Public utilities in metropolitan Bogota : organization, service levels, and financing

DRAFT UR?--7?02 THE WORLD BANK DEVELOPMENT ECONOMICS DEPARTMENT URBAN AND REGIONAL ECONOMICS DIVISION URBAN AND REGIONAL,REPORT No. 78-2 PUBLIC UTILITIES IN METROPOLITAN BOGOTA: ORGANIZATION, SERVICE LEVELS, AND FINANCING JOHANNES F. LINN MAY 1976 1 These materials are for internal use only and are circulated to stimulate discussion and critical comment. Views are those of the author and should not be interpreted as reflecting the views of the World Bank. References in publications to Reports should be cleared with the author to protect the tentative character of these papers. PUBLIC UTIITIES IN METROPOLITAN BOGOTA: ORGANIZATION, SERVICE LEVELS, AND FINANCING Table of Contents Page No. I. Introduction . . . . . . . . . . . . . . . II. Water Supply and Sewerage Serviceser . . . . 3 A. History, Organization, and Service Levels. . . . . . 3 B. Water and Sewerage Charges . . . . . . . . . . . . 10 1. Use-related, Recurrent Charges . . . . . . . . . 10 2. Connection Charges . . . . . . . . . . . . . . . 28 C. Revenues and Expenditures of the EAAB. . . . . . . 32 III. Electricity Service. . . . . . . . . . . . . . . . . . . 50 A. History, Organization and Service Level. . . . . . . 50 B. Electricity Tariffs. . . . . . . . . . . . . . . . . 55 C. Revenues and Expenditures of the EEEB. . . . . . . . 64 I V . T e l e p h o n e S e r v i c e . . . . . . . . . . . . . . . . . . 7 5 A. Historical Background, Organization, and Service Level . 75 B. Telephone Tariffs...... . . ........ . CC. Revenues and Expenditures of the,ETB . . . . . . . . 8 V. Solid Waste Disposal and Other Urban Public Services . . 97 A. History, Organization, and Service Levels .... . .. 97 B. Service Charges . * * * * * * * * * * * . . . . . . 104 C. Revenues and Expenditures p e * * * * * * . . . . . Table of Contents (Continued) Page No. VI. Public Utility Costs and Pricing . . . . . . . . . . . . 12 VII. Equity: The Incidence of Public Utility Charges and Access to Public Services . . . . . . . . . . . 130 A. The Incidence of Publia Utility Charges . . . . . . 131 B. Access to Public Utility Services 13 VIII. Conclusions . . . . . . . . . . . . . . . . . . . . . . 13 A. Organizational Framework: The Benefits and Costs of Functional Decentralization . . . . . . . . . 13 B. Pricing and Financing of Public Utility Services . . 149 LIST OF TABLES Table No. Page No. 1. EAAB Employment, 1961-197t . . . . . . . . . . . . . 1 2. Water Distribution System. . . . . . . . . . . . . . 7 3. EAAB Annual Water Production, Sales and Losses, 1961-1974 . . . . . . . . .- 8 4. Water and Sewerage Tariffs for 196L-6; and 1965-68 .312 5. Water Tariffs, 1968-70, 1970-73, 1973-74 . . . . . . 13 6. Sewerage Tariff. . . . . . . . . . . . . . . . . * 1 7. Average Unit Price of Water and Sewerage Services, 1961-1974 . . . . . . . . . . . . . . . . . . . . 16 List of Tables (Continued) Page No. Table No. 8. Implied Rate for Minimum Allowance, 1961-1974 . . . . . 18 9. Percentage Distribution of Subscribers, Average Con- sumption per Connection, and Average Tariff Across Consumer Categories, 1971 to 1974 (December) . . . . 20 10. Percentage Distribution of Domestic and Commercial Subscribers and Water Consumption Across Con- sumption Ranges, 1972, 1974. . . . . . . . . . . . 21 11. Percentage Distribution of Residential/Commercial Subscribers by Consumption Group and Tariff Category, December 1974. . . . . . . . . . . . . . . 23 12. Elasticity of Consumption with Respect to Assessed Property Values, 1971. . 0 . . .. . . . . . .. . 24 13. Estimated Arc-Price Elasticity of Water Demand by Tariff Category, 1973-1974. . . . . . . . . . . . 27 14. Connection Fees for Water Supply, February 1976 . . . . 29 15. Connection Fees for Sewerage. . . . . . . . . . . . . . 30 16. Revenues from Capital Contributions as Percentage of Operating Revenues, 1961 to 1974. . . . . . . . . 