Water policy reforms in Eastern Europe, the Caucasus and Central Asia

The work of GREEN Action Task Force programme in water sector in Eastern Europe, the Caucasus and Central Asia (EECCA) countries revolves around water quality, water risks management, efficient management of water resources, governance of sustainable finance and investment and water tariffs.

It also provides support to the process of implementation of Integrated Water Resources management principles and the principles of the EU’s Water Framework Directive (WFD) into national legal frameworks and helps local governments to assist in drafting respective strategies, laws and technical regulations to ensure sound management of water resources.

One of the central work areas remains the water-energy-food security nexus approach in implementing policy reforms as most EECCA countries have as a key policy objective achieving food, water, and energy security. Some have included this objective in their National Development Strategies and other strategic documents. However, they face a number of major challenges in achieving it because of weak governance systems, limited awareness, distortions from perverse subsidies and unsustainable investments resulting in a sub-optimal allocation of resources.

Accordingly, following Sustainable Development Goals (SDGs) OECD focuses its work on coordination between water-energy-food nexus and policies in water sector that demands an integrated approach and full involvement from the beginning. It includes deep economic analysis, screening and mapping, qualitative assessment, focus on trade-offs and risks, data collection and quantitative assessment. This approach contributes to establishment of respective national definitions and indicators, and eventually targets for water, food and energy security, integration thereof into national legal and policy frameworks, provision of statistics for decision-making, support of technological development and innovation, transition to a Green Economy, which aims, among other things, at resource use efficiency and greater policy coherence.

GREEN Action Task Force is stressing the importance of promoting policy coherence in water reforms in order to achieve greater levels of sustainable development in economic, social, environmental and governance areas. Thus, the conducted work focuses on attracting investments, developing new financial strategies, involving various stakeholders and promoting public awareness.

Another part of Green Action Task Force concerns the work on indicators on the performance of water utilities. Indicators are used to assess the availability of water and sewerage services to the public, the technical and financial condition of water and sewerage utilities, economic and environmental aspects of water use. These indicators provide information on utility operations necessary for understanding and controlling deviations in the sector's performance.

Indicators can be grouped as follows:

• technical and technological
• economic
• service quality
• service availability to consumers
• environmental

The indicators enable benchmarking and developing strategies in improving of water utilities performance. Access to comparative information is considered essential to utilities' development by providing utilities themselves and stakeholders (and international donors) with the information they need to fulfil their roles. Currently, water utilities in the EECCA do not have standardised data collection systems and standard indicators, largely due to the disruption of regular reporting following the decentralisation process in the early 1990s.

The countries of Eastern Europe, the Caucasus and Central Asia (EECCA) inherited a well-developed network of water infrastructure from the Soviet period. However, since then, it has seriously deteriorated due to a lack of operation and maintenance, insufficient finance, ineffective environmental policies and institutions, and rapidly rising energy prices. The situation is particularly critical in rural areas where only a small part of population has access to centralized water supply.

The governments of EECCA countries have set the issues of water supply and sanitation infrastructure renovation, new technologies introduction and reforming policies and institutions in water sector. It resulted in the necessity of attracting considerable financial resources and reviewing the institutional and regulatory framework.

Establishing a framework for financial sustainability of water sector and promoting cost-effective use of resources is one of the priorities of GREEN Action Task Force. It helps the governments to elaborate strategic and mid-term financial planning, transform it into investment programmes and facilitate their integration in key policy documents (e.g. country and sector development strategies, medium term expenditure frameworks). This process is realised through National Policy Dialogues that aims to put in place reforms and to ensure that available financial resources are used properly and facilitate access to additional financial resources from donors, International Financial Institutions and private sector.

Thus, OECD helps the countries to plan and implement prioritised water supply and sanitation network investments, to mobilise and effectively allocate financial resources for reaching water-related the Millennium Development Goals (MDGs), ensuring that WSS services are affordable for the population and the public budget.

