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6.9 Financing (Topic i)

6.9.1 Financing

The institutional frameworks existing in Western Europe (see Section 6.6.2) imply that financing of the wastewater and stormwater management is a responsibility of the municipalities and/or the private companies contracted for the operation and maintenance of the systems. Government may help but is not in charge.

Subsidies will to be gradually abolished in all sectors of the economy, including in wastewater and stormwater management. Yet, subsidies still exist and may amount to as much as 20% up to 30% of the initial costs in some countries. Cheap loans made by Governments to the municipality are more common. Several schemes exist in the light of enabling legislation for regional and/or rural development, agricultural development, or the environment. The municipality bear more than two third of the initial cost in most cases, and all the cost of operation and maintenance. Loans are repayable from the revenues arising from running of the facilities.

6.9.2 Cost

Cost calculation includes all cost which the owner or operator will have to meet annually with the view to ensuring a balanced budget and sound financial and fiscal management. These comprise:

• Capital cost, viz. interest, repayment and depreciation of the initial invest made.
• Cost of running the facilities and producing its output, viz. materials, consumables, spare parts, energy, laboratories, personnel expenditure and the general overhead.

The capital cost is calculated on the basis of the full investment without considering subsidies available from government or other sources The rational behind this approach is to create reserves for the replacement of the facilities once their life is consumed. Depreciation is normally taken at 15 to 20%. Interest is calculated on the basis of the total investment irrespective of the source of funding. Repayment follows the credit conditions; normally full repayment is made in 15 to 20 years.

In calculating the cost of operation and maintenance, the cost of the handling and ultimate disposal of sludge and other residuals is included. Under the condition of Western Europe, the personnel cost amount to about one third of the total cost of O+M. Rudolph reports (Rudolph 1997) that the total calculated cost break down roughly as follows (the percentages apply to Germany but the scheme stands in principle also for other parts of Western Europe):

• Depreciation: 20%.
• Interest: 40%.
• Personnel: 13%.
• Energy, sludge handling and disposal, and other miscellaneous O+M cost: 27%.

Of interest are two recent surveys comparing, respectively, networks and wastewater treatment plants. The first survey covered 12 countries, all of the EU and was basically conducted to assess stormwater pollution control (European Waste Water Group 1995). The second survey included Denmark, France, Germany, Italy, Switzerland and The Netherlands and was undertaken to analyze cost which must be borne by the undertaking (Fink et al. 1998). Wide variations exist from country to country and, therefore, the information presented is not intended for estimating the cost of a specific project.

The first survey contains information on the capital cost of providing new collection systems. The following are indicative ranges, as an average for a drainage area with a population of 10000: 300 to 375 ECU per meter in established urban areas, and 125 to 200 ECU per meter in open ground.

The second survey reviewed information on 6 treatment plants in each of but six countries. They were selected on the basis of recent construction, activated sludge or comparable biological treatment, nitrification and de-nitrification, phosphorus removal by chemical or biological methods, and size range. The analysis of cost data covered both construction and operation and maintenance. To enhance comparability, adjustments were made to compensate for differences in environmental standards, treatment effectiveness, sludge disposal, unit costs (of civil works, mechanical and electrical equipment, energy, labor and many others), design criteria, the percentage of connections, and the actual pollution load. Information varies greatly even after adjustments were made. For instance, construction cost for treatment plants in Germany and Switzerland are highest with about 450 Euro per capita. In The Netherlands, they are about 65% of that value and in France, Italy and Denmark, between 30 and 40%. The variations of the cost of operation and maintenance are similar. Table 6.20 is a summary of the information reported.

6.9.3 Recovery of cost

Cost recovery from the user of the facilities is considered the only valid approach to creating revenues for wastewater and stormwater management in Western Europe. Several methods are available, e.g.:

• Community fund raising, e.g. ad-hoc contributions, revolving funds, communal levies.
• Indirect taxes.
• Wastewater charges.

The levy of wastewater charges is the principle method used and will be summarized below. The information presented is based on two highly commendable surveys (Schoot Uitercamp 1995 and Rudolph 1998). The emphasis is on methodology rather than numerical values since to large measure, the latter depend on the service levels, i.e. the coverage by collection systems and sewage treatment plants and the degree of wastewater treatment achieved. The survey undertaken in 1995 comprised the then 12 Member States of the European Union; the survey of 1998 was limited to 6 countries of the Union (Austria, Denmark, France, Germany, Italy and England and Wales).

It is very important to understand that in Europe, wastewater charges serve two functions:

• To finance collection systems and treatment facilities (finance function).
• To stimulate polluters to reduce their emissions (incentive function).

As regards the incentive function, it is not considered important how the revenue is spent because the incentive effect works through the design of the charge itself not via its spending. In contrast, the finance function is inextricably linked with the way the revenues are applied. The polluter-pays-principle (ppp) is widely accepted and also reflected in the EU Directive on water policy (see Section 6.6.1).