33 17. EAAB Revenues, 1961 to 1974 . . . . . . . . . . . . . . 37 18. EAAB: Revenues; Percentage Distribution, 1961-1974 . . 38 19. EAAB: Expenditures, 1961-1974 . . . . . . . . . . . . 41 20. EAAB: Expenditures: Percentage Distribution, 1961-1974. 42 21. EAAB: Current and Capital Account Revenues and Expenditures Compared: 1961-1974 . . . . . . . . . . 44 22. EAAB: Unpaid Bills and Debts to the Enterprise, 1968-1972. . . . . . . . . . . . . . . . . . . . . 45 23. EAAB: Unpaid Bills and Debts, Percentage Distribution. 46 24. EAAB: Unpaid Bills and Debts in Relation to Revenues . 48 25. EEEB: Total Generation and Consumption of Electricity., 1954-1972 . . . . . . . . . . . . . . 53 26. EEEB: Number of Subscribers, Energy Consumption, and Value of Sales, by Tariff Category, 1963-1972. . . . 54 27. EEEB Personnel, 1962-1972 . . . . . . . . . . .. .*. . 56 28. Electricity Rates, 1960-1973. . . . . . . . . . . . . . 58 29. EEEB Installation Fees, 1969-1973 . . . . . . . . . . . 60 30. Average Annual Compound Rate of Change of Electricity Rates, by Tariff Category, 1962-1973 . . . . . . . . 62 31. EEEB Average Unit Price for Electricity Service, by Tariff Category, 1963-1972. . . . . . . . . . . . 63 32. EEEB Revenues, 1961-1972. . . . . . . . 0 . 0 0 . . . . 66 33. EEEB Revenues: Percentage Distribution, 1961-1972. . . 67 34. EEEB Expenditures, 1961-1972. . . . . . .0. . . . . . . 68 35. EEEB Expenditures - Percentage Distribution, 1962-1972. 69 36. EEEB Current and Capital Revenues and Expenditures: A Comparison, 1961-1972. . . . . . . . . . . . .. 71 List of Tables (Continued) Pe .No Table No. 37. EEEB: Salary and Wage Payments, 1963-1969 . . . . . 73 38. EEEB: Unpaid Bills for Services, 1965-1972. . . . . 74 39. Unpaid Bills by Category of Consumers, 1971/1972. . 74 40. Telephone Lines, Density, and Service Demand, 1961-1972 (Actual and Planned) . . . . . . . . . 78 41. ETB: Number of Telephone Lines: July 1970, May 1972 79 42. ETB: Personnel and Wage Data, 1968-1972 . . . . . . 80 43. Employees Per Telephone Line in Selected Colombian Cities, 1972. . . . . . .. . . . . . 82 44. ETB Tariffs . . . . . . . . . . . . . . . * * * * * 84 45. ETB: Revenues, 1961-1972. . . . . . . . . . . . . .85 46. ETB: Revenues: Percentage Distribution, 1961-1972 . 87 47. ETB: Expenditures, 1961-1972. . . . . . . . . . . . 88 48. ETB: Expenditures - Percentage Distribution, 1961- 1972 . . . . . . . . . . . . . . . . . . . . . . 89 49. ETB: Current and Capital Account Compared, 1961- 1972 . . . . . . . . . . . . . . . . . . . . . . 90 50. ETB: Subscribers, Calls, Revenues, and Unit Charges by User Category, 1972 . . . . . . . 93 51. ETB: Outstanding Debts on Services. . . . . . . . . 95 52. Accrued Transfers to District Administration. . . . 96 53. Area Serviced by Refuse Collection. . . . . . . . . 99 54. EDIS Equipment Used in Collection and Sweeping . . 100 55. New Markets . . . . . . . . . . . . . . . . . . . . 101 56. Cemetery Service 1970-1972 . . . . . . . . . . . . 102 57. Slaughterhouse Service 1970-1972. . . . . . . . . . 103 58. EDIS: Refuse Collection Tariffs . . . . . . . . . 10 59. Slaughter Fees . . . . . . . . . . . . . . . . . . 108 60. EDIS Revenues 1964-1972 ... . . . . . . . . . . . . 110 61. EDIS Revenues Percentrage Distribution 1964-1972. . 111 62. EDIS Average Annual Rate on Assessed Property Value for Refuse Collection Tariff 1964-1972 . . 113 63. Comparison of Alternative Figures on Transfers from the District Administration to EDIS, 1961-1972 . 115 64. EDIS, Expenditures 1962-1972 (Col$,000) . . . . . . 117 65. EDIS, Expenditures Percentage Distribution - 1964 -1972 . . . . . . . . . . . . . . . . . . . 118 66. EDIS: Current Expenditure by Function. . . . . . . 120 67. EDIS: Current Revenues and Expenditures Comparison by Functions . . . . . . . . . . . . 