measuring financial performance in infrastructure jane ebinger public finance course may 4, 2006
TRANSCRIPT
Measuring Financial Performance in Infrastructure
Jane Ebinger
Public Finance Course
May 4, 2006
Objective
To estimate the level of hidden costs or implicit subsidies in the power, natural gas and water sectors
Various initiatives:– QFD assessment for Azerbaijan’s energy sector
1999/2000– SAL 4 discussions in Russia 2000 – energy sector– IMF/ WB look at 6 CIS countries in 2003/2004 –
energy sector
Simple Model
WB/ IMF agreement on need for simple model of hidden costs in energy sector
– Single measure of hidden costs in power and gas sectors– Indication of combined effect of losses, poor collections and
tariffs below cost recovery– Provide insight to impact of reform policies and their
implementation– Easily calculated, tracked and reported
Recognize limitations in model – no attempt at in depth analysis
Simple Model
Hidden Costs = Collection Failure + Unaccounted Losses + Tariffs Below Cost Recovery
Where, Collection Failure = Q x Te x (1 – Rct)Unaccounted Losses = Q x Ce x (Lm – Ln) / (1 – Lm)Tariffs Below Cost Recovery = Q x (Ce – Te)
And, Q End user consumptionCe Average Cost Recovery PriceTe Weighted average tariff Rct Collection rateLm Total lossesLn Normative losses
Simple Model
INDICATOR DEFINITION Q End user consumption, where end users include industry, commercial
enterprises, households, etc. Ce Average cost recovery price at the end user level defined as long run
O&M costs plus allowance for reasonable investment and normative losses
Lm Rate of actual losses in transmission/ transport, distribution, and due to a lack of metering and theft
Ln Rate of normative losses expected in a system of the given characteristics Te Weighted average end user tariff Rct Collection in cash, non cash (in cash equivalent terms), and offsets
Scope of Review
Expand earlier efforts and estimate hidden costs in power and natural gas sectors across ECA
– 22 countries with active programs included– 2000 – 2003 estimates
Extend methodology to the water sector– 16 countries for same period
Review financial performance in roads and railways– Roads – budgetary expenditure– Rail - budgetary support
Data Sources
Use known sources or existing data collection instruments wherever possible:
– Enerdata (power and gas supply and demand)– Erranet (power and gas tariffs)– OECD EAP Task Force (water sector)– Ib-net (water sector)– International Union of Railways– International Road Federation Statistics– EuroStat (transport)
Data sources supplemented by:– Information from Ministries and agencies– Existing WB publications and reports– Data from sector specialists, consultants, WB and IMF staff
Low cost exercise – no large scale field data collection efforts
Data Availability
Information on the state of each sector generally available
Data less available for:– Financial performance in general – all sectors,
particularly rail and road sectors– Loss statistics in gas sector– Breakdown of residential/ industrial tariffs – power/
gas– Collection rates– Cost recovery tariffs
Data Quality
Quality and consistency a major challenge– Average cost recovery prices– Transport – multi year statistics, and cross country
comparisons– Trends – span 4 years period only
Checks with sector specialists, review for consistency and outliers
No field audit or major data collection Power sector data most robust
Energy Sector – Hidden Costs
Twenty two countries reviewed over the period 2000 to 2003.
Central and Eastern Europe Hungary, Poland
South East Europe Albania, Bosnia, Bulgaria, Croatia, Macedonia, Romania, Serbia and Montenegro, Turkey
FSU – Low Income Armenia, Azerbaijan, Georgia, Moldova, Kyrgyz Republic, Tajikistan, Turkmenistan, Uzbekistan
FSU – Middle Income Belarus, Kazakhstan, Russia, Ukraine
Electricity: Hidden Costs - Total
0
500
1000
1500
2000
2500
3000
3500
4000
US$ million(Constant 2001 US$)
2000 2001 2002 2003
Average 2000 Average 2001 Average 2002 Average 2003
2002: 10579
2001: 10918
2000: 14249
2003: 4232
Power Sector
Trends (2000 – 2003)– Hidden costs declined across all countries
8.6% of GDP to 4.4% of GDP US$ 30.1 billion to US$ 15.9 billion (2001 constant US$) Largest decline Russia (70% to US$ 4.2 billion) and Bosnia
(62% to US$ 96 million)
– Tajikistan and Uzbekistan have high hidden costs when compared with other countries, 16% and 12% respectively in 2003
Power Sector
Trend improved across the region on all 3 aspects of hidden costs
– Overall the WAET across the region rose by 26% to USc 4.15 per kWh on average (more than ½ in last year)
– WAET declined in only 3 countries: Armenia, Georgia and Macedonia– Residential tariffs remained higher than non residential tariffs but gap
decreased slightly (13%)– ACRP declined across sample by 5% to USc 5.1 per kWh; CEE group
faced an increase (57%)– Average losses remained around 21%– Collection rates rose from average of 78.3% to 87.9%. Bosnia, Kyrgyz
and Uzbekistan only showed declining trend
Natural Gas: Hidden Costs - Total
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
US$ billion(Constant 2001 US$)
2000 2001 2002 2003
Average 2000 Average 2001 Average 2002 Average 2003
Natural Gas Sector
Hidden costs lower than the power sector Hidden costs remained below 2.3% GDP all
countries (Uzbekistan exception 8.5%) Trend (2000 – 2003) - (2001 constant US$)
– US$ 6.8 billion (2000) to US$ 13.3 billion (2003)– Largest decline Ukraine (drop of US$ 690 million)– Largest increase Turkey (from US$ 0.2 billion to
US$ 4.2 billion)
Natural Gas Sector
Trends– Large variation in WAET – low in Uzbekistan 6.1 US$/km3 to high
US$ 154.5 US$/ km3 (2000)– All countries increased WAET except Azerbaijan and Moldova– Contrasting trends in terms of ACRP – FSU countries ACRP much
lower than other countries– Collection rates remained fairly stable over the period – also variation:
Georgia ~ 25%, Croatia, Moldova, Poland, Turkey from 78 % – 90%– Data on losses sketchy – cannot comment on trends
Water Sector – Hidden Costs
Sixteen countries reviewed over the period 2000 to 2003. Trends reflect 2000 to 2002 since the dataset for 2003 was not complete.
