepared by Local Government Denmark in 2002 on municipal efforts to renew the sewage system. These data have been supplemented by a survey conducted by COWI to measure the value and depreciation of the municipal sewage systems.

In principle, depreciation of the value of the municipal sewage systems can be calculated in two different ways - either on the basis of replacement cost or based on historical cost prices. The two methods give different results, however, it cannot be argued that one method is more correct than the other. Thus, figures from both methods are applied in the analysis.

A total of 164 municipalities have applicable information on operating costs. The municipalities included in the analysis cover a wide range of Danish municipalities, both with regard to geographical location, size (measured as sewered population, length of pipes, sewage load), economic characteristics (measured as costs) and environmental prioritizations (measured as infiltration and overflow). As it has not been possible to obtain all information from all municipalities, an extract of data from the 164 municipalities is included in the analysis depending on availability.

Despite a considerable effort to ensure high quality, it appears that the quality of the available data material is rather uncertain, especially with regard to financial data. This has been taken into account in the analysis and conclusions.

Results

Based on theoretical and practical considerations on methodology for establishing the level of services and resource consumption, a preferred model has been set up to demonstrate the efficiency of the municipalities in operating their sewer systems.

The preferred model - referred to as the base model - includes sewered population, sewage load as output and operating costs, infiltration and overflow as input. Two dimensions of the model are evaluated: the effect of the environmental dimension on the results, and the effect of the different costs included. The parameters applied in the analysis are shown in table 1 below.

Table 1 Parameters applied in the DEA analysis

By comparing the upgraded gross potential applying the different models, an estimate on the effect of the different parameters on the model can be provided. Table 2 shows the effect of replacing operating costs with the two different calculations of total costs.

Table 2 Outline of the effect of cost parameters

As anticipated, inclusion of total costs gives a greater efficiency potential, both because total costs are higher than operating costs and because the investment costs include a long-term efficiency potential. Total costs based on replacement cost are always higher than total costs based on historical cost, thus applying replacement cost results in a greater potential. Both alternative models give a potential of app. 40%.

By definition, a potential based on total costs is a long term potential, as the municipalities cannot change previous investments made in extension and maintenance of the sewage system. Therefore, potentials based on operating costs provide a better view of the possibilities of making the municipalities more efficient in the short term.

Similarly, the effect of the municipalities' environmental prioritizations can be evaluated. Obviously, including more parameters in the model will provide a better chance of proving efficiency and thus a smaller total efficiency potential.

Table 3 shows that in total, the environmental parameters have a great effect on the efficiency potential and that both infiltration and overflow have an individual effect on the potential.

Table 3 Effect of environmental parameters

Furthermore, the gross efficiency potential from the base model can be divided into a potential which the municipalities themselves cannot affect or implement (non-feasible potential), a scale potential, and a net potential. In this context, the scale potential is quite small - only app. DKK 13 million on a national basis (see table 4). The municipalities cannot realize the scale potential themselves. However, this might be possible through municipal mergers. In the light of the current plans for a municipal reform in which municipal mergers seem to play an important role, it may be possible to realize the scale potential.

The net potential results from statistical analysis of the gross efficiency potential. In these analyses, the conditions affecting the efficiency of the municipalities have been taken into account. It was attempted to include a wide range of parameters in the model. However, only sewer pipes established before 1919, sewer pipes with need for renovation, and industrial wastewater called for significant explanations. It is anticipated that part of this potential can be realized in connection with the sewer renovation agreed between the government and Local Government Denmark.

In contrast, no significant relationship between the potentials could be found, e.g. between population density and degree of urbanization.

Table 4 Division of the efficiency potential in the base model

Further, an explanation has been sought for efficiency potential based on allocation of operating costs (administration, private contractors and the municipalities' own contractors) in an attempt to demonstrate the "mistakes" of the inefficient municipalities. The analyses do not demonstrate any significant relationship in this context.