121 68, Bogota, D. E.: Public Utility Cost Functions . . . 127 69. Bogota, D. E.: Subsidies from Public Utility Pricing . . . . . . . . . . . . . . . . . . . . 133 70. Correlation Coefficients (r) between Proportion of Neighborhood Households with Access to Public Services and Average Household Income Per Neighborhood . . . . . . . . . . . . . . 136 71. Level of Obnnection Charges Desirable in Bogota According to Alternative Socio Economic, Criteria . . . . . . . . . . . . . . . . . . . 1i I. INTRDDUCTION Public utility services are the most important activities of local government in the Special District of Bogota by any measure of financial con- tribution. Not including debt service charges, expenditures on public utility services added up to a total share of 57.0 percent of local public spending in 1972.1/ Water supply and sewerage contributed 26.1 percent, electricity 11.0 percent, telephone services 10.8 percent, refuse collection and street cleaning 2.8 percent, and the operation of ma:-kets and slaughter houses 0.3 percent. Of the total increase in local spending between 1970 and 1'72, 57.5 percent was accounted for by these functions and the agencies responsible for them. In terms of revenues, the four public utility enterprises combined contributed 61.1 percent of total local public financial resources, and with 77.5 percent of all local credits received during 1972, they were by far the heaviest local borrowers. Besides their shared imiportance, these services have in common a number of characteristics which make a detailed description and analysis of their organization, service levels, and financing an important component of any comprehensive analysis of the urban finances of metropolitan Bogota. This paper therefore investigates for each of the public utilities--the administrative frame- work, the level and provision of services, the structure and level of user charges, and the level and ra:es of change of revenues of expenditures over the recent years.- It will further consider the ques' tion as to ihether with the rapid 1/ All data in this paragraph are taken from Johannes F. Linn, "Urban Public Finances in Less Developed Countries: A Case Study of Metropolitan Bogota, Colombia", forthcoming. . -2 - growth of Bogota unit costs of providing these services have increased on the average and at the margin, and will review some of the implications of the existing user charge structure on the distribution of income and on the degree to which different income groups have access to these services. This study serves as a complementary piece to the main report on the urban, finances of Bogota, D. E.,1/ where use is made of the primary conclusions drawn here. In general, the information on which this study is based covers the period 1961 through 1972, and was collected by the author during two research missions carried out in 1973. In the case of water supply and sewerage services,supplementary information was collected during a brief visit to Bogota in February 1976. 1/ Linn, "Urban Public Finances", op. cit. -3- II. WATER SUPPLY AND SEWERAGE SERVICES 1,7 A. History, Organization, and Service Levels- Bogota's first public water supply system was built in 1888 by a private company. In 1914 the city acquired this company. Together with the sewerage operations the Bogota water supply system became an integral part of the municipal administration. In 1954, a presidential decree authorized the creation of the decentralized enterprise in its present form, and, with the assistance of the Banco Central Hipotecario, the Bogota Water Supply and Sewerage Company (EAAB) was created in 195 by a decree of the Council of the City of Bogota (now the Special District of Bogota). The EAAB is owned by the District of Bogota, but it is an autonmous public entity and is therefore not directly dependent on the District Council or the District Administration. The EAAB is