OECD tries to integrate sustainable business models in water supply and sanitation sector depending on each country’s needs and requirements. Several models implemented by GREEN Action Task Force programme can be cited : delegation of service provision, regionalisation, small town water, multi-service, rayon water utilities.

OECD highlights the importance of engaging private sector participation (PSP) and establishing public-private partnership for improving water supply and sanitation services that can be considered as a key of solving existing problems. It helps to foster efficiency, to improve the quality and reliability of WSS services and to ensure sustainable provision of affordable services WSS to local population. Involving private investments means the attraction of new financial resources, expansion of technical knowledge and managerial skills. Therefore, OECD tries to develop and implement a more effective policy and regulatory environment for PSP in different country contexts.

Furthermore, the work of GREEN Action Task Force led in WSS sector consists of helping the local governments to improve and reinforce the institutional and regulatory framework, including compiling and analysing information on institutional and legal reforms for regional dialogue and national level policy making, overcoming the fragmentation of services, revising contractual arrangements between municipalities and operators.

The OECD has initiated work on economic and financial dimensions of water resources management in Eastern Europe, the Caucasus and Central Asian countries (EECCA) region and helps the countries to achieve sustainable economic development by revising and improving economic instruments (EIs) in water sector.

The main objective of EIs is to create strong incentives for more efficient use, conservation and protection of water resources by improving the financial capacity of responsible public and basin administration and water services’ providers to develop, operate and maintain needed water systems.

Water infrastructure in the EECCA region is in poor condition due to the lack of funding, maintenance and repair that leads to local shortages and poor water-related services. The countries aim to face these difficulties; therefore, they need to apply carefully selected economic instruments. The current situation shows that the existing design and state of implementation of the instruments neither create the right incentives for water conservation and pollution prevention, for the efficient use of water resources and for efficient operation and maintenance of water utilities, nor do they generate sufficient revenues for financial sustainability of the sector.

As a result, the sector is often heavily subsidised with many not cost-effective and counter-productive subsidies that impede the countries from achieving policy objectives and targets.

Current water tariffs often do not cover operation and maintenance costs of water provision, collection and treatment, despite the fact that user charges remain the main source of finance. GREEN Action Task Force assists the governments in tariff regulation, including costs regulation, sound tariff-setting procedures and final tariffs calculation. Elaborating water-tariff regulation the OECD pays attention to social issues, especially to low-income groups, so that the tariffs remain affordable to all population layers.

Several measures have been suggested, such as progressive tariffs (tariffs modulated based on consumption blocks), separate social policies (subsidies aimed at support low-income household), social tariffs (lower tariffs for low-income groups) and Social Fund for Water (tariffs for all end-users with an additional charge for Social Funds).

GREEN Action Task Force leads various projects on multi-purpose water infrastructure (MPWI) that includes all man-made water systems, such as dams, dykes, reservoirs and associated irrigation canals and water supply networks, which may be used for more than one purpose (for economic, social and environmental activities). MPWI plays a significant role in the socio-economic development ensuring water, food and energy security. However, MPWI faces several difficulties as unsustainability of business models for financing, operation and maintenance, lower-than-expected performance or the emergence of unforeseen risks and negative externalities.

The OECD works on developing approaches and instruments to enhance MPWI sustainability and exploring the complexity in designing, financing, regulating and managing its projects with the objective to inform policy and decision-making.

A pilot project was conducted by the OECD in Shardara area, Kazakhstan, to test efficient use of water resources and higher economic return from existing MPWI systems. In the framework of this case-study a computer WHAT-IF model (Water, Hydropower, Agriculture Tool for Investments and Financing) was developed for economic assessment, including specific investment projects and various water allocation rules for normal, dry and super-dry years for agri-food, energy and water sectors. This model may also be used as a pre-feasibility tool in order to identify economically sound investments and provide information about prioritization and timing of these.