Governments of countries with emerging economies usually are not very successful in providing safe and sufficient potable water and adequate wastewater services to their citizens. The reasons vary from inadequate institutional structures to chronic under-investment in water infrastructure. To address this, governments embark on reforms based on commonly accepted principles of good governance such as: separation of policy, regulation and service delivery; protecting customer interests; and ensuring financial viability of water utilities and restructuring them so as to benefit from economies of scale and economies of scope. Kosova initiated water sector reforms in 2000 based on five pillars: (i) establishment of a legal and institutional framework, (ii) consolidation of 30 municipal water utilities into seven regional entities, (iii) incorporation in line with corporate governance principles, (iv) establishment of an independent economic regulator and (v) ownership and pushing of reforms by government. The paper describes the challenges encountered in implementing these reforms which, as far as the institutional and legislative framework is concerned, were successfully completed by 2008. Also, the difficulties associated with consolidation of newly created institutions resulting from the reform and defining their roles in the water services sector are described in the paper.

INTRODUCTION

Kosova was devastated by the 1998/1999 war and a preceding decade of isolationism and systematic discrimination. Prior to the sector reforms of 2000, the Kosovar water sector was characterized by lack of guiding policy, very low cost recovery, poor human resource, both in terms of quality and quantity, and little or no investment for system rehabilitation and expansion. Lack of clearly defined roles and jurisdictional responsibilities led to both policy gaps and duplication of efforts in the water sector system.

Over the past 14 years Kosova has experienced radical water services sector reforms, by the restructuring of 30 municipal water companies into seven regional water companies (RWCs), accompanied by a power struggle between the municipalities and national institutions pushing for water sector reforms. These reforms included completing the legal framework, establishing national institutions and sector regulators, setting management oversight of water services, developing tariff-setting policy, integration of rural water systems into RWCs, introducing benchmarking, clarifying asset ownership, clarifying the role of municipalities in the sector (Holzmann 2011), introducing corporate governance and establishing coordination platforms.

This paper outlines the Kosova experience of reforming the water sector, and in particular the water services sector. This includes structural, institutional and legislative dimensions.

POST-WAR STATE OF THE SECTOR

There were 30 municipal drinking water companies in 1999/2000, of which 23 provided a range of other municipal services, such as waste management, park maintenance, building maintenance, funeral services, removal of stray dogs, etc. Only the larger municipalities had separate drinking water companies. Fifty-two percent of the population was connected to water services, less than 30% to sewerage networks, and there was no wastewater treatment. Need for capital investments was considerable, yet there was insufficient sector funding by the government. There was ineffective sector coordination, inadequate local capacity, inefficient resource use and supply-driven project approaches, often driven by funding agencies.

In the first 2 years after the war, it was recognized that in terms of water services provision, both the UN administration and the municipalities were:

  • considering other activities as immediate priorities: return of refugees, housing, demilitarization, re-establishing critical public service institutions;

  • lacking knowledge and experience in the sector, in terms of managing, identifying needs and proposing solutions;

  • appointing personnel on non-merit basis (e.g. the qualifications of managing staff were secondary to political considerations, and political influence in the operation of utilities was quite high);

  • ignoring water resource management overall; and

  • endangering the financial sustainability of the water sector through cross-subsidizing other activities.

The sector stakeholders saw the need to push for sector reform, and this could only start through the most pressing needs of the population, i.e. through water services reform.

Initially in 2000, municipalities were given responsibility to regulate and manage public affairs, and ensure service provision of local public utility services to the citizens in their territory within the limits fixed by law (UNMIK Regulation 2000/45). In parallel, a central body, the Public Utilities Department, was given responsibility for management through supervisory boards, and regulation of matters relating to public utilities that were considered to be autonomous (UNMIK Regulation 2000/49).

Differing regulations, opinions and interpretations, agendas and approaches indicated a power struggle was on the horizon, to be settled by political power and/or sound reasoning. One was municipal control and the other was independent management.

CONCEPTUALIZATION OF WATER SECTOR REFORMS

By 2002, administration of publicly owned enterprises (POEs), including public utility water service providers, their related assets, and approvals of their business and investment plans were transferred to the newly established Kosova Trust Agency (KTA) (UNMIK Regulation 2002/12). Thus KTA, not the municipalities, assumed custodianship of POE assets. KTA's approval was required whenever the municipalities planned investments in the water services sector. In order to facilitate better communication with the municipalities and include them in the development of the sector, municipalities were asked to nominate representatives on the supervisory boards of companies, as shown in Figure 1.
Figure 1

Supervisory boards' set-up with municipal representation.