governed by a board of seven directors: the Mayor or his representative, two members appointed by the District Council, three members appointed by the EAAB bondholders (the Banco de la Republica and the Banco Central Hipotecario), and, as the seventh member, the director or assistant director of the Colombian National Bank (Banco de la Republica). After the amortization of the outstanding bonds, which is expected by 1977, the three members which now represent the bondholders will be replaced by members appointed by the District Council. Board Members serve for a period of four years. 1/ Unless otherwise specified, the contents of the present section are based on IBRD, Apraisal of the Bogota Water Supply Project, Colombia, Report No. TO-639a, May 6, 1968; IBRD, Appraisal of the Second Bogota Water Supply Project, Colombia. Report No. PU-66a, May 28, 1971; and on Lauchlin Currie, Una politica-urbana para los paises en desarrollo, Ediciones Tercer Mundo, Bogota, D. E. 1965. -4- The Board has to approve all major decisions concerning the financial and operational,aspects of the enterprise; this includes approval of the yearly budget, all tariff changes, investment programs, contracts and planning studies, changes in the organizational structure, etc. The Board also appoints the general manager of the enterprise who in turn is the chief executive officer of the EAAB.1-/ The general manager is responsible for the day-to-day affairs and the hiring policies of the enterprise, and for the preparation of all investment and financial programs. In this he is assisted by assistant managers for planning, construction, operation, finance and administration. The total number of staff of the EAAB amounted to almost 2,350 in 1974, having grown from about 800 in 1961 (Table 1). The ratio of staff per 100,000 m3 of water sold, however, declined steadily between 1961 and 1967 and reamined at a steady level since then. The EAAB supplies water from three separate schemes, a fourth one being under construction at present. First, the smallest system consists of a number of individual schemes (San Cristobal, San Francisco, La Osa, Arzobispo, La Vieja) which werp constructed between 1897 and 1966, and together have a capacity of about 0.5 m3/sec. They serve mainly isolated high lying areas in the city. Second, the Tunjuelo system, originally con- structed in 1938, and expanded in 1953, presently has a capacity of about 1.2 m /sec. It draws its water from the Tunjuelo river, some 25 IM south of the city and has its own treatment plant (Vitelma). Third, the Tibito scheme, 1/ According to a recent opinion by the President's State Council (Concejo de Estado), the mayors of municipalities (including the District of Bogota) are entitled to appoint the managers of the municipal (District) decentra- lized agencies. The general validity of this opinion remains to be tested. Table 1: EAAB EMPLOYMENT, 1961-1974 Total No. of staff per Employees Workers staff 100,000 m3 sold 1961 312 494 806 3.1 1962 318 499 817 2.5 1963 357 532 889 2.3 1964 388 547 935 2.1 1965 435 546 981 1.8 1966 486 57 1,043 1.6 1967 570 619 1,189 1.3 1968 658 725 1,383 1.2 1969 836 801 1,637 1.3 1970 7L1 86 1,65 1.2 1971 949 922 1,871 1.3 1972 959 1,104 2,063 1.3 1973 920 1,336 2,256 1.3 1974 1,078 1,269 2,347 1.3 Sourcei EAAB, Estadisticas de Nomina y Personal, 1969. for years 1961- 1967. EAAB, Boletin de Estadistica Financiera, 1975, for years 1968- 1974. -6 - originally constructed beginning in 1959, and expanded with World Bank assistance starting 1968, has a total capacity of 12.0 m3/sec. It derives its water from the Bogota River, some 35 km north of the city and has its own pumping and treatment plant at Tibito. Finally, the present expansion project of the Chingaza system consists of the damming of the Chuza River and a water conveyance system from the resulting reservoir to Bogota, including some 