Modeling of CF Assistance Rate for Project Nr.

1
Modeling of CF Assistance Ratefor Project
Nr. 2000/LV/16/P/PE/001 Riga Water
and Environment Project, Phase II 2008

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Objective(1) Evaluation
of existing revenues and expenditures of water
management services and comparison with results
of feasibility study for justification of CF
assistance rate and necessity of increasing of
tariffs (2) Comparison of estimated CF
assistance rate with existing rate

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Achievements (1) Recognized factors
which cause difference in financial indices
during the implementation of project (2)
Analysis of revenues and expenditures of Riga
Water, Ltd water management services and updating
of forecasts (3) Analysis of costs of water
management services of Riga Water, Ltd and
justification of tariffs (4) Updating of
financial analysis, taking into account existing
macro-economical and Riga Water, Ltd financial
indicators (5) Modeling of the CF assistance
rate, using the methods for years 2004-2006 and
2007-2013, taking into account existing
macro-economical and Riga Water, Ltd financial
indicators comparing of estimated rate with
actual

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Costs of project (mil euro)
Eligible costs Non-eligible costs Total
Application for assistance (2000) 28.00 1.98 (VAT, RW) 29.98
Financing Memorandum (22.12.2000) 1. Extension of Zakumuiža-D Wellfield 2. Extension of centralised drinking water and wastewater systems (Vecaki, Mezaparks, Marupe) 3. The gravity sewage main (Vairogu-Gauja street) 4. Extension of sludge deposit Daugavgriva 24.30 ISPA 17.01 (70) RW (including loan) 7.29 (30) 3.70 RW (VAT, extension of sludge deposit) 28.00
Decision of EC (07.08.2006) 1. Extension of Zakumuiža-D Wellfield 2. Extension of centralised drinking water and wastewater systems (Vecaki, Mezaparks, Marupe) 3. The gravity sewage main (Vairogu-Gauja street) 29.60 CF 20.72 (70) RW 8.88 (30) 3.00 RU (VAT, supervision) 32.60
In fact (CF project) 1. Extension of Zakumuiža-D Wellfield 2. Extension of centralised drinking water and wastewater systems (Vecaki, Mezaparks, Marupe) 3. The gravity sewage main (Vairogu-Gauja street) In fact (outside CF project) Extension of sludge deposit Daugavgriva 29.58 CF 20.70 (70) RW 8.88 (30) 3.53 RW (VAT, supervision) 33.11 3.60

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• The Increase of the Project Costs
• Actual costs, total 36.71 mil euro
• The increase of CF project costs 5.11 mil euro
  (18.2 )
• The increase of eligible costs 5.28 mil euro
  (21.7 )
• The increase of total costs 8.71 mil euro (31.1
  )

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• Factors which cause difference in
  financial indicators during the implementation of
  project
• Macroeconomic factors
• Inflation and increasing of wages
• Currency exchange rate
• (2) Specific factors
• Change of project content
• Water consumption and number of users

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Inflation and Increase of Wages
Financial analysis for project (2000) -
inflation is not taken into accountFinancial
analysis for project (2002)Forecast of
inflation in financial analysis 3 per year,
in fact 3.6 - 14.1 Forecast of
increasing of wages in financial analysis 4
per year, in fact 10 - 21

years 2003 2004 2005 2006 2007
Inflation 3.6 7.3 7.0 6.8 14.1
years 2003 2004 2005 2006 2007
Increase of wages 10 10 10 21 18
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Impact of Currency Exchange Rate

Indicators m euro m lats
Total investment costs (calculated in 2000) (Financial memorandum, Dec 22, 2000) Total 28.00 Int. al. eligible costs 24.30 Total 16.52 Int. al. eligible costs 14.34 1 EUR 0.59 LVL
Actual investment costs within CF financed project Total 33.11 Int. al. eligible costs 29.58 Total 23.27 Int. al. eligible costs 20.79 1 EUR 0.702804 LVL
Increase of costs 18.2 40.9

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Impact of Factors
(conclusions)1) Costs of the CF project have
increased by 5.11 mil euro (18.2), int. al.
eligible costs have increased by 5.28 mil euro
(21.7 ). Taking into account currency exchange
rates, total increase of project costs calculated
in lats is 6.75 mil lats (40.9 )2) Changes in
activities financed from CF have caused
additional expenses Riga Water Ltd had to
finance the extension of the sludge deposit by
attracting a long term credit2) As the level of
actual water consumption per capita and the
number of population connected to water and
wastewater systems is lower than forecasted in
the project application the total revenue of
water and wastewater services is also less than
forecasted3) Increase of investment costs and
operational costs caused necessity to increase
the tariffs

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Tariffs for water supply and sewerage, LVL/kub m
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Calculated CF Assistance Rate
Methodology 1st variant 2nd variant 3rd variant 4th variant
Discount rate 5  Methodology for years 2004-2006 90 88 92 91
Discount rate 5  Methodology for years 2007-2013 67.0 65.6 68.7 67.8
Discount rate 5  Decrease, percentage points 23.0 22.4 23.3 23.2
Discount rate 8 Methodology for years 2004-2006 94 93 95 94
Discount rate 8 Methodology for years 2007-2013 66.2 65.2 67.2 66.6
Discount rate 8 Decrease, percentage points 27.8 27.8 27.8 27.4
Discount rate 10 Methodology for years 2004-2006 95 94 97 96
Discount rate 10 Methodology for years 2007-2013 64.6 63.9 65.4 64.9
Discount rate 10 Decrease, percentage points 30.4 30.1 31.6 31.1
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Conclusions1) Financial
analysis was updated by using actual data from
years 2000-2007, forecasts for years 2008-2034
and actual macroeconomic assumptions. Analysis
demonstrates that approved Riga Water Ltd.
tariffs are based on economic factors and dont
cause unjustified revenues.  2) Results of
updated financial analysis show that CF
assistance rate exceeds 70 if the CF methodology
for years 2004-2006 is used. Actual CF assistance
rate was 70.3) CF assistance rate (70 ) for
project Riga Water and Environment Project
Phase II  is justified

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