Figure 1

Supervisory boards' set-up with municipal representation.

Regulatory responsibilities of water services were transferred to the newly established independent Water and Waste Regulatory Office, WWRO (UNMIK Regulation 2004/49). The environmental regulation of the sector was left under the Ministry of Environment and Spatial Planning (MESP), as part of UNMIK Regulations 2002/05 and 2005/15), which was responsible for water resources management, including water permits for abstraction.

In close cooperation with the economic regulator, WWRO and the environmental regulator, MESP and KTA reformed the water services sector.

Water sector reform in Kosova was intended to develop a new water management culture at the water utility level, leading to transparent administration, accountable to water users and ultimately in compliance with the Integrated River Basin Management Approach.

To start the restructuring process of water utilities, it was necessary for the existing water services to be unbundled from the mixed services. The water services were then consolidated around seven major cities, i.e. into seven RWCs, as shown in Figure 2. The consolidation, also referred to as agglomeration or regionalization, was motivated by creation of larger entities which would benefit from economies of scale. Moreover, this would reduce the number of entry points and hence enable a balanced distribution of the financing aid agencies' (i.e. donors') support, provide more efficient use of human and other resources, and establish a larger customer database, ensuring a non-discriminatory tariff policy in broader service areas. Overall fixed operation and maintenance costs were spread over a larger population and resulted in lower costs for a single customer. In addition, larger companies tend to be more prone to attract investment from financial agencies and public institutions, and very importantly offer access to qualified manpower and subsequently increase the level of expertise.
Figure 2

Service areas of seven regional water companies and Kosova river basins.

Figure 2

Service areas of seven regional water companies and Kosova river basins.

The consolidation strategy is not the end result; it is the first vital step towards creating water utilities that can fund themselves for better service provision in the future to the residents of Kosova. Ultimately, the aim is to consolidate further into a maximum of four RWCs, based on the four river basins of Kosova (see Figure 2).

During 2007/2008, the RWCs were incorporated as joint stock companies with the purpose of clearly defining their legal and financial status and hence enabling them to get into loan arrangements for infrastructure investments, and eventually to enter into public–private partnership (PPP) schemes. All but one of the RWCs are central publicly owned enterprises, where the government of Kosova exercises the shareholder rights of the Republic of Kosova (Law No. 03/L-087 2008). The remaining RWC is currently a local POE, where municipalities are shareholders, but is in the process of being restructured as per the other RWCs. Some of the municipalities challenged the process and unilaterally withdrew from the respective RWCs, but have lately returned into the regional scheme. Recently the law has been amended (Law No. 04/L-111 2012) to allow for equal municipal representation in the RWCs' Boards of Directors (see Figure 3).
Figure 3

Water service governance in Kosova.

Figure 3

Water service governance in Kosova.

Further, a mechanism of ‘service agreements’ between the RWCs and municipalities that establishes the responsibilities and obligations of the parties has been revised to strengthen the participation of municipalities in the management and operation of water utilities. The service agreements are a legislative requirement of the economic regulator, WWRO, for licensing the RWCs.

WWRO (recently renamed the Water and Wastewater Regulatory Office) is thus responsible for licensing water (and wastewater) companies, and also for setting and enforcing service tariffs and service standards, monitoring the performance of service providers, and protecting customer rights (Law No. 03/L-086 2008). As an institution, it is accountable to the Parliament.

RESULTS OF THE REFORMS

The seven RWCs currently serve 28 municipalities that cover a territory that comprises 96% of Kosova's population (Lajçi & Begolli 2013). Service areas of RWCs are shown in Table 1.

