Assessment report


Economic and Financial Matters



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4.7. Economic and Financial Matters

4.7.1. Evaluation


1) Water Tariffs and Revenue

Table 4.4 presents criteria related to water tariffs including as:


 Submitted water tariffs and approved tariffs


 Ratio of average water price approved by the People’s Committee to water price submitted.

 Ratio of commercial to domestic water tariff

 Average Water Supply bill for domestic customers (VND/m3 water billed)

Principles and calculation methods as well as the approval process of the tariffs has been clearly defined in the legal documents: Decrees No. 117/2007 and 124/201 on Treated Water Production, supply and consumption and Inter-ministerial Circular No. 75/2012/TTLT-BTC-BXD-BNN dated 15/05/2012 of the Ministry of Finance, Ministry of Construction, Ministry of Agriculture and Rural Development guiding principles, method of determining the competence for approval of water tariffs in urban areas, industrial zones and rural areas.


Whereby:

 The water tariffs must be calculated accurately and fully the reasonable cost of production in the whole process of production, distribution, consumption (including the cost of connection maintenance) and profit rate of water sold.

 Where water tariffs approved by PPCs lower than proposal of water tariff submitted by the utilities that appraised by DoF in fully cost recovery principle, PPC shall consider and provide subsidiaries from local budgets or appropriate support mechanisms in line with the competence and the provisions of the law to ensure that the utilities can cost recovery for business activities except where treated water was supplied in projects invested under BOT.


Therefore, it required to pay much attention to the ratio of water tariff approved by the People’s Committee to water price submitted. In some cases, this ratio is less than 1 as based on economic conditions and local society in respective province, PPCs approved the tariffs lower submitted ones, therefore, the utilities seem to be not autonomous in their production and business activities. Orientation Plan for Development of Water Supply in Urban Centers and Industrial Parks up to 2025 and a Vision towards 2050 approved by the Prime Minister at Decision No. 1929/QD-TTg dated 20/11/2009 stated that: “water tariffs are developed in cost recovery principle to ensure investment recovery, profits and investors attraction. It is necessary to develop a tariff roadmap aimed at satisfying with the above requirements”.


From data 2014 showed that:




  • There remains some 61% of the utilities (51/83 utilities) with approved tariffs lower than submitted one, mostly in small towns including HCMC.

  • 39% of utilities with approved tariffs as same as submitted one including many big utilities in Hanoi, Hai Phong, Da Nang, Binh Duong, Ba Ria Vung Tau, An Giang, Kien Giang


2) Financial Performance

Table 4.4 presented criteria related to the financial performance of the utilities as:




  • Ratio of revenue collection

  • Ratio of operation that replaced by IBNet 24.1 Operating Cost coverage

  • Debt service ratio

  • Ratio of Gross fixed assets to population served.

Based on results, it concluded as following:




  1. Rate of revenue collection

Most of utilities have revenue collections over 90%. The fact found that the water tariffs and management method seem to be satisfactory.
b) Ratio of Operating Costs and Revenue:

In data 2011 and 2012 the "operating ratio" indicator considered as inverse value of the "operating costs and revenue" and now used this indicator for integrating with IBNet. The ratio is defined as total annual operating costs excluding depreciation and debt service as a % of total annual tariff revenue (income) billed in year.


Ratio of operating costs and revenue of the utilities are shown below:




  • Ratio below 1.0 (revenue less than the costs): with 2/92 (2.2%) of the utilities including Nha Be Water Supply Company (a branch utility under SAWACO provided water in retail) and Bac Lieu Water Supply Company.




  • Most of utilities (64/92) accounting for 70% with ratio ranging 1.0 to 2.0 with:

 Ratio from 1.0 to 1.5: 30 utilities (33%)

 Ratio from 1.5 to 1.8: 22 utilities (24%)

 Ratio from 1.8 to 2.0: 12 utilities (13%)


  • Ratio over 2.0 including 26 utilities (28%) of which:

 Ratio from 2.0 to 3.0: 16 utilities (17.6%)

 Ratio from 3.0 to 10.0: 7 utilities (7.6%)

 Over 10 included 3 utilities (3.3%) as Hoa Binh Water Supply Company, Thu Dau Mot (sold in bulk) and Toc Tien.
For improving, it required to save costs and business effectiveness improvements. Almost of the utilities were state-owned companies and now under the process of transition to joint-stock companies in order to improve business efficiency services.