Central and Eastern Europe Czech Republic, Estonia, Latvia, Poland
South East Europe Bulgaria, Romania
FSU – Low Income Armenia, Azerbaijan, Georgia, Moldova, Kyrgyz Republic, Tajikistan
FSU – Middle Income Belarus, Kazakhstan, Russia, Ukraine
Water: Hidden Costs - Total
0
300
600
900
1200
1500
US$ million(Constant 2001 US$)
2000 2001 2002 2003
Average 2000 Average 2001 Average 2002 Average 2003
Water Sector
Trends (2000 – 2002)– Hidden costs significantly lower than the energy
sector– Show improving trend over 2000 - 2002– Hidden costs declined across all countries
On average declined from 0.5% of GDP to 0.4% of GDP Below 1.6% of GDP in all countries except Moldova (2.9%) US$ 2.1 billion to US$ 1.9 billion (2001 constant US$) Russia, Poland and Ukraine have highest levels Largest decline Russia (70% to US$ 0.4 billion)
Water Sector
Other indicators reviewed– Working ratio exceeded 1 in all countries except (Czech and Kyrgyz
Republic)– Labor costs remained largely unchanged exceeding 15% of revenues
in Russia and CIS, as high as 35% in Belarus and Tajikistan– Staffing remained high (> 3 x UK, employees per 1000 consumers)– Labor productivity rose on average 37% (water supplied per
employee)
Rail Sector
Statistics on the state of the sector span twenty two countries reviewed over the period 2000 to 2003. Data on financial performance is more limited.
Central and Eastern Europe Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland
South East Europe Bosnia, Bulgaria, Croatia, Kosovo, Macedonia, Romania, Serbia, Slovakia, Slovenia, Turkey
FSU – Low Income Armenia, Azerbaijan, Georgia
FSU – Middle Income Belarus, Russia, Ukraine
Rail: State Budget Support - Total
0
50
100
150
200
250
300
350
Azerbaijan Bulgaria Croatia Estonia Georgia Hungary Kosovo Poland Romania Serbia Slovakia
US$ million(Constant 2001 US$)
2000 2001 2002 Average 2000 Average 2001 Average 2002
Rail Sector
State Budget Support (2000 – 2002)– May not be best measure, variations in state public
budgeting and policy choices– State budget support (11 countries)
On average increased 7.6% from US$ 775 million to US$ 834 million
Remained unchanged at 0.4% of GDP or below Average state budget support per traffic unit rose to US$
0.022 in 2003, operating costs and PSO support per TU also rose to US$ 0.012 in 2003
Rail Sector
Other indicators reviewed– Working ratio was for CEE (0.74 average), FSU-LI (0.78 average) and
FSU-MI (0.5 average), but in SEE (1.78 average) - 2002– Operating costs (per TU) exceeded unit passenger and freight
revenues – In FSU country groups unit operating costs and revenues were
significantly below the regional average– Freight revenues exceeded passenger revenues in many countries– Labor costs as a % of total revenues rose on average from just under
60% to around 80%– Staffing reduced in all countries (average -11%) and staff productivity
rose by 16% (TU per employee)
Road Sector
Statistics on the state of the sector span fourteen countries reviewed over the period 2000 to 2003.
Central and Eastern Europe Hungary, Latvia, Lithuania
South East Europe Bosnia, Bulgaria, Croatia, Romania, Serbia, Turkey
FSU – Low Income Azerbaijan, Kyrgyz Republic, Moldova
FSU – Middle Income Russia, Ukraine
Road: Actual Expenditure Total[Russia - US$ 6.12 billion (2000), US$ 5.52 billion (2001), US$ 5.58 billion (2002), US$ 5.72 billion (2003)]
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
1.20
Azerb
aijan
Bosnia
Bulgaria
Croatia
Hungar
y
Kyrgy
z Rep
ublic
Latvia
Lithuan
ia
Mold
ova
Romania
Russia
Serbia
Turkey
US$ billionConstant 2001
2000 2001 2002 2003
Average 2000 Average 2001 Average 2002 Average 2003
Road Sector
Expenditure on the road sector (2000 – 2003)– US$ 8.9 billion spent for sample countries– Rose 9% to an average of US% 681 million; heavily influenced by
Russia (64% of expenditure overall)– Average expenditure on FSU-LI significantly lower than other sub-
regional groupings– Average expenditure represented 0.9% of GDP; FSU-MI (1.4% GDP)
above average– Most attention paid to routine maintenance and repair (16% increase),
followed by new construction and rehabilitation– Actual expenditure met or exceeded planned expenditure overall and
rose from an average of 100% to165% of planned expenditure
Going Forward
Updates proposed for:– Power and gas sectors – 2004 and 2005– Water sector – 2004 and 2005, and additional
countries as they become available through Ib-net
Access to Results of Review
http://ecadata-worldbank.org Report “Measuring Financial Performance in
Infrastructure”
Thank You
Jane Ebinger
Infrastructure Unit, Europe and Central Asia Region
May4, 2006
+1 202 473 0204