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Regulation of water
management sector in Latvia
Public Utilities Commission of Latvia
Model of public utilities regulation
• Currently in Latvia there is one level regulation system. The public utilities regulation is carried out by Public Utilities Commission (Commission).
• Commission is institutionally and functionally independent regulatory body subordinated to Law On Regulators of Public Utilities
• Before 2009 in Latvia was two-level regulation system:
- In state regulated sector public services were regulate by Commission;
- In municipally regulated sectors public services were regulated by 16
municipal regulators
• Commission regulate 170 water management companies
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National Legal framework of the
water management regulation
• Law On Regulators of Public Utilities
• Regulations Regarding Types of Regulated Public Utilities (approved bythe Cabinet of Ministers)
• Regulations regarding the Licensing of Public Utilities (approved by the Cabinet of Ministers)
• Methodology for the Calculation of Tariffs for Water Management Services (approved by Public Utilities Commission)
• Water Management Law (draft)
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Service providers that are regulated
• According to Law On Regulators of Public Utilities Commission supervisesonly enterprises (mostly municipal enterprises and very few privatecompanies)
• Local government agencies are supervised by local governments
• In accordance with national legal framework there are no restrictionsregarding to provided service amount from which service providers haveto be regulated
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Water management sector
is being regulated in areas of
• The abstraction, accumulation and preparation of water for the use until delivery to the water supply network
• The water supply from the delivery site in the water supply network to the service user
• The collection and drainage of wastewater to wastewater treatment plants
• The wastewater treatment and drainage in surface water bodies
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Number of regulated water management companies versus
annual volumes of water supply services
50
1 2862 145
9 016
16 758
36 641
1
12
393056
20
1
10
100
1000
10000
100000
thsn
d.
m3
Number of service providers Volume of water supply service total 2011, thsnd.m
below 10 thsnd.
m³ per year
10 - 50 thsnd.
m³ per year
50 - 100 thsnd.
m³ per year
100 - 500 thsnd.
m³ per year
above 500 thsnd.
m³ per year
Riga
(m³ per year)
3
3
3
Total volume of water supply services in 2011 – 65.8 million m
Total volume of sewerage services in 2011 – 68.8 million m 6
Distribution of tariffs for water management services
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Tariff calculation methodology
• Before 2010, all public service tariffs were set in accordance with theregulations of the Cabinet of Ministers “Public service tariff calculation methodology in municipally regulated sectors”
• In 12.05.2010 Commission approved “Methodology for calculation of water management service tariffs” which specifies the procedure for calculating proposals of water management service tariffs by providers of water management services
• New Methodology:
- provides one-level tariff
- provides one tariff for individual and legal persons
- clearly defines costs what can be included in tariff project
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Tariff calculation methodology is based on
full cost recovery + profit model
In tariff can be included costs listed below:
• Depreciation on fixed assets (deprecation of those fixed assets which are created using the EU funds can not be included in tariffs)
• Operational costs
- staff costs
- repair costs
- other costs of economic activities (costs of materials, electricity; costs related to the control of the state of the environment; expenditure related to guarding, transport maintenance, insurance, communications and other expenditures)
• Taxes
• Interest payments of long-term loans and repayment of the principal sum
• Profitability (≤7%)
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Composition of Tariffs
Taxes; 3%
Repair costs; 3%
Transport maintenance
cots; 4%
Costs of materials; 4%
Depreciation; 16%
Costs of electricity;
24%
Staff costs; 36%
Other expenses; 16%
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Main problems in tariff evaluation process
• Related to the EU water management projects
- Implementing EU water-saving and environmental protection policies
in Latvia is ignored the economic and social situation in the country
- Decreasing amount of provided services compared with the planned
service amount determined in water management projects leads to
growth of tariffs
• Related to other matters
- Low solvency of population
- Large water losses and the amount of infiltration
- Not everywhere there are installed water accounting meters
- Service providers have different experience in tariff project
preparation
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Process of tariffs analysis, approval and monitoring
Submitting process
Tariff projects must be submitted together with costs supporting documents, actual costs of the preceding year
and budget for current and next year
Analysis and approval process
In tariff project evaluation there are involved several departments: Municipal Service and Railway Transport
Department, Economic Analysis Department and Legal Department. The tariff project evaluation period is 90
days
Decision about tariff approval is made by Commission Council. Decision making period is 30 days after
evaluation period ends
Since 2011 the time of tariff project evaluation is stopped in case Commission has required supplementary
information
Commission in tariff projects evaluation process organizes meetings with users of public utilities to get their
proposals and recommendations about tariff projects
Monitoring process
Regulated enterprises annually submit information about their performance and expenses of providing service
In case there are changes in factors influencing tariffs Commission may require new tariff project or enterprises
may submit a new one on their own initiative
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THANK YOU FOR YOUR ATTENTION!
Aigars Mezals,
Public Utilities Commission of LatviaDeputy Director of Municipal Service and Railway Transport Department,Head of Municipal Service Division
,
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