full cost recovery (noupheuak)

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Full Cost Recovery (FCR)Process in Lao PDR

Mr. Noupheuak Virabouth

Director

Water Supply Authority (WASA), Lao PDR

Convention on Water and Wastewater in South East Asia

“Sharing our Experiences, Problems and Solutions”

Sheraton Hotel, Hanoi, Vietnam

June 7-9, 2005

The views expressed in this paper are the views of the authors and do not necessarily reflect the views or policies of the

Asian Development Bank (ADB), or its Board of Directors, or the governments they represent. ADB does not guarantee

the accuracy of the data included in this paper and accepts no responsibility for any consequences of their use.

Terminology used may not necessarily be consistent with ADB official terms.

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Water Supply Authority

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Outline

Background

Effect of of Decentralization Policy on NPSEs

Water Supply Tariff Policy

What does WASA do?

Regulatory developments

Way forward



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Background- Country

Essentially rural country

Total population 5.7 million (in Y2003)

About 80% living in nearly 12,000 small ruralvillages scattered throughout the country

145 officially designated urban centres or townsin 142 districts

<25% of urban centres have a formal pipedwater system with household connections

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Background- Status of Formal WS System and Coverage

Overall coverage is 39% (in Y2003).

About 69% in Vientiane and foursecondary towns,

and about 17% in the 140 small towns



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Background – Management Model before 1999

Nam Papa Lao (NPL) – based in VientianeCapital City - sole provider of urban watersupply servicesProvincial water supply offices reported to NPL

System revenues were consolidated under onecentral account

Subsidization from large Vientiane scheme tosmaller provincial systems masked the poorperformance of the sector and the smallerschemes

Tariff was set uniform countrywide



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Background – Water Supply Sector Policy (1999)

Creation of Water Supply Authority (WASA)

Devolved responsibility for urban WSS from central toprovincial governments to already established NamPapa State Enterprises (NPSEs)

Each NPSE has responsibility within its own provincialboundary

NPSEs shall adopt uniform province-wide tariff

NPSPs responsible for setting tariffs to generate

sufficient revenue to meet the cost recovery, butThis tariff should be within the constraints of willingness topay and affordability of consumers, and

No system shall have tariff less than that required meetingall recurrent costs including O&M costs.

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Background – Management Model after 1999

Each provincial water supply office

became an autonomous provincial water

supply state-owned enterprise (PNP).

NPL became Nam Papa Vientiane (NPV)and then Nam Papa Nakhoneluang

(NPNL) (Nakhoneluang mean Capital City)



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Effect of DecentralizationPolicy on NPSEs

PNPs suddenly cut off from the financial subsidiesand much of the technical, administrative andmanagerial assistance formerly provided by NPL

NPSEs intended to be financially self supporting, butin reality:

Efficiency incentives weak

Financial management constrained by restrictive governmentfinancial regulations

Investment provided through government

Setting of tariffs lower than it should be – biggestobstacle to self-sustainability

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Water Supply Tariff Policy- Overall Objective and Concern

The water supply tariff policy (No.57/PM, 7 May 2004)states:

“The overall objective of this tariff policy is to provide the most appropriate balance that best protects the interest of the principal stakeholders in the water and waste water sector.”

What do stake holders want from tariffs?



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Consumers: Service value

Operators: Financial integrity

Environment: Protection of resources

Social fairness: Affordability

Economic factors: Economic development

Water Supply Tariff Policy- Short and long term objectives

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What does WASA do?

Promote the concept of comparative competition

Prepare tariff determination guideline and tariff review

Ensure that companies comply with regulations

Check that companies meet their responsibilities tocustomers

Check how companies perform to make sure thatcustomers get value for money

Recognize environmental constraints that thecompanies operate within.



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Regulatory Developments

1) Annual water sector performance reports

2) National tariff reviews

3) Individual NPSE tariff reviews

4) Saving water campaign

5) WASA website

6) Information collection and sharing (research,

studies, publications, videos and maps)

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Regulatory Developments1) Annual water sector performance reports

It is a regulatory tool for improvingserviceThe objectives are:

To inform the public as to how their watersupply operator is performing in relation to

others using the concept of comparativecompetitionTo encourage water operators to improve

their levels of serviceTo assist government in the identification of

investment needs throughout the countryTo inform the public about WASA Available on the WASA website

2002

2003



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Major analyses in the annual report

Technical Analyses:Service Coverage

Efficiency

Leakage

Financial AnalysesProfitability

Capital Investment

Detailed Tariff Analysis


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Tariff analysis in 2003 Annual ReportUnit operating cost exc.Depreciation, tax, and returnon capitalImplied average tariff (totalincome/sale)Tariff required for full cost

recovery + 2% return oncapitalTariff reduction required forfull cost recovery + 2%return on capital




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2005-2007 Tariff Review

Tariffs determined on the basis of sound

financial criteria leading to full cost

recovery in the future

Comparative competition effective in

determining efficient unit costs

Regulatory Developments2) National tariff reviews

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Tariff Review for Luang Phrabang- Full Cost Recovery achieved (1)

Performance Expectations

Regulatory Developments3) Individual NPSE tariff reviews



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Tariff Recommendations (2005 Price levels)

Tariff Review for Luang Phrabang- Full Cost Recovery achieved (2)

Regulatory Developments3) Individual NPSE tariff reviews

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Carry out byall provincialNam papas,

in eachprovince

countrywide

Regulatory Developments4) Saving water campaign



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Regulatory Developments5) WASA website: www.wasa.gov.la

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Regulatory Developments6) Information collection and sharing

Research, studies, publications, videos and maps

Small towns WSS case study (WSP-funded) - 2002

‘Consensus Building’ for PSP (PPIAF/WSP-funded) - 2004

Private sector pilots with GRET (2004-2006) Private sector study (PPIAF-funded) - 2005



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The Future

Periodic tariff reviews

Improved comparative competition to drive for further efficiency

improvements

To develop further competition in the market where possible

Development of the WASA website

Legislation database linked to the website

Training of WASA staff through Continuous Education Units (CEUs) to

gain international accreditation

Further studies, demonstration projects and research on appropriatemanagement models for Lao PDR small towns to assist GOL meet

NGPES targets by 2020

Linking with SEAWUN and EAPIRF

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Thank you for your attention!


Department of Housing and Urban Planning

Ministry of Communication, Transport, Post and Construction

Vientiane, Lao P.D.R.

Tel: + (856 21) 451826, 452167 Fax: + (856 21) 451826

E-mail: [email protected]

www.wasa.gov.la

full cost recovery (noupheuak)

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