Conclusions

The analysis based on the available data indicates that there is a gross efficiency potential on operation of sewage systems of DKK 482 million per year. Taking into account the differences between municipalities which they cannot influence, the calculated net potential for the whole of Denmark amounts to DKK 330 million per year, corresponding to 40% of the total operating costs. DKK 300 million corresponds to app. DKK 70 per sewered person in Denmark.

However, a considerable spread in the available data on operating costs per sewered person has been demonstrated. It cannot be established whether this is an actual spread or the spread can be explained by differences in the municipalities' respective definitions of costs for operating sewage system. In the questionnaires, only few municipalities included comments stating that costs for operating wastewater treatment plant or costs for renewal of sewers were included under the costs for operating the sewer system. Naturally, these municipalities are not part of the analysis. However, the majority of the municipalities made no comments. If many municipalities included other costs, the analysis will clearly overestimate the efficiency potential. On the other hand, the municipalities have subsequently had the opportunity to correct their operating costs and many municipalities have taken this opportunity. All things considered, the quality of the data is difficult to assess, which naturally affects the certainty of the potentials demonstrated.

Furthermore, it should be noted that the calculated net potential does not allow for the fact that the best municipalities might improve their operation. It should also be kept in mind, that the analysis includes environmental parameters to give a more correct picture. Thus, comparison based merely on DKK per sewered person gives a higher potential.

As the municipalities to some extent can reduce operating costs by investing, an analysis based merely on the operating costs is not entirely correct. E.g. it can be expected that operating costs will increase concurrently with the age of the sewage system. The age of the sewage system has subsequently been adjusted based on a statistical analysis, thus the net potential provides for this condition. Therefore, the analysis is assessed as relevant, even if construction/renovation costs are left out.

It is estimated that part of the non-feasible efficiency potential can be realised in connection with the sewer renovation agreed between the government and Local Government Denmark. Sewer renovation will limit the number of sewer pipes in need for renovation and the number of pipes brought into use before 1919. It is difficult to state the length of the period needed for renovation.

It is expected that part of the calculated potential can be explained by differences in conditions which have not been intercepted in the statistical analysis - e.g. the share of combined/separate sewers, the number and location of wastewater treatment plants or the percentage of sewered summer houses.

Due to uncertain data and limitations in the number of municipalities included in the analysis, it has not been possible further to qualify the net efficiency potential of DKK 330 million, and as mentioned the amount is subject to uncertainties.

As mentioned, a net potential of 40% of the operating costs has been calculated. Based on the results of the statistical analysis and the considerable differences in operating costs compared to sewered population, it is extremely difficult to demonstrate the feasible efficiency potential.

Long Term Potential

The potential given above is expressed merely based on operating costs, as limitations in the available data have not allowed for a reliable analysis based on total costs.

As it cannot be precluded that it is also possible to demonstrate efficiency potential for investments, a supplementary DEA analysis based on total costs has been made despite the limited and uncertain data material.

The analysis shows a gross potential of app. 40% of the total costs, but it is not possible to calculate the net potential.

Part of the calculated potential of installations must be due to "mistaken" investment in the sewage network - e.g. in the form of over-investment in the sewage network compared to the present needs or in the form of investments made at non-competitive prices. Investment in the sewage network is long-term investment, therefore considerations on expected town development might have been included when making the investments, although this town development has not actually been implemented. Investments in the analysis are compared to the present use of the system. This part of the potential cannot be realised, as the municipalities cannot change the situation before the network is worn out, if the municipality has over-invested in the sewage system.

Other parts of the potential might appear from differences between the physical conditions in the municipalities. For instance costs for establishment of sewage network differ substantially depending on the density of towns, soil conditions, topography etc. No data for quantification of these differences are available.

It is concluded that an efficiency potential for investment in construction/renovation is likely. Due to the nature of the available data, it has not been possible to estimate the magnitude of this potential.

Furthermore, it is concluded that the efficiency potential for investments in the network is only realisable in the long term because sewers have an expected lifetime of 50-100 years. However, the long-term potential is anticipated to be significant, in terms of the annual potentials.

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Version 1.0 Januar 2006, © Miljøstyrelsen.