EKIP– Expert Club for Economics and Politics A Different Opinion
The private management of utilities is a topic that stirs up a lot of heated emotions. Many people instinctively believe that utilities such as electricity, water, and the like are best managed by the state. Alas, in most cases this position is rooted in emotion rather than reason. This is very clearly evident in the discussions surrounding the proposed extension of the concession of the capital’s water and sewerage operator “Sofiiska Voda”, which is currently managed by the private French company “Veolia Solutions Bulgaria”.
This case study is a good opportunity to pay attention to the Bulgarian experience in concessioning and private management of public utilities, in this case water supply, and to see what results it achieves, especially in comparison to municipal (i.e. state-managed) companies in the sector. Putting aside our personal feelings on the subject, let's look at what the data shows and, based on objective facts, assess whether private or state management of water supply in Bulgaria performs better.
When data speaks
Let's start with the fact that "Sofiiska Voda" is the best-performing water supply company in Bulgaria according to official water supply service quality indicators. This is shown by the latest annual report of the EWRC on the state of the water supply sector, published in November 2022. The analysis of the EWRC, prepared based on data from 2021, shows that "Sofiiska Voda" has fulfilled 22 out of a total of 30 water supply quality indicators. That is, the company fulfills 73% of the quality indicators, which is the highest level in the country. The average level of fulfillment among water supply companies in Bulgaria is 51%.
"Sofiiska Voda" performs much better than all other water supply companies in perhaps the most important indicator - total water losses in water supply systems. Water losses are the biggest problem of water supply infrastructure. It could be argued that the quality of a water supply network is most clearly evident in how much water it loses. The more - the worse the quality. From this point of view, the quality of the water supply infrastructure in Sofia is certainly the highest. Water losses in the water supply systems of "Sofiiska Voda" are 39.99%, according to the KEVR report for 2021, with an average level of 61% for the country.
Arguments also from international indices
However, the good performance of “Sofiiska Voda” is not limited to the Bulgarian context. The quality of water supply in Sofia is impressive and at a world level. Our capital ranks 6th in the “City Water Index” of the economic publication “The Economist”. This is an index that assesses the quality of water supply in 51 cities around the world. The quality of water supply in Sofia is assessed as better than that in cities such as Madrid, Paris, Frankfurt, Copenhagen, Miami, Antwerp, Seoul and London.
The water supply in Sofia performs particularly well in terms of the “reliability” indicator in The Economist’s index. In this indicator, Sofia is in 4th place, and in addition to the cities listed above, it also surpasses Lisbon and Los Angeles. Our capital is further behind in the sustainability ranking, but still ranks relatively well – 13th out of 51. In terms of accessibility, the water supply in Sofia is in 7th place.
These data clearly show that "Sofiiska Voda" is doing a very good job, at least in comparative terms, both in the local context and in the global one. Here, perhaps, some would object that even if we accept the data on the good quality of the service, its price is too high. But this is also not true. Among European capitals, the price of a cubic meter of water is lower only in Athens, Budapest, Rome and Tallinn, and in Warsaw it is almost the same (4.8% lower).
Quality is not a matter of luck
The good condition of Sofia’s water supply is not a given, but a consequence of the concession. Veolia acquired a controlling stake in Sofiyska Voda in 2010. Water losses in the company’s water supply systems amount to 60%. At the same time, the average level of water losses among water supply companies in Bulgaria as a whole has remained almost unchanged. That is, the improvement in the efficiency of water supply in Sofia is not a consequence of a general trend for all water supply companies in the country, but an individual success. This success is not a coincidence, but the result of over 500 million leva investments in Sofia’s water supply infrastructure since 2010. Another 634 million leva investments are planned by 2034, if the concession is extended.
In the context of all these very good indicators, the disputes over the extension of the concession contract are puzzling. It ends in 2025 and Veolia has clearly stated its desire to extend it until February 2034. Sofia Municipality has not yet signed an extension of the concession, despite the majority decision in the Sofia Municipal Council to do just that.
There are practically no arguments against extending the concession. The data clearly show that the results of the management of "Sofiyska Voda" are good, both at the national level and internationally. The Energy and Water Regulatory Commission (EWRC) expressed certain reservations against extending the concession, but they were rejected by the Supreme Administrative Court (SAC). In addition, there is no clarity at all what would happen if the concession is not extended. If a new concessionaire is to be sought, then the municipality is very late, at this point there is no time to start such a procedure. It is even riskier for the municipality itself to take over the management of the company, given the much poorer quality of the water and sanitation services provided by municipal companies in the country.
In fact, based on all the data presented so far, we can also move towards a bolder conclusion. Not only is the concession of "Sofiiska Voda" a success and should be extended, but it is advisable that more water and sanitation companies in the country be concessioned according to a similar model. And why not all of them?! After all, the numbers speak for themselves.
This article was originally published in Manager magazine.
