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Gazi Baba and Ilinden inter-municipal public enterprise

From Municipal Cooperation

Gazi Baba and Ilinden inter-municipal public enterprise
Service Areas: Water Management
Country: Macedonia
Municipalities: Gazi Baba, Ilinden
Contact persons: Suzana Bubakjoska, Ivica Tripunovski
Legal form: Commercial company
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Coordinates: 42° 0' 31" N, 21° 27' 5" E

Description of the problem/need for IMC

This IMC mainly focuses on issues faced by several locations in the Municipality of Gazi Baba that are not covered by the City of Skopje water supply system, which is managed by the Vodovod i kanalizacija, a public company of the City of Skopje.

Description of the IMC practice

The area of the IMC activities covers the communal services of collection, purification, and distribution of drinking water. The legal framework of IMC was established through the following steps: First, in January 2007, an agreement for IMC was signed between the mayors of the municipalities of Ilinden and Gazi Baba for the start-up of the activities to establish a joint water supply public enterprise. This Agreement (Agreement for the Establishment of an Inter-Municipal Public Enterprise for the Territory of Gazi Baba and Ilinden< Municipalities) was signed by the mayors only and serves as a kind of a Memorandum of Understanding on the ways to start up of the activities. The next step was the signing of another agreement for the establishment of inter-municipal public enterprise, by the Councils of the Municipalities of Ilinden and Gazi Baba in July 2007.

PCE Ilinden, established by the Municipality of Ilinden, has been in operation for ten years, delivering communal services to the population of the Municipality of Ilinden. The water supply consists of a drinking water well located on the territory of the Municipality of Gazi Baba, water reservoirs located on the territory of the Municipality of Ilinden and pipeline net on the territory of the both municipalities. Since a number of settlements in the Municipality of Gazi Baba were not covered by the City of Skopje water supply system services, which are managed by the City of Skopje PCE Vodovod i kanalizacija, both municipalities began to resolve the issue by means of water supply service delivery (processing and delivery of drinking water), now managed by the PCE Ilinden. The water supply sector was detached from PCE Ilinden and a separate legal entity, a PCE Vodovod Ilinden, was established, which will deliver water supply services for several settlements of the Municipality of Gazi Baba and for all settlements of the Municipality of Ilinden. This process was based on the agreements, decisions and the assessment of the Department budget. The water supply department/sector of the former PCE is operating as a new PCE with all of its previous human resources and other assets, and for now, without any additional investment. There is an ongoing preparation process for regulating the systematization of the PCE Vodovod Ilinden.

Financing of the establishment of the PCE Vodovod Ilinden (equipment and funds) is provided by the founders: 65 percent – Municipality of Ilinden, and 35 percent – Minicipality of Gazi Baba. The ratio is based on the maximum number of users–households according to the Census of 2002. Future capital investments in the water supply systems are the obligation of both municipalities.

The current maintenance of the water supply systems, managed by the PCE Vodovod Ilinden, is financed by the enterprise. The costs for the maintenance should be calculated and included in the water supply cost. The water supply cost is decided by the Council of the Municipality of Ilinden based on a by-law, i.e. a methodology regulated by by-law procedures, and it is approved by the Council of the Municipality of Gazi Baba. The Councils of the Municipalities approve both the Regulation on the Use of Assets from the operations of the PCE Vodovod Ilinden, and the coverage of losses, as well as the Regulation on the liability of PCE Vodovod. The founders of the PCE Vodovod distribute profits from its operations and cover potential losses according to the percentage of their contribution of the assets for its establishment. PCE Vodovod, Ilinden will distribute water supply bills to the citizens of the settlements of municipalities of Gazi Baba and Ilinden.

The sustainability of the IMC is ensured by the need of citizens in both municipalities for water supply and a smooth operating water supply system and an improvement in services. Other important components of sustainability are the sufficient demand (economy of scale), the trained personnel and willingness of the entities of both the municipalities to cooperate.

Accountability to citizens is addressed by the IMC as follows: The Councils of the Municipalities approve the annual account, the annual performance report and the annual investment programme of the PCE Vodovod, Ilinden; the annual account and the financial report of PCE Vodovod Ilinden are subject to audit by an independent audit company. In the case of a change in the service cost, the citizens of both municipalities are informed through special announcements, municipal websites and Official Gazette, the local media, bill collectors of the enterprise and citizens’ gatherings.

Joint monitoring and evaluation of the PCE Vodovod Ilinden are carried out by the Managing Board and the Supervisory Board of Property and Finance Audit. The Director, the Councils and the Mayors of the both municipalities are also involved in the monitoring and evaluation process.The PCE Vodovod Director prepares and submits regular reports (quarterly and semi-annually) to the Managerial and Supervisory Boards, which following approval, are forwarded to the Mayors and the Councils. The annual account, annual performance report, and the Annual Investment Programme of the PCE Vodovod Ilinden are forwarded to the Councils of both Municipalities.

