Tariff settingTS2BCollect and validate operators’ financial and operational data
Collected financial information and operator accounts are systematically verified by regulators.
They assess financial and operational performance of operators in two stages to obtain additional necessary data, first in the office and a second stage through local audits. The objective of the validation process is to ensure the accuracy of the information provided, and which can be then used for future tariff adjustments.
Unless operators’ accounts are validated, these risks putting operations on hold. Regulators must however, conduct this procedure transparently to ensure impartial and rigorous audits.
- Accurate financial and operational performance information is available at all times for regulatory purposes.
- Consumers are informed about operators’ performance on their request.
- Only validated operators’ accounts can be further operationally managed.
In Argentina, the operation of the service provided by AySA is governed by Law No. 24.156 on ‘National Public Sector Financial and Supervisory System Administration.’ Under this framework, the public service provider is controlled by a government accounting system that processes and produces financial information for decision-making by public finance managers and related third parties. The provider is subject to an internal supervisory and audit system run by the General Accounting Office, which is the internal supervisory body of the National Executive Branch that performs initial and successive audits. The supervisory model applied and coordinated by the General Accounting Office must be comprehensive and integrated, encompassing budgetary, economic, financial, asset-related, regulatory and management aspects, as well as program, project and operational assessment, and must be based on the principles of affordability, efficiency and efficacy.
In Chile, the Organic Regulation of Metropolitan Sanitary Works Companies approved by Decree 230/85 stipulates that the institutional structure should include an Internal Audit Unit with functions related to assessing the robustness, sufficiency and application of financial accounting controls for the purposes of measuring efficacy, reliability and security of the information produced.
The Company’s financial activities should be governed by the rules that apply to State companies and by ministerial instructions issued, particularly the budgetary system, cost accounting, reporting, publication and auditing of balance sheets and financial statements.
In Lesotho, the Electricity and Water Authority (LEWA) presents relevant financial information collected from the operator WASCO. In March 2016, for example, they presented the following information.
- According to audited financial statements, WASCO reported an annual operating profit of M2,337,000 for the period, from atotal generated revenue of M218,609, 000. The main components of revenue were water and sewerage billing at M199,305,000 (91.17 percent) and new service connections at M15,012,000 (6.87 percent).
- Expenditure for the period was M216,772,000. The main contributors to expenditure were labour costs (40.81 percent), power demands (9.15 percent), reticulation and plant maintenance (6.21 percent), and chemical usage (3.81 percent).
- The profit realized during the 2015-16 financial year came against a backdrop of losses for the previous five years. In 2014-15, a loss of M3,160 million was recorded, higher than the previous year (M1,781 million). This was largely attributed to a substantial increase in expenditure. The company experienced its highest loss (M10,595 million) during the 2011-12 financial year. The improvement is due largely as a result of a substantial and steady growth of water and sewerage billing since 2010-11, coupled with improved cost management.
Argentina: National Public Sector Financial and Supervisory System Administration
Chile: Organic Regulation of Metropolitan Sanitary Works Companies
Internal capacities needed and the role of partners
Abilities required to conduct this action include financial, management, and administrative skills.
Validation exercises as an internal regulatory process would benefit from learning from technical regional exchanges with other regulators.
Other possible partners could include national economy and research institutions. Regulators’ staff must be trained on different financial and accountant skills either by related sector actors or development partners.