assessing economies of scale for town wss: experience...

Ministério Ministério das Cidadesdas Cidades

Secretaria Nacional Secretaria Nacional de Saneamento Ambientalde Saneamento Ambiental

Water Sector Modernization Project Water Sector Modernization Project -- PMSSPMSS

Assessing Economies of Scale for Town WSS:Assessing Economies of Scale for Town WSS:Experience from Piauí State, Northeast BrazilExperience from Piauí State, Northeast Brazil

Technical Cooperation AgreementTechnical Cooperation AgreementMinistry of Cities / Piauí State Government / AGESPISAMinistry of Cities / Piauí State Government / AGESPISA

Optimizing Economies of ScaleOptimizing Economies of Scale

Investigating Alternatives:Investigating Alternatives:a New Organizational Modela New Organizational Model

for Water Supply & Sanitation for Water Supply & Sanitation Service DeliveryService Delivery

in Piauí Statein Piauí State-- In Search of the Optimum In Search of the Optimum

Economy of Scale Economy of Scale --



Water Sector Modernization Project Water Sector Modernization Project -- PMSSPMSS



Distribution of Water Supply Service Providers by RegionDistribution of Water Supply Service Providers by Region

100,000 – 500,000 = Parnaíba = 1> 500,000 = Teresina (state capital) = 1

REGIÃO POLOSAGES MUN AGES MUN AGES MUN AGES MUN AGES MUN

NORTE 1 Parnaíba 1 9 2 0 1 0 0 0 5 9NORTE 2 Piripiri 7 11 4 0 6 1 1 0 18 12CENTRO Teresina 13 7 4 0 4 0 0 0 22 7CENT-SUL Floriano 22 5 6 0 5 0 1 0 34 5LESTE Picos 51 12 5 0 2 0 1 0 59 12SUL 1 Bom Jesus 13 5 3 0 2 0 0 0 18 5SUL 2 SRaimundo 4 11 0 0 2 0 0 0 6 11TOTAL GERAL 111 60 24 0 22 1 3 0 162 61

TOTALde 5 a 10mil< 5mil habit de 10 a 40mil de 40 a 100mil



Current Performance of Piauí State WSS Company, AGESPISACurrent Performance of Piauí State WSS Company, AGESPISA

Finances

Revenues of R$ 7.0 M/month; costs of R$ 10.5 M/month

Total debt of R$ 402.0 M:

• short-term liabilities/accounts payable – R$ 241 M

• long-term debt – R$ 161 M

• net equity – R$ 171 M



Current Performance of Piauí State WSS Company, AGESPISACurrent Performance of Piauí State WSS Company, AGESPISA

Market

Revenue distribution:• Teresina (state capital), 54%

• the next 29 largest municipalities, 30%

• the remaining 132 municipalities, 16%

Productivity

Personnel costs = 83% of revenue

25% of staff account for 50% of salary costs



AGESPISA v. Municipal WSS Department in PiauíAGESPISA v. Municipal WSS Department in Piauí

AGESPISA salary ranges for decentralized staff (Floriano district):

• R$ 1,000 – 2,100 / month

Municipal Department salary ranges (Boqueirão/PI):

• R$ 100 – 250 / month

(below the legal minimum wage!)



SnapSnap--shot of the situationshot of the situation

1. Current state model, with central role of AGESPISA:high service deficit (WS and S)low service qualityvery fragile financial situation

2. Teresina and Parnaíba (2 largest cities in Piauí):‘weak’ concession contracts with AGESPISA ‘under negotiation’disatisfied with services provided by AGESPISA to datewould like more rigorous new concession contracts

3. State Governor expressed interest in alternative models



SnapSnap--shot of the situation...contd...shot of the situation...contd...

4. Current ‘diseconomy’ of scale: large number of small municipalities; large distances between these and the state capital

5. Only Teresina and Parnaíba have sewerage (but at very low coverage) = no ‘economy of scope’

6. High salaries as compared to averages in interior of state:distorts local market (pump operator R$ > mayor!)higher costs for services in interior(‘cross-costs’ v. ‘cross-subsidies’)



Approach to identifying optimal economy of scale involved...Approach to identifying optimal economy of scale involved...