Table 1

Regional water company characteristics

RWCMunicipalities servedNo. of customersAnnual production (m3)Population in the regionCoverage with servicesAnnual billing (EUR)
Prishtina Prishtinë 94,917 45,054,046 497,907 395,707 12,522,927 
F. Kosova 79.5% 
Obiliq 
Lipjan 
Podujeva 
Shtime 
Drenas 
Graçanica 
Hidro-regjioni Jugor Prizren 35,092 19,673,736 331,670 193,368 3,760,251 
Suhareka 58.3% 
Malisheva 
Dragash 
Mamusha 
Hidrodrini Peja 32,547 26,981,112 220,338 165,203 3,019,428 
Istog 75.0% 
Klina 
Junik 
Deçan 
Mitrovica Mitrovica 22,816 16,792,799 192,634 133,519 2,348,524 
Vushtrri 69.3% 
Skenderaj 
Radoniqi Gjakova 27,637 15,073,168 150,767 125,540 3,063,541 
Rahovec 83.3% 
12 villages of Prizren 
Bifurkacioni Ferizaj 18,290 6,109,204 142,019 105,097 1,359,670 
Kaçanik 74.0% 
Hidro-morava Gjilan 21,574 7,610,126 173,142 112,751 1,595,410 
Kamenica 65.1% 
Viti 
Total 28 252,873 137,294,191 1,708,477 1,231,185 (72.1%) 27,669,751 
RWCMunicipalities servedNo. of customersAnnual production (m3)Population in the regionCoverage with servicesAnnual billing (EUR)
Prishtina Prishtinë 94,917 45,054,046 497,907 395,707 12,522,927 
F. Kosova 79.5% 
Obiliq 
Lipjan 
Podujeva 
Shtime 
Drenas 
Graçanica 
Hidro-regjioni Jugor Prizren 35,092 19,673,736 331,670 193,368 3,760,251 
Suhareka 58.3% 
Malisheva 
Dragash 
Mamusha 
Hidrodrini Peja 32,547 26,981,112 220,338 165,203 3,019,428 
Istog 75.0% 
Klina 
Junik 
Deçan 
Mitrovica Mitrovica 22,816 16,792,799 192,634 133,519 2,348,524 
Vushtrri 69.3% 
Skenderaj 
Radoniqi Gjakova 27,637 15,073,168 150,767 125,540 3,063,541 
Rahovec 83.3% 
12 villages of Prizren 
Bifurkacioni Ferizaj 18,290 6,109,204 142,019 105,097 1,359,670 
Kaçanik 74.0% 
Hidro-morava Gjilan 21,574 7,610,126 173,142 112,751 1,595,410 
Kamenica 65.1% 
Viti 
Total 28 252,873 137,294,191 1,708,477 1,231,185 (72.1%) 27,669,751 

As it can be seen from the table, RWCs vary significantly in terms of size and coverage. They provide water supply services for a population of 1.23 million that represents 72.1% of the total population within their service areas, according to the Kosovo Statistics Agency (2013) and WWRO. It should be noted that there are 193 more settlements (villages) within the RWCs' service areas with 194,100 inhabitants that are supplied by separate water systems which are not managed by RWCs (Vokshi et al. 2012). If these systems are also taken into account, then the total population supplied with functional water services is 1.38 million, or 81% of the total population within the service areas of the seven RWCs.

There are still some municipalities (nine out of the current 37 after the decentralization process) that are not part of RWCs: (i) municipalities in north Kosova (that oppose the process for political reasons) and (ii) new municipalities created recently as the result of decentralization. However, in terms of population, the municipalities that are not regionalized are all rather small and they cover a territory with only 4% of Kosova's population in total.

Since 2008, when Kosova declared its independence, there has been a demise of international institutions and their joint responsibility in the water sector. The numerous stakeholders involved, and a rather complex institutional relationship (see Figure 4), have required an adequate inter-institutional coordination mechanism. On behalf of the government, the Ministry of Economic Development (MED) through its Policy and Monitoring Unit (PMU) was given the responsibility of oversight over the conduct of the Boards of Directors of RWCs (Law No. 03/L-087 2008). MESP retained the management of water resources, which are now owned by the State. The Ministry of Local Governance Administration (MLGA) completed the decentralization process, which resulted in new municipalities being formed (Law No. 03/L-040 2008) that have joined or are in the process of joining the RWCs. The Ministry of Health, through the Institute of Public Health, is gradually strengthening its role in drinking-water quality monitoring. The Ministry of Foreign Affairs (MFA) is yet to exercise its role in ratification of international water treaties, given that Kosova's four main basins are all transboundary waters. Then there are other institutions or agencies that impact water issues. The Ministry of Internal Affairs (MIA) and the Ministry of Justice (MJ) are crucial in the enforcement and implementation of legislation and the Ministry of Labor and Social Welfare (MLSW) is responsible for social cases, a significant percentage of water companies' customer database. There are other institutions or agencies that impact water issues.
Figure 4

Organization of the water service sector in Kosova.

