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Implementation Considerations
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11. Implementation Considerations
In the economic assessment presented in the previous section, it is evident that a combination of initiatives needs to be undertaken that have a net effect of reducing the maximum quantity of solid matter and contaminants in the wastewater stream combined with actions that reduce energy consumption. This combination will fulfill the objectives of the Dnieper River Basin Strategic Action Plan as well as the KVK. The principles of pursuing projects that have an immediate return on improving the integrity of the river combined with substantial savings in energy and operational costs, and improved treatment efficiency are well established. The projects identified contribute to fulfilling the Program’s objectives, as well as improving the operating position of the facility. However, there are ancillary elements to be considered in the implementation of any projects.
As noted in the Danish EPA funded feasibility study, the recommended focus for the utility is in water distribution and demand management. The study identifies a Demand Side Management (DSM) Strategy – with the main goals of reducing household demand by approximately half (176 lcd) and a 30% reduction in unaccounted-for-water (including leakages) over a 10 year timeframe. The prescribed program is also comprised of pricing (increasing tariffs), metering, conservation and education programs (including in schools) and pressure reduction and control. As noted in Section 4, political and cultural reality dictates that the DSM would face numerous challenges.
An integral element in implementing any of the identified projects is the prescribed “Industrial Pre-Treatment Strategy and Sludge Treatment Strategy.” As noted1):
Today most industries discharge their industrial wastewater to the KVK wastewater collector system. Examination of the performance of the Bortnicheskaya Wastewater Treatment Plant suggests that the current industrial loadings are not affecting the biological processes. However, the Bortnicheskaya sludge contains a high concentration of heavy metals, which makes the sludge unsuitable for disposal on agricultural farmland2), which poses a large problem for KVK, as all existing sludge lagoons are full. Therefore, focus should be given to more strictly enforcement of the effluent criteria from the industrial enterprises, and focus should be given to industries discharging heavy metals, so that the sludge can be disposed off on agricultural land.
While not considered in the analysis, substantial efficiency gains could be realized through developing industry pre-treatment programs and associated enforcement. However, within the current economic climate, additional industry fees and regulation may not be salient. Programs that emphasize the benefits and cost efficiencies of the adoption of closed-loop water systems, water recycling (including mineral extraction) could be promoted through government incentive programs. Enforcement fines of industries discharging beyond their MAC to the utility could be considered being directed towards the utility (as this would abide by the “polluter-pay” principle).
From a privatization perspective, the matter of tariffs needs to be revisited. The Danish EPA Study goes to great depth discussing that this is a crucial issue to the utilities financial sustainability, and hence, environmental performance.
To ensure both the financial viability of water supply and wastewater operations and their long term financial sustainability, KVK’s financial objective for its water supply and wastewater tariffs should be to ensure full cost recovery in its broadest financial terms. Full cost recovery in this regard should include: the cost of appropriately operating and maintaining the system; the cost of capital rehabilitation/reinvestment necessary to ensure sustainable supply of existing levels of service; and the cost of new capital investment necessary for improved levels of service and/or expansion of services in response to affordable demand. Moreover, if loan financing is required or private sector participation is to be encouraged, financing charges or a reasonable return on investments should also be included.
While the corporation has the ability to retain revenue, and has control of the supply and treatment of water, the utility’s restricted ability to set tariffs poses a serious problem for potential investors. In tandem with these concerns, attention should be paid to public policy as they relate to setting tariff rates – investors need to be assured that rates need to rise to reflect the true cost of treatment/supply, as well as the earmarking of environmental funds (rather than their retention in general revenues).
The Dutch EPA study also identifies that the total ‘Financial Envelope’ based on the scenarios analyzed, is estimated to range between USD 181 million and USD 296 million3). It is comprised of KVK self-financing equal to 30% of the total, and an affordable level of loan financing. As there is no commitment to date to initiate any identified projects, the Study did not include possible co-financing from the state and/or city administrations or possible grant or soft loan support from other multilateral or bilateral agencies. Nor did it include potential investment from other international or national development banks/organizations or the private sector.
With a number of priority environmental projects – with aeration tanks at the top of the list – and the fiscal constraints faced by the utility, some flexibility could be considered in terms of external funding. For example, if grants are feasible, they should be focused on a select couple of treatment plant projects. However, the grant could be staged based on the utility’s ability to resolve its tariffs as well as improve its revenue collection. Loans too could be incentivized – performance targets should be set for attaining environmental targets, as well as improving revenue generation and system knowledge (application of information technology), upon which lower interest rates are charged, or amortization schedules extended. Ultimately, a mix of financial instruments would be the likely approach, where the pursuit of key environmental objectives of reducing pollution into the Dnieper River could be used as a vehicle for improving KVK’s overall performance and efficiency.
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1) – “Renewal and Modernisation of the Kyiv Vodokanal: Working Document No. 3 – Reform and Corporate Development.” Feasibility Study funded by the Danish Environmental Protection Agency; July 2000.
2) – Cadmium, Nickel, Mercury and Copper are the most problematic heavy metals for the Bortnicheskaya sludge
3) – The general modelling approach and modelling assumptions, as well as the specific assumptions of each scenario are detailed in Section 3.3 of Working Document No. 2 – Strategic Plan.