1. Analyzing organization of WSS service provision in state, proposing a model that approaches an optimum economy of scale

2. Identifying what a ‘viable’ new AGESPISA would look like

3. Analyzing alternative arrangements of grouping municipalities based on their:

SizesGeographical locationsOperational logistics (distance to pole municipality; quality of roads, etc.)



Approach to identifying optimal economy of scale...contd...Approach to identifying optimal economy of scale...contd...

4. Undertaking exhaustive fieldwork analyses and costings

5. Not ‘estimating’ numbers but developing...

very detailed scoping of activities

very detailed costing of each activity



NewNew--look AGESPISA: concentrated in North of Statelook AGESPISA: concentrated in North of State

Northern District

Central District

Southern District



New Regional Municipal GroupingsNew Regional Municipal Groupings

Northern Region

Western Region

Eastern Region

Southern Region



Região Nº munic. Pop. 2000 Região Nº munic. Pop. 2000NORTE 22 441,166 NORTE 50 141,237OESTE 8 122,273 OESTE 31 100,711LESTE 4 92,853 LESTE 67 134,963SUL 0 0 SUL 40 128,841SUBTOTAL 34 656,292 SUBTOTAL 188 505,752

222 1,162,044

NEW AGESPISA MUNICIPAL GROUPS

TOTAL

Groupings chosen by optimizing size and logisticsGroupings chosen by optimizing size and logistics

(*) plus Teresina = 715,500 people, totaling 1.4 M people

(*)



LegalLegal--Institutional Models IdentifiedInstitutional Models Identified

1. New AGESPISA will renegotiate modern concession contracts with 34 municipalities (however without Teresina, model may collapse and remaining 33 would have to go alone or join municipal groupings)

2. New municipal groupings will form 4 municipal/state consortia:

around ‘pole’ municipalities

differentiated activities for consortium and municipalities

‘shared’ cost/tariff structures between consort. and mun.



Consortia Consortia –– Differentiated Activities; Shared Costs/Tariffs Differentiated Activities; Shared Costs/Tariffs

DIVISÃO DE ATIVIDADES MUNICÍPIO CONSÓRCIOOPERAÇÃO LOCAL MANUTENÇÃO COMPEXAMANUTENÇÃO LEVE MATERIAIS MANUT/REPOS/PQLEITURA HIDRÔMETROS CONTROLE DE QUALIDADE ÁGUAENTREGA/RECEBIMENTO CONTA FATURAMENTO/CONTR FINANCRELAÇÃO ADMINIST C/ CONSÓRCIO CONTROL INADIMPLÊNCIA

ARTICULAÇ INSTITUC/EDUCATIVA RATEIO DE CUSTOS MUNICÍPIO CONSÓRCIOPESSOAL LOCAL PESSOAL (MANUT/COM/ADM)ENERGIA PROD QUÍMICOS/ANÁLISE ÁGUADESPESA ESCRITÓRIO LOCAL MANUTENÇÃO/REPOSIÇÃO DESP DESLOCAM A SEDE CONSÓRC EXPANSÃO (RD+HD+AMPLIAÇ PROD)

ADMINIST CENTRAL (INSTAL/VEÍC)

SISTEMA TARIFÁRIO MUNICÍPIO CONSÓRCIOALT 1: RATEIO PURO DAS DESP LOC RATEIO P/ VOLUME MEDIDO ALT 2: RATEIO P/ VOLUM MEDIDO



Initial Investment Costs for Consortia (*)

Total Inv. (R$) Initial Pop. IPC (R$)Norte 5,972,767 80,243 74.43Oeste 3,668,571 58,530 62.68Leste 10,995,161 115,277 95.38Sul 12,839,057 72,584 176.89Total 33,475,556 326,633 102.49

(*) total values for 171 municipal capitals with pops > 5,000

Possible to have capital cost recovery (and, of course, O&M&R), even in poor areas...

Ministério das Cidades

Secretaria Nacional de Saneamento Ambiental

ConclusionsConclusions

O&M&R costs of consortia approx. 1/3rd of existing AGESPISA’s

Significant reduction in tariff thus possible

Possible to have capital cost recovery costs (at R$100/person average)... ...even in very poor areas

State Government willing to embark on implementation of new model, with continued support of Federal Government/PMSS



THANK YOU!THANK YOU!Marcos Montenegro

DirectorNational Secretariat of Environmental Sanitation

Ministry of [email protected]



assessing economies of scale for town wss: experience...

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