33 km of tunnels and 6 km of pipelines. The expected capacity of the scheme, after installation of a water treatment plant is 13 m /sec. The construction of the Chingaza system assures Bogota a more than sufficient production capacity of water,l but only with the continuing expansion of the treatment and distribution system will EAAB be able to meet total demand for water in the city. In early 1976 somewhere between 70 and 80 percent of the population of the city received its water supplies from the EAAB.2/ The quality and pressure of water provided is generally very good. Tables 2 and 3 summarize the available information on the growth of the service as indicated by the length of the distribution network, the increase in number of connections, and the production and sale of water. The number of connections rose at an annual exponential rate of 7.3 percent between 1961 and 1974,- a rate somewhat higher than the population growth rate (about 1/ A recent projection of water demand for Bogota places the total demand for 1980 in the range of 11.2 to 12.8 m3/sec. (EAAB, Estudio Economico-Financiero, Bogota, June 1975). This indicates that the Chingaza project results in considerable excess capacity, in part due to excessive demand projections on which the project design was based. 2/ No precise information on the proportion of population served by EAAB is available. 3/ Unless otherwise noted, all growth rates in this paper are based on linear regression estimates using the equation In X = a + bt, where b is the exponential growth rate of variable X over years t. -7- Table 2: WATER DISTRIBUTION SYSTEM (end of year) Annual percent Length of No. of increase in distribution Year connections No. of connections system (km) 1961 120,689 1,668 5.6 1962 127,442 1,816 7.9 1963 137,516 1,916 10.5 1964 151,906 2,075 5.8 1965 160,644 2,260 6.8 1966 171,567 n.a. 6.3 1967 182,h6 2,710 6.0 1968 193,395 n.ao 8.0 1969 208,822 n.a. 7.2 1970 223,958 n.a. 6.1 1971 237,594 3,186 7.2 1972 254.,708 3,347 10.8 1973 282,167 n.a. 7.0 1974 301,863 n.a. Source: EAAB, Estadisticas de Nomina y Personal, 1969, for year 1961-1967. EAAB, Boletin de Estadistica Financiera, 197, for-years 1968-1974. EAAB, Department of Statistics. -8 Table 3: EAAB ANNUAL WATER PRODUCTION, SALES AND LOSSES, 1961-1974 Per capita Year Production SQ1es /1 Loss sales of water /2 (m3, 000) 000) (m3) - 1961 96,937 70,764 27 50.76 1962 105,190 79,944 24 54.69 1963 114,109 87,864 23 55.26 1964 126,923 91,385 28 53.85 1965 122,927 92,195 25 50.88 1966 127,335 85,314 33 44.09 1967 156,955 109,868 30 53.20 1968 165,864 115,255 31 52.25 1969 174,951 122,918 30 52.53 1970 190,869 143,276 25 57.33 1971 196,164 146,184 25 54.77 1972 216,412 160,317 26 56.27 1973 245,802 171,946 30 56.56 1974 253,126 182,649 28 56.36 1 Data for 1961-1967 were computed by using the loss figures estimated by IBRD, and the production figures provided by EAAB, for the same period. /2 Using total population of Bogota in the denominator. Source: EAAB, Datos Estadisticos de las Direcciones de Mantenimriento y Servicio de Acueductos, for years 1961-1967. EAAB, Boletin de Estadistica, 1975, for years 1968 to 1974. IBRD, Appraisal of the Bogota Water Supply Project, May 6, 1968. -9 6.6 percent), which gives some measure of how little accessibility of water services increased in recent years. The distribution network grew in length at a rate of 6.5 percent p.a. on average. In summary, these data suggest that over the recent years, EAAB managed little more than keeping up with rapid city growth in extending its distribution of water services, and was not able to increase its service coverage over a larger proportion of the population of Bogota. Production of water increased at an average annual compound rate of 6.1 percent,accounted-for water sales only slightly faster at the rate of 7.2 percent. Water losses (i.e. unaccounted for