Table 6.21 shows how France, Germany, The Netherlands, Spain, and England and Wales are adding the pollution load to the more routine fixing of the charge in accordance with the finance function.

The 1995 survey shows that the systems for fixing wastewater charge in the countries of the European Union vary widely with respect to:

• Type of discharge, i.e. direct discharges, indirect discharges or both.
• Target groups, i.e. household, small firms, large firms and communities.
• Revenue spending, e.g. for sewage treatment, sewerage, water quality management, or subsidies to industry.
• Charge base, e.g. pollution load, sector coefficients, water consumption or fixed rates.
• Pollution load, e.g. types of pollutants, weights in a charge formula, or choice of pollution unit.
• Charging agency, e.g. River Basin Authority or Water Board, regional or local unit of administration, private water company.
• Context: in the context with issuing permits, or exercising responsibilities for water pollution management.

In most countries, the charges for direct discharges are different from those for indirect discharges with the exception of Belgium, France and the Netherlands which cover both in one scheme. Target groups for indirect discharges all include industrial discharges and discharges of households and small firms but for direct charges, they include industries, communities and/or households and small firms. Revenues from indirect discharges are all applied to finance communal sewerage and treatment plants only. In the case of direct discharges, revenues are applied in a wider context, e.g. financing water quality management in general, consenting, subsidies, etc.

The fixing of wastewater charging schemes covering, on the one hand, discharges to surface water in the Member States of the European Union, and, on the other hand, discharges into sewerage systems is exhibited in Tables 6.21 and 6.22. In the two Tables, the charging schemes are classified with respect to :

• Design of the schemes, viz. the by central authorities (NAT) or locally (LOC):
• Charging authority, viz. the central or regional units of administration (ADM), Water Basin Agencies or Water Boards (Municipalities (MUN), or private companies (PRIV).
• Discharges covered, viz. for household and small firms (HOU), industries (IND) or communities (COM).
• Spending of the revenues, viz. for communal treatment works (TRE) involving partial or complete financing of construction and/or operational cost, subsidies for treatment at industries (TEIND), sewerage (SEW) or water quality management (WQM).

The two Tables are too compact to include specific information on the methods used for the actual calculation of the charges. However, this information is contained in Volume 2 of the survey report which comprises "Country Descriptions" each of which includes a Section on the calculation of the charge.

As pointed in the following table, wastewater charges are seen increasingly as instruments to control pollution at the source and just for financing cost. For a charge scheme to fulfil the incentive function, there has to be a link between the payable charge and the actual pollution load of the discharge. Also, the incentive will be limited to those pollutants which are considered in the scheme. In the overall, the charge rate is the crucial variable for an incentive effect in practice because it determines whether it is economically beneficial for a discharger to abate pollution (e.g. by pre-treatment) or to pay the charge. Therefore, the higher the charge, the higher will be the effect. The link between the load which is ultimately discharged by a polluter, on the one hand, and the payable charge, on the other hand, is the essential condition for the successful application of concept. To satisfy this condition, the charge may be based on:

• The discharger's pollution load via measurement of the emission, or via the value stated in the discharges permit.
• Sector-specific coefficients with the option of measurement.
• Indirect variables, e.g. sector-specific coefficients without measurement, a proxy (such as the water consumption) or a fixed amount.

Table 6.23 exhibits the pollution parameters considered in fixing incentive charges for communal discharges and the other variables used in determining the pollution load. They are:

• Pollution parameters, viz. suspended solids (SUS), organic matter (ORG), heavy metals (MET), nutrient phosphorus (P), nutrient nitrogen (N), halogenated hydrocarbons (AOX), a toxicity indicator (TOX), soluble salts (SOL), or as a system in which the discharge is classified in “Bands�Eto which values are attached (BND).
• Other determinants, viz. the number of inhabitants in a community (INHAB), a sector-specific coefficient (COEF), actual measurement of the load (MEAS) or optional measurement (MEASO), or a value based on a discharge permit or consent (PERM).

Volume 2 of the survey report of 1995 contains several Tables exhibiting the determination of incentive charges for large industrial discharges but the limited space available for this Overview does not allow inclusion.

In the 1998 survey (Rudolph 1998), several additional factors were analyzed which influence cost and cost recovery in the 6 EU Member States included in the survey though differently from country to country. They are:

• Subsidies. They may be as high as 30% of the construction cost and may or not be made subject to the calculation of charge rate as regards their finance function.
• Added Value Taxes (TVA).They may be payable whenever private enterprises are involved in the construction and/or operation and maintenance of the facilities.
• Communal or other levies. They may comprise connection charges or infrastructure charges.
• Water consumption.
• Stormwater. Stormwater is a communal function and chargeable to the general tax revenues in many of the European countries.
• Disposal of residues, e.g. sludge and screenings.

Tables 6.24 and 6.25 exhibit cost and charges as derived from the survey adjusted in the light of the above-mentioned factors to enable comparison between the countries.

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