Establishment of the IMC practice

The IMC was initiated by the Municipality of Ilinden. There were several steps undertaken to establish IMC. First, an assessment on the market value of the property and the water supply system of the Municipality of Ilinden were prepared in February 2006. Then, several meetings were held at the end of 2006 with Mayors and all the members of the Councils of both Municipalities, where analyses were presented on the financial structure for establishing the inter-municipal public enterprise. This included determining the exact number of users of the water supply services on the territory of both municipalities. Two agreements were then signed: the Agreement for Establishing the Joint Water Supply Public Communal Enterprise between the mayors of municipalities of Ilinden and Gazi Baba, January 2007; and the Agreement for the Establishment of the Inter-Municipal Public Enterprise, which was adopted by the Councils of the Municipalities of Ilinden and Gazi Baba, July 2007. The budget report of the PCE Ilinden was prepared on 31 December 2007 followed by an evaluation of movable and immovable assets on May 2008. After the above steps, the following decisions were adopted to finalize the formation of the IMC: (a) the Decision of the Managing Board of the Public Communal Enterprise (PCE) Ilinden on the adoption of the internal budget (by different departments) of the PCE Ilinden, passed on 25 June 2008; (b) the Decision of the Council of the Municipality of Ilinden for the separation of the water supply sector – the PCE Ilinden operating unit – into a separate legal entity called the PCE Vodovod Ilinden, passed on 30 June 2008; (c) Decision of the Council of the Municipality of Ilinden on the establishment of PCE Vodovod, Ilinden, passed on 30 June 2008.

During its first session, the Managing Board of the PCE Vodovod Ilinden endorsed the Statute and the Rules of Procedure for the Managing Board. Preparation of the Regulation on the Systematization of the PCE Vodovod Ilinden is underway.

Steps in the IMC process:

  1. Assessment of the market value of the joint water supply system
  2. Preparation and presentation of the analyses with recommendations, and consultations among the Mayors and the members of the Councils
  3. Signing of the Agreement for Establishing the Joint Water Supply Public Enterprise between the Mayors
  4. Adoption of the above agreement by the Councils
  5. Preparation of the assessment of the exact value of the PCE Ilinden with an accurate Financial Report
  6. Adoption of the Division Balance Sheet of the PCE Ilinden.
  7. Separation of the water supply sector, the operating unit of the PCE Ilinden, as a separate legal entity called PCE Vodovod and the establishment of the PCE Vodovod Ilinden.
  8. Establishment of joint bodies of the PCE Vodovod: Managerial and Supervisory Boards, and selection of a Director.

It must be noted that the political affiliation did not influence the establishment of IMC. As concerns external assistance, the external experts (lawyers) were needed to set up the IMC as well as to provide advice on financial assistance. In particular, the German Technical Cooperation (GTZ) provided assistance for establishing the IMC by contracting a local consulting office, which delivered the necessary technical assistance for preparing the basic documents. GTZ support was not considerable. The Central Government was also involved in the process. Representatives of the Central Government (Ministry of Local Self-Government) were invited and participated in some of the preparation/consultative meetings of the Council members of both municipalities during 2006.

The process of initiating and establishing the IMC faced a number of difficulties. In particular, some members of the Councils were unfamiliar with the issue. Five to six months were spent on continuous consultations and negotiations required for the Council members to obtain the necessary information and knowledge, and to be reassured of the initiative for establishing the IMC. Identification and regulation of the previous investments in the water supply system also influenced the process.

The most important success factors in the establishment of the IMC are the high degree of operability of the water supply system, trained personnel in the PCE and the high degree of willingness of both municipalities (councils and mayors) to cooperate.

Benefits and shortcoming of the IMC practice

Benefits

  • fulfillment of the legal obligation to provide water supply services to all users;
  • savings by using joint resources;
  • completion of the construction and upgrading of the regional water supply system, which provides clean drinking water to the citizens of the two neighbouring municipalities;
  • contribution of the water supply system for promoting a positive climate for investment and the establishment of small- and medium-sized enterprises (SMEs) in the micro-region, which will contribute to improving the socio-economic conditions of the citizens and thus increase the capacities of both municipalities;
  • improvement of the citizens’ quality of life;
  • lower service provision costs;
  • a quality, rational, efficient and modern water supply service;

It must be pointed out that, at present, there are no hard data to illustrate the benefits. Data collection will begin once the new PCE becomes fully operational and after one year of operation. The amount of the initial costs for establishing of the IMC is symbolic and covers the current expenses for consultative meetings. The cost for the consultants who prepared these documents, assessments and analyses is about EUR5,000. Departments of both municipalities jointly prepared all legal regulations. The initial costs to establish the IMC will soon be reimbursed with the savings from IMC operations.

Shortcomings

  • Shortcomings of the established form of the IMC have not been identified by the partner municipalities and the citizens.

Future plans for the development of the IMC practice

Both municipalities are considering developing the IMC in internal audit and child care. At present, there is no urgent need for, nor consideration given to, expanding the cooperation with other municipalities or converting to another legal form of cooperation.

Main lessons learned on how to establish IMC and make it a success

A minimum of six months in advance is needed for promoting the initiative for establishing the IMC, carrying out the required consultations and finalizing the negotiations for the legal form of the IMC. In order to have a clear understanding of the benefits for the municipalities and their citizens, accurate analyses should be prepared before promoting the initiative, including recommendations on how to start it up.

The Central Government and the Association of the Units of Local Governments of Macedonia (ZELS) should provide technical assistance (including study visits and training) and proper financial incentives to facilitate the replication of the good practice to other municipalities.

Readiness to support other municipalities to establish IMC

Both municipalities believe that the established practice could be replicated in other municipalities and are willing to share experiences, empirical data and all available documentation.

Acknowledgment

The information about this practice was collected and presented by Toni Popovski.