water, which in part is also water consumed, but not paid for as e.g. fountains, free water facilities, illegal connections, etc.) thus was not significantly reduced over the years, and in fact rose again between 1971 and 1973 (Table 3) to about 30 percent of production. The ratio of sales of water to total population in Bogota increased only slightly over the years despite the continuous expansion in services which were pursued by the EAAB.1/ This represents a further indica- tion of the difficulties which EAAB has encountered in its attempts to increase the coverage and use of its services for the rapidly growing population of Bogota. Turning to the system of waste water disposal, half.of the city is presently served by a combined sewerage/storm water drainage system, the other half by separate sewerage and drainage canals. The population served by these drainage and sewerage facilities is estimated to be only slightly lower than that of thewater system.l/ The present system does not include 1/ A growth rate of 0.1 percent p.a. was estimated by regression, which statistically is not significantly different from 0.0. 2/ EAAB estimates. - 10 - any treatment facilities, with the result that the discharge of raw sewage into the River Bogota produces serious problems of pollution. A recently suggested solution to this problem lies in the construction of a high capacity sewage interceptor along the river discharing the sewage further downstream, where it will no longer affect the drinking water supply of the city and generally have a lesser impact, due to diminished population density further downstream. Simultaneously, plans exist to regulate the Bogota River with the aim to avoid the frequent floodings in the neighborhood of the river and the associated difficulties in discharging storm water and sewage flows into the river. B. Water and Sewerage Charges Colombian water and sewerage charges generally consists of a com- plex system of multi-part tariffs,-/ which fall, broadly speaking into two groups: first, the use-related monthly service charges3 and second the once for all capital contributions. These two components are separately discussed in the following pages, as they apply in the case of Bogota. 1. Use-related, Recurrent Charges Water consumers are assigned a minimum allowance of water for which they pay a lumpsum charge, irrespective of the amount actually consumed within the minimum allowance. The lumpsum charge is progressively related to the 1/ Colombian public utility tariffs are based on the principle of meeting long-run average cost (including a net return which allows a continued expansion of capacity and services) and on the objective of redistributing income through progressive user charges. See Republica de Colombia, Departamento de Planeacion, Junta Nacional de Tarifas, "Normas sobre la metodologia aplicada a los analisis tarifarios del sector de acueductos y alcantarillados", Documento JNT-145-UINF, February 1973* - 11. - assessed value of the property on which the connection is located.-/ For consumption over and above the allowance an excess consumption charge is levied per unit of water consumed. This charge usually increases in blocks with increased consumption. Monthly sewerage charges have traditionally been linked to water charges on a percentage basis. Tables 4 through 6 summarize water and sewerage tariffs of the EAAB as they have been levied since 1961. The main structural change -. occurred in 1968, when the number of tariff categories was drastically reduced, and when domestic and commercial consumer categories were separated from industrial, and official consumer categories respectively. Further structural changes occurred in 1970: the number of industrial categories was reduced from three to one, and their minimum allowance of water was abolished. Simultaneously, the minimum allowance was reduced to 15 m 3/month and equalized for all residential and commercial consumers, while the fixed charge associated with the minimum allowance was left progressive. Moreover, instead of having just one range of excess consumption prices, the price structures after 1968 introduced first four, later three, tariff ranges above the minimum allowance tariff, so that the resulting marginal cost curve for each consumer is a step function increasing as the amount consumed increases. 