Presentation workshop 4, Cost-recovery - Gheorghe Constantin, Director for Water Resources Management, Ministry of Environment, Water and Forests of Romania

1. Depreciation methods: How depreciation might
be ‘flexed’ in order to assist with financeability /
cost recovery concerns?
Gheorghe Constantin
Romania
Ministry of Environment, Waters and Forest
Cost Recovery Workshop 30 May-1June 2022

2. Cost recovery for water services
• Cost recovery for water resources services, including flood control
-All water uses are paying for water services (agriculture,
industry, energy, water supply and sanitation)
-These payments have been designed to cover the operation and
maintenance of the water management system
-Investment in water management infrastructure is done from
the public sources
• Cost recovery for drinking water and waste water services is covering
mainly the operation and maintenance and sometimes a small
portion for development

3. Depreciation Methods
Depreciation it is the reduction in the value of an asset that occurs over
time due to usage, wear and tear, or obsolescence. Methods for
assessing the depreciation includes:
• Straight-line
• Double declining balance
• Units of production
• Sum of years digits

4. Depreciation of public fixed assets such as water,
sewerage and treatment infrastructure in Romania
• According to the accounting rules, for the public goods there is no
obligation to calculate the depreciation.
• In the case of regional operators (ROs), the delegation contracts
strongly provided for the payment of a royalty. The royalty should
ideally reflect the value of the depreciation of public fixed assets.
• Due to the affordability of the tariffs, this only happens in the
case of 7-8 ROs out of those over 44.

5. Royalties
• 3 ROs have a royalty representing 2.5% of the value of public fixed
assets, which shows a possibility to replace them in a period of 40-50
years, corresponding to the accounting depreciation and the lifetime
• 2 ROs have a royalty around 1.5%, corresponding to a replacement in
65 years, corresponding anyway with the lifespan.
• 3 ROs have royalty of about 1%

7. Actions to increase affordability and cost
recovery
• Regionalization of the water services
• Leverage of tariffs between large and small agglomerations
• Cost optimization
• Support for building infrastructure
• Reduction of leakages
• Support for vulnerable persons
• Benchmarking

8. Depreciation and sustainability
• Water infrastructure is built from the public money
• An important part is built with the support of the EU
• Ensuring the sustainability of this infrastructure will require additional
financial resources on medium and long term
• Water infrastructure should be upgraded to meet the new EU
standards
• Including depreciation in the water tariffs will apply also user
principle and will ensure a part of the needed resources

9. Steps forward
• Based on the new provisions in accessing EU funds for water
infrastructure, and the new Tariff Methodologies the royalty will be
gradually included in the tariff by increasing the royalty, during the
following years
• Further assessment should be done on the introduction of
depreciation
• There is need for experience exchange
• Increasing public awareness will be very important .
• We are looking forward for models.