Modernization of the water supply system of Kyzylorda - Corporate Development Program
The project financed by EBRD that provides technical assistance to the “Kyzylorda Su Zhiyuesy” state-owned enterprise in order to rehabilitate and modernize the city's water supply and wastewater system. The loan will allow the following: to replace and update all parts of the outdated water supply and wastewater infrastructure of the Kyzylorda city and reduce energy consumption and water losses, to improve the reliability and quality of water supply services, to reduce maintenance and operating costs and mitigate the negative impact on the environment in accordance with modern international standards. As a result of the project, energy efficiency will increase and water losses will be considerably reduced.
The project consisted of three main parts:
Development of a set of key performance indicators
An important goal of the Corporate Development Program was development and implementation of the Financial and Operational Performance Improvement Program (FOPIP). The FOPIP project was supported by a set of agreed key performance indicators (KPIs) which can be used to measure the operational and financial performance of Kyzylorda Su Zhiyuesy. On the basis of basic performance analysis, a performance monitoring method was developed and presented.
Preparation of the draft Public Service Agreement and Management Service Agreement
In close cooperation with “Kyzylorda Su Zhyuesy” GKP (the state-owned enteprize with the right of economic mnagement), and in coordination with the city Akimat and the sector regulator the consultants contributed to strengthening corporate planning and management of the Company, realizing that financial sustainability cannot be achieved solely through investments in physical rehabilitation of water supply and sanitation systems. The updated Public Service Agreement recommended for implementation includes:
- Efficient use of water resources to achieve balance between consumption and economic, technical, environmental sustainability of the city's production and the water supply system;
- Cost recovery and tariffs reflecting these costs, as well as the willingness of the population to pay the bills so as the costs of water supply and production are fully covered by consumers’ payments, whereas subsidies are only provided to the most vulnerable group of people;
- Improvement of the performance of water service company in terms of water quality, water supply reliability, wastewater treatment at the required level, cost-effectiveness, transparency and accountability, customer relations based on performance indicators.
Also, in order to improve the financial and operational performance and the quality of service and commercial condition of “Kyzylorda Su Zhueysy” owned by the Akimat, the consultants of Corporate Solutions UK and BDC Consulting developed a list of documents to invite a firm or group of firms on a competitive basis to manage the activities of the Enterprise in terms of a five-year management contract in accordance with the Management Service Agreement ("MSA") and adjusted it in accordance with the procurement procedures and rules of the Republic of Kazakhstan, The involvement of an experienced and reputable manager will further help the Akimat to improve the efficiency, viability and quality of customer service, as well as the economic sustainability and rational use of water supply and wastewater treatment facilities, infrastructure and services.
As specified by the MSA, the Manager during the term of the contract will have the appropriate powers and be responsible for the management, operation and maintenance of the water supply and sewerage system in the designated service areas, will manage and deal with the enterprise personnel as well as recruit additional or lay off the existing staff in coordination with the Akimat. The company will remain the legal employer of the personnel and pay salaries to them, but the Manager, within the framework of his power of attorney, will also have the right to control the financial performance of the company.
Development of activities for improving financial performance
Commitment reports, including ratios and performance analysis of the IFRS financial reporting format, which will be prepared quarterly and annually and submitted to the EBRD under the covenants of the Loan Agreement. BDC Consulting consultants provided on-the-job training to improve financial performance and strengthen financial planning and budgeting procedures, develop procedures for preparing long-term financial forecasts, and implement an administrative reporting system.
Improvement of billing and revenue collection procedures
A detailed assessment of the existing functions and procedures for collection and sales, and the billing system allowed BDC Consulting consultants to develop a set of recommendations to improve the quality of the billing and reporting procedures of the sales system.
Operational efficiency
In order to improve the operational efficiency of "Kyzylorda Suu Zhueysy" GKP BDC the optimal level of water losses was assessed by BDC Consulting. The purpose of this was to enable the company to implement an optimal water loss management system, improve the efficiency of the maintenance function by integrating maintenance activities at water supply and sewerage facilities.
Addressing environmental and social issues
As part of providing assistance to “Akbulak” JSC, in accordance with labor, health and environmental requirements a corporate social responsibility policy (CSR) was developed and a feedback mechanism was introduced for consumers to report problems related to services (filing complaints through the contact form on the official website of the company: aoakbulak.kz).
The consultant trained employees on topics such as the implementation of an integrated management system for environment, health and safety protection in accordance with ISO 14001, OHSAS 18001, ISO DIS 45000 international standards, and a package of documentation (procedures and policies) for their implementation was elaborated and submitted to JSCB.
As it was decided this aspect of the project will focus on the development of a consumer awareness program to encourage the population to inform the Company about illegal connections, about consumers who use water bypassing meters or tweak the meters, and about consumers who use fire hydrants.
Business project development
The consultant assisted the Company when developing and implementing the corporate planning process that focused on continuous corporate, financial and operational improvements in order to promote further development and transformation of the enterprise into a viable business organization. In this regard, the Consultant assisted the Company in preparing a business plan, which was the start of an annual rolling plan that will evolve in response to changing circumstances, information updates and work progress.
Tariff policy and methodology
The aim of helping the Company in the implementation of the tariff recommendations prepared by Ernst & Young within the framework of the EBRD project was to apply a new tariff methodology, which would need to be piloted to establish guidelines that could be followed by other companies in the municipal water sector in Kazakhstan.
BDC Consulting consultants also assisted CECT RU when supporting the implementation of the project, including assistance with the procurement of goods and services for the renovation of the water supply and sanitation infrastructure of the city of Kyzylorda.