1/ Matters are complicated by the fact that at the option of the new sub- scriber, the provisional construction budget for a new building on the lot to be connected may be substituted temporarily for assessed property value as a base for the user charges. Upon completion of the building the assessed property value is supposed to be taken as the base. How- ever, according to estimates of EA.AB 67.5 percent of all new connections made between 1965 and 1975 never were revised to change construction to property values; see EAABI Tecnificacion del Sistema de Recaudos por Derechos de Matricula, Subgerencia Financiera, October 1975. . м , � � . . . ь , _. , . .ч �� �. , . � • � . • R � � ' - 12 • � К ТаЫе !�: WATE'ft AND SEWERAGE TAitIF'FS FoR 1961-65 AND 1965-69 /1 ° А - • � 1 Assыsaed property д1].owance for Minimum charge Rate for coпsumption t value minimwn charge above ацомапсе (�ооо co1.g) (т3/мth _ (со1. $/г�tn) (со1•�/тз) • 197�1=б� 19 5 19 1- 19 19 1- 5 19�5-b� ` 0- 1 20 го 1.13 1.15 0.10 0.15 - 1- 3 го 2о � 1.69 1.7о о.15 о.2о 3- 1о зо г5 г•53 г•5о о.го о.эо ao - 15 35 -г5 - 4.5о 4.5о о.г5 о.35 ;�5 - го 4о Эо 6.56 б.бо о.зо о.45 �!о •- зо 5о !го - 1г.5о 1г.5о а.4о о.55 . зiо - 4о So 4о 17.5о 17.5о о.5о о.7о ;. �:а - 5о бо 4о г1.г5 г7.3о о.бо о.85 • 5о - 75 бо 4о г1.г5 31.5о о.бо о.в5 75 - 1оо бо 4о ц.г5 35.7о о.бо 1.оо � 1оо - 1г5 бо 5о 21.г5 39.9о о.бо 1.оо 125 - 15о бо 5о 21.25 44.1о о.бо 1.оа - : 15о - 175 бо 5о 21.г5 48.30 о.бо 1.оо 175 - гоо бо 5о г1.г5 5г•5о о.бо 1.оо гоо - г25 бо 5о г1.г5 56.7о о.6о 1.оо гг5 - г5о бо 5о 27,?5 бо.9о о.бо 1.оо г5о - г75 бо 5о • 21.25 65.1о о.бо 1.оо г75 - Зоо" бо 5о z1.25 64•Зо о.бо 1.оо зоо - зг5 бо 5о 21.25 73•50 о.бо 1.оо зг5 - 35о бо 5о г1.г5 77•7о о.бо 1.оо 35о - 375 бо 5о г1.г5 81.9о о.бо 1.оо t i' 375 - 4оо бо 5о г1.25 86.1о о.бо 1.оа � �оо - 1ио бо 5о ц.г5 9Iд.5о � о.бо 1.оо а 1�50 - 5о0 6Q 5о г1.г5 102.90 0.60 1.OD i 5оо - 55о бо бо 21.г5 113.3о о.бо L Оо ' Й Е Above 55о бо бо n.г5 + в•�о о.бо 1.оо (for each 50 ир to 1,000) �1 Stated fzrifYs аlrегскр 1псlиде the 25� charge for sewerage services. 5оигсе: ЕАА$ ае cital3.n Iг_v.chlin Currie, цпа Politica Urbana рΡara����1��os Paises ��� еп Лesarrollo, Edicioneз Zbrcer F. о, �о а,-ц`�"'гуb>. • � IBi?D� "Appraisal of the Hogota 'riaier Supply Project, Colombia," Beport Л'о. n1-639a, Уи�у б, 196а. , � � • �. r 7= .......... Table S: WATER TARIFFS, 1968-70. 1970-73, 1973-74 Tariff Categcries Assassed Allovancc for miul= charge Minimum charge E .... . -9..ption h.ýg. (Col.$1.?) Pr.PCýty v.l.C L2 2001 6 sb~ h.) Colj 16-100 .31.th. 101+-2CO ,31.th. 201-2000 .31.th. .31.th. 1968-70<g76-7 '73-71. '70-73 '74- '68-70 '70-73 '73-74 '74-13 '68-70 '70-73 '73-74 '74--- -168-70 -70-73 '73-74 174- '68-70 D-tic and Commercial Cr.ups.- 0-15 15 15 15 5 5 5.40 5.40 0.75 0.75 0.80 0,80 0.75 2.20 2.40 2.40 2.30 5.00 5.40 5.40 2.50 2 15-50 15 15 15 10 10 10.80 10.80 1.00 1.00 1.10 .1.10 1.00 2.20 2.40 2.40 2.30 3.00 5.40 5.40 2.50 3 50-125 25 15 15 25 25 27.00 30,00 1.50 1.50 1.60 (1.75 1.50 2.20 2.40 3.20 2.30 5.00 5.40 6.20 2.50 (1.95 4 125-200 25 15 15 40 40 43.20 57.00 1.50 1.60 1.75 {2-01 1.50 2.20 2.40 4.00 2.30 5.00 -5.40 7.00 2.50 2 . 65 5 200-500 50 15 15 60 80 86.40 98.00 2.00 1.70 1.90 {2:70 2.00 2.20 2.40 4.00 2.30 5.00 5.40 7.00 2.50 3 50 500-1000 50 15 15 80 100 108.00 150,00 2.00 1.90 2.00 {2:28 2.00 2.20 2.40 4.50 2.30 5.00 5.40 7.20 2.50 6 4 7 1000 and «b.ve 50 15 15 80 120 129.60 250.00 2.00 2.00 2.20 {3:40 2.00 2.20 2.40 5.00 2.30 5.00 -5.40 8.00 2.50 5 00 b) Ind..trial.L1 Group... 