As stated above, the depreciation costs and debt service did not included in the ratio of operating costs and revenue. As stipulated, the submitted water tariffs shall include the reasonable costs (including depreciation, debt service) and a reasonable profit rate. Therefore, the consideration of difference between the revenue of water supply services (based on the total of water billed) compared with the submitted tariffs, it can preliminary assess the revenue of utilities. As results, 50/89 utilities (about 56%) in 2014 with negative difference and found that these utilities are unlikely to achieve profitability norms.


c) Debt service ratio


Debt service ratio defined as total debt service as a % of total direct tariff income.




  • Average debt service ratio of the utilities in 2013 was 16% and 17% in 2014 lower than in 2012.

  • Number of utilities with debt service ratio below 20% included 44/68 utilities (about 65%) of which:

  • Ratio below 1.0 included 4/68 utilities (6%) as Cao Bang, Dak Lak, Gia Dinh and Vinh Long.

  • Ratio from 1.0 to 10: 27 utilities (40%)

  • Ratio from 10- 20: 13 utilities (19%)

  • Number of utilities with debt service ratio of 20 to 50% as 18/68 utilities (26%)

  • Number of utilities with debt service ratio of 50% as 6/68 utilities (nearly 9%) of which 3 utilities with over 90% including Ninh Hoa, Binh Duong and Dong Nai. The utilities are on due to repay the loans for investment and required to improve the effectiveness of business activities for repay of debts.

Table 4.3 - Water Tariff and Revenue



No

Name of Utilities

B80. Submitted tariff VND/m3 water sold

B 81. Approved tariff VND/m3 water sold

B9.1Revenue VND/m3 water sold

B10.2 Ratio of average tariff approved to water tariff submitted.

