TALLINN, 11 June 2007 - The National Audit Office forecasts that Estonia will be unable to guarantee sufficient waste water treatment in all built-up areas in the country by 2010. Untreated waste water has a detrimental effect on the environment and could lead to illness and disease among the population. Failure to fulfil its treatment obligations means that Estonia may be liable to infringement proceedings by the European Union. Waste water treatment supported through European projects has not been organised in a sustainable fashion, with the price of water and sewerage not incorporating all costs and there being lingering uncertainty regarding the future administration of new structures.

The majority of regional treatment facilities are unable to cope with waste water treatment and need to be overhauled or replaced. Old and damaged sewerage pipelines allow waste water to leak into the soil, which can lead to people becoming ill and waterways becoming choked due to an overabundance of nutrients.

Estonia as a whole is highly sensitive to such pollution, as the slow shift of the water in waterways caused by the low relief of the land favours the excessive sedimentation of nutrients. Only 37% of Estonia’s surface water is represented by waterways whose status is not threatened. Over the years, industrial and household effluent and agriculture have polluted the Baltic Sea and the country’s inland waters and worsened their ecological condition.

In order to protect public health and fulfil the environmental obligations of the European Union, Estonia must improve the treatment quality of both drinking and waste water and achieve an ecologically sound state in its waterways. By the end of 2010, waste water must be being collected and treated in all built-up areas.

Applications can be made for large-scale support from the European Union’s Cohesion Fund for the construction of water management infrastructure. Making the best use of the funding allocated to it from this fund has proven a challenge for Estonia, as it has little experience in instigating and administering investments on such a scale. Although a number of significant shortcomings were identified in both water management project funding applications and the organisation of the sector in general in the course of the audit, the National Audit Office recognises the effort made by the state in the rapid launch of these projects.

The National Audit Office examined the work of state agencies and local governments in launching the first water management projects financed through the Cohesion Fund during the 2004-2006 programme period of the European Union. Three projects – those for the Western Island, Matsalu and Emajõgi River-Võhandu regions – were audited in terms of the success of their preparation and instigation and the sustainability of the water management systems developed as a result. The audit incorporated 63 local governments and seven regions of water companies established by them.

Key findings

• Too little funding is planned for the improvement of water management systems. According to the calculations of the Ministry of the Environment, it will cost 18 billion kroons to bring waste water management in all built-up areas into conformity with European Union regulations between 2007 and 2013, but only 12 billion kroons is currently planned for the development of water management and waste treatment in this period (including Cohesion Fund and state and local government funding). Furthermore, projects from the second Cohesion Fund programme period will not be completed in time to fulfil the obligations of the European Union’s urban waste water directive by 2010.

• There are problems with the involvement of local governments in instigating projects. If a local government has no interest whatsoever in participating in a project, the Ministry of the Environment currently has no power to oblige them to do so. Several local governments are unable to take part in projects as their ability to co-finance them (including through loans) is restricted. Some local governments were poorly prepared for their involvement in projects, lacking, amongst other things, a public water supply and sewerage system development plan.

• There are shortcomings in both the financial analysis of projects and their technological solutions. Ineffectual applications and confusion in evaluating environmental impact led to delays in launching projects: the reviewing of applications by the European Commission took longer and additional terms and conditions were placed upon funding decisions which the state would have to fulfil before the funds were allocated. The main causes of the shortcomings that were identified were the demanding timeframe of the European Union’s budgetary process in launching projects and the lack of the necessary preliminary studies. It is the view of the National Audit Office that more thorough assessment of the applications would have helped to avoid a number of these shortcomings.

• The sharp rise in building costs felt as a result of the delays in the projects has increased the need for additional state financing. In the last couple of years, the cost of building tenders for the environmental sector has gone up by an average of 1.8 times. For example, the offers received in response to the design and construction tender for Matsalu Water Supply in September 2006 exceeded the project budget by more than double. It is calculated that an additional 2 billion kroons will need to be found between 2008 and 2001 to compensate for the increased cost of the six Cohesion Fund projects currently under way. As this amount cannot simply be covered either by increasing the contribution of local governments or from the budget of the Environmental Investment Centre, the projects will have to be supported through the state budget.

• The organisation of waste water treatment in regional areas with the support of larger Cohesion Fund projects will not guarantee the sustainability of the sector, as not all costs are being taken into consideration in determining the price of water and sewerage services. As a result, the revenue earned from these rates will not be sufficient for renovation and refitting in the future – for either those structures that existed prior to the Cohesion Fund project or those being built as part of it. Thus a situation could arise where the state will have to cover the cost of exchanging old and damaged equipment, since local governments and water companies will not have generated enough money to do this themselves. In response to the National Audit Office’s proposal to transfer the role of approving the price of water and sewerage services from local government councils to another agency, either already in existence or to be especially formed for that purpose, the Minister of the Environment confirmed that a legislative amendment is currently being implemented that is designed to resolve the problems associated with the establishment of water prices. However, the Association of Estonian Cities does not agree to any change to the system of approval of water prices. The association recognises the potential for the price of water to rise, and draws attention in its response to the social problems this could lead to.

• The water companies that were audited are able to cope at a satisfactory level with the administration of water management projects, but none of them has developed a business plan meeting the necessary criteria in terms of how to guarantee the further management of public water supply and sewerage systems that have been created once a project has reached its conclusion. It is due to this lack of business plans that the water companies are relying on the financial analyses produced as part of the Cohesion Fund project applications, which, in the view of the National Audit Office, are often inaccurate. As such, the management of these structures may prove in future to be considerably more expensive than forecast. It also remains largely unclear who will use the equipment and provide its services to consumers once the Cohesion Fund projects are launched, and whether common prices will be established in a region or set by individual local governments.

Toomas Mattson
Communication Manager of National Audit Office
Telephone: 6400 777
Mob: 51 34900
E-mail: [email protected]

• Posted: 6/11/2007 12:00 AM
• Last Update: 9/15/2015 1:29 PM
• Last Review: 9/15/2015 1:29 PM