Figure 4

Organization of the water service sector in Kosova.

In this institutional labyrinth, water becomes a major component of many development policies affecting many stakeholders, in particular the RWCs, municipalities and water users, whose interests are protected by the WWRO, the guardian of customers' rights.

The government has acknowledged the importance of water as a common denominator for many development issues and the key to successfully resolving those challenges. Due to the interrelationships of water issues across so many different institutions and sectors, the Office of the Prime Minister has recognized the need for an inter-institutional approach, so that progress can be achieved in engaging the stakeholders in the earliest stages of water development policies. To this end, the government established its Water Task Force (WTF), which was supported by the Swiss government. WTF has recently transformed into an Inter-Ministerial Water Council (IMWC).

The IMWC is a committee of relevant Government Ministers, chaired by the Prime Minister, and composed of:

  • the Minister of Environment and Spatial Planning, for water resources;

  • the Minister of Economic Development, for water services;

  • the Minister of Local Governance, for municipal cooperation;

  • the Minister of European Integration, for accession issues;

  • the two nominated representatives of the aid agencies (non-voting).

The IMWC provides the forum for collecting and evaluating the positive experiences of the water sector, but also the drawbacks of implementation, communication and cooperation. Furthermore, it provides a platform for the development of policies for reforming the water sector considering different perspectives, from the water users to the water providers. The IMWC also develops and approves the policies required to ensure the sustainability of reforms and investments in the water sector.

CONCLUSIONS

The consolidation process of the water utilities has been successfully completed with the exception of municipalities with a Serbian majority population, primarily due to delay in the political integration process. The process overall was endorsed and supported by the majority of stakeholders, with occasional disagreement from some small municipalities that wanted a greater share in management. Despite this, all parties subscribed to consolidation as a process and to the current governance structure. Kosova's development of water sector structures has been viewed positively and is considered as a model in similar ongoing processes in the region. The relevant legislative and institutional framework has been put in place to support the process of structural reforms in the water sector.

The government, through its Inter-Ministerial Water Council, fully supports the consolidation and has taken concrete measures to prevent the potential risk from tendencies toward disintegration, especially in some municipalities in and around local election periods.

The seven RWCs provide services in an area that has 97% of the country's population. Six municipalities which are still not part of RWCs cover a territory of only around 3% of Kosova's population. Nonetheless, integration of these municipalities is imperative for fully completing the structural reform process of the water services sector and is an ongoing process.

All things considered, the move towards a sector-wide approach was perhaps the most radical of the reforms. It followed recognition of the disadvantages of implementing development activities through discrete projects, and the problems associated with coordinating a sector that is still heavily dependent on external support. Previous activities were generally driven by aid agencies, and were often piecemeal, with approaches varying depending on the stakeholders involved. This caused duplication, and led to inefficiencies in the government system, thus reducing the benefits of investments and decreasing the sustainability of the water services provided.

The broad lessons learned, which tended to be shared with the stakeholders undergoing the same process in the region, are as follows:

  • The reform process is inherently political and requires the full commitment of its policy makers to correctly balance financial and political objectives.

  • Government leadership is crucial to success. Government-led reforms are always likely to be more effective than externally imposed ones. In this case, building the reforms on the economic development strategy and linking them to development strategies is essential.

  • It is important that the sense of ownership and responsibility for the sector reform extends beyond the government. This can be achieved by the sustained participation of sector stakeholders in the reform process. Other external stakeholders, including civil society or the media, may be important to balance the potentially conflicting objectives of politicians.

  • Fundamental reforms cannot be achieved quickly and private sector participation cannot provide a substitute.

  • There needs to be an adherence to financial sustainability objectives.

  • Improved access to and delivery of basic services is central to economic development and improving welfare of the population. A strong and effective water sector is an important investment for both government and external funding agencies.

  • Customers can be an important voice for improving performance.

  • Over-ambitious targets can reduce the effectiveness of sector reform.

  • A country with a population of around 2 million cannot economically run many water companies and at some time in the future further consolidation will need to be implemented.

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