B.10.7 Ratio of commercial to domestic water tariff







2013

2014

2013

2014

2013

2014

2013

2014

2013

2014




A. Northern Midland and Mountainous Region































1

Dien Bien Construction, Water Supply and Sewerage Company

6,714

9,476

5,640

7,804

6,489

7,866

0.84

0.82

1.68

1.92

2

Lai Chau Construction and Water Supply Company

5,704

5,704

4,800

4,800

5,528

5,345

0.84

0.84

3.00

3.00

3

Son La Water Supply Joint Stock Company

7,500

8,500

7,039

7,987

8,124

9,220

0.94

0.94

N/I

N/I

4

Hoa Binh Water Supply Joint Stock Company













5,474

5,751

N/I

N/I

N/I

N/I

5

Lao Cai Water Supply One Limited Company 

7,289

7,112

6,653

6,653

6,988

7,553

0.91

0.94

1.49

1.49

6

Ha Giang Water Supply and Sewerage One Limited Company 

8,227

9,225

7,202

9,032

7,355

8,760

0.88

0.98

2.28

2.55

7

Cao Bang Water Supply One Member Limited Company

8,388

8,388

7,500

7,500

6,609

7,251

0.89

0.89

1.67

1.67

8

Lang Son Water Supply and Sewerage Joint Stock Company 

9,000

9,000

8,600

8,600

6,589

7,808

0.96

0.96

1.74

1.74

9

Quang Ninh Water Supply Joint Stock Company 

7,798

7,798

7,750

7,750

7,589

7,650

0.99

0.99

1.81

1.81

10

1) Yen Bai Water Supply One Member Limited Company

7,200

7,200

5,008

6,874

5,514

7,605

0.70

0.95

1.4

2.18

11

2) Nghia Lo Construction, Water Supply and Drainage Limited Company

6,500

6,500

5,700

5,700

5,180

6,243

0.88

0.88

1.58

1.8

12

1) Phu Tho Water Supply Joint Stock Company 

7,200

7,200

6,900

6,900

7,917

7,886

0.96

0.96

2.2

2.2

13

2) Phu Tho Water and Electricity Construction JSC













N/I

N/I

N/I

N/I

N/I

N/I

14

Tuyen Quang Water Supply and Sewerage One Member Limited Company 

7,224

7,224

5,800

6,040

5,811

6,163

0.80

0.84

2.24

2.15

15

Bac Kan Water Supply and Sewerage One Member Limited Company 

7,800

7,800

6,500

6,500

7,052

7,444

0.83

0.83

1.94

1.94

16

Thai Nguyen Water Supply Joint Stock Company

8,388

9,011

8,388

9,011

9,028

9,361

1.00

1.00

1.61

1.66

17

Bac Giang Water Supply and Sewerage One Member Limited Company 

6,516

7,368

5,580

6,675

6,518

7,369

0.86

0.91

1.52

1.6




B. Red River Delta Region

























0

0

18

1) Hanoi Clean Water Supply One Member Limited Company 

6,335

7,906

6,335

7,906

6,101

7,882

1.00

1.00

2.23

2.32

19

2) Construction, Investment and Water Supply Joint Stock Company (VIWACO)













5,544

7,253

N/I

N/I

N/I

N/I

20

3) Ha Dong Water Supply One Member Limited Company

7,445

9,326

5,558

6,980

4,197

3,821

0.75

0.75

2.54

2.63

21

4) Son Tay Water Supply Joint Stock Company 

12,350

12,360

4,578

5,922

4,578

5,922

0.37

0.48

2.26

2.39

22

1) Vinh Phuc No.1 Water Supply and Sewerage Joint Stock Company 

8,682

8,978

8,428

8,428

8,596

9,280

0.97

0.94

1.54

1.54

23

2) Vinh Phuc Water Supply Joint Stock Company 

11,564

11,564

9,825

9,825

8,422

8,499

0.85

0.85

1.32

1.32

24

1) Bac Ninh Water Supply and Sewerage One Member Limited Company 

6,500

7,300

5,900

7,000

6,267

7,666

0.91

0.96

2.29

2.54

25

2) An Viet Development Investment JSC

9,400

9,400

7,500

7,500

7,429

7,859

0.80

0.80

2

2.5

26

3) Thuan Thanh Water Limited Company

9,600

9,600

6,700

6,700

5,752

5,311

0.70

0.70

1.19

1.19

27

Ha Nam Water Supply Joint Stock Company 




8,873

9,080

9,080

7,313

7,424

N/I

N/I

1.49

1.49

28

Nam Dinh Water Supply One Member Limited Company 

8,873




7,940

7,940

7,312

7,348

0.89

0.89

1.89

1.89

29

Ninh Binh Water Supply One Member Limited Company 

8,900

8,900

8,121

8,121

7,421

8,119

0.91

0.91

2.28

2.28

30

Hai Duong Water Supply One Member Limited Company 

10,500

11,500

9,422

9,422

8,055

8,234

0.90

0.82

1.45

1.48

31

1) Hai Phong Water Supply One Member Limited Company 




10,082




10,082

7,829

8,728

N/I

1.00

N/I

1.79

32

2) Hai Phong Construction and Water Supply JSC

7,800

10,082

7,800

10,082

7,453

8,429

1.00

1.00

1.73

1.79

33

3) Tien Lang Construction JSC

6,500

7,500

5,500

6,000

5,740

6,028

0.85

0.80

1.45

1.5

34

4) Hai Phong No. 2 Clean Water Supply JSC

8,922

9,992




10,082

10,342

11,652

N/A

1.01

N/I

1.79

35

1) Hung Yen Water Supply One Member Limited Company 

10,197

10,197







8,536

8,371

N/I

N/I

N/I

N/I

36

2) Nam Long BITEXCO JSC













N/I

N/I

N/I

N/I

N/I

N/I

37

1) Thai Binh Water Supply One Member Limited Company

7,471

7,471

7,471

7,471

7,004

7,543

1.00

1.00

1.97

1.97



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