1 0-50 15 - 20 1.00 3.23 3.50 - 1.00 3.20 3.50 - 3.50 3.20 4. 20 - 2.50 2 50-200 25 - 80 1.30 3. PO 3.50 - 1.50 3.20 3.50 - 3.50 3.20 41.20 - 2.50 3 200 -4 -bove 50 - - 160 2.00 3.2D 3.50 - 2.00 3.20 3.50 - 3.50 3.20 4.20 - 2,50 c) Official - 50 50 45 4C, 40 35 70 70 70 - 70 70 70 - 70 70 70 - 70 LI Aft- 1966-1970 the.. ws'n. la.sificati.n 1. group.. L2 For 1968-70, the lýer limit foll"s the allowance for mini~ charge in respective property valuo class. 13 For categorie. 3 to 7 this consumption rangs is subdivided inte two subrange,, fr,. 16 t, 30 m3/.th. . and fram 31 ta 100 respectively. Source. EMB Sub-Directorate of Finance. Table 6: SEWERAGE TARIFF Service Service Assessed Property Value/1 Tariff/2 a) Domestic and Commercial Connections: 1 0-15 - 2 15-50 5% 3 50-125 10% 4 125-200 10% 5 2o00-50 15% 6 00-l00o 20% 7 1000 and above 20% b) Industrial Connections 20% c) Official Connections 15% Note: Before 1973 the sewerage tariff was a flat 25 percent of water charges. 1 In Col.$1,000 /2 As percentage of water charges Source: EAAB, Subdirectorate of Finance The process in which the pricing schedule is determined is, in general terms, as follows: First, a projection of future expenditures are made, and the revenues required to cover these expenditures are computed. These revenues are then divided by expected consumption to determine the necessary average price that needs to be charged. Based on this average price a progressive tariff schedule is designed, resulting in lower than average prices for consumers living on properties with low assessed values or consuming relatively small amounts of water; and higher than average prices for consumers living on high value properties and consuming relatively large quantities of water. The development of the average unit price for water and sewerage services is shown in Table 7. Until 1971 the general tred-in-nit yetWa is upward, both in variable and in real terms.- After 1971, despite con- tinued increases in the nominal rate, the real rate dropped continuously between 1971 and 1974. This reflects the impact of the accelerating infla- tion rate in Colombia during these years, and contributed to the EAAB's increasing financial difficulties (see below). The tariffs were increased in 1961, 1965, 1968, 1970, 1973, and 1974, and for each change the average unit price jumped up noticeably, although sometimes this increase is not reflected until the following year, depending on the time of year during which the change became effective. The drop in real tariffs in the years between tariff changes shows the impact of inflation in eroding the real 1/ Since the average unit price is linked to average cost of operations this upward movement would imply that average costs of water supply and sewerage operations have been rising. This is further investigated below. - 16 - Table 7: AVERAGE UNIT PRICE OF WATER AND SEWERAGE SERVICES, 1961-1974 Average Unit Price Average Unit Price Year for Water /1 for Water & Sewerage/2 (Col.$/m3) (Col.$/m3) Constant Constant Current Prices 1961 Prices/3 Current Prices 1961 Prices/3 1961 0.24 0.24 0.32 0.32 1962 0.36 0.32 0.46 0.42 1963 0.29 0.19 0.39 0.35 1964 0.31 0.18 0.43 0.29 1965 0.46 0.26 0.60 0.35 1966 0.52 0.24 0.67 0.34 1967 0.46 0.20 0.60 0.28 1968 0.77 0.31 0.96 0.39 1969 0.88 0.33 1.10 0.41 1970 0.97 0.34 1.21 0.42 1971 1.34 0.43 1.67 0.53 1972 1.40 0.39 1.68 0.47 1973 1.49 0.34 1.85 0.42 1974 1.67 0.31 2.07 0.38 1 Revenue from water sales over quantity of water sold. /2 Revenue from water sales and sewerage operations over quantity of water sold. /3 Deflated by the Consumer Price Index for Workers in Bogota, from Banco de la Republica, Revista, various issues. Source: Tables 3 and 17. tariff base. It clearly presents a powerful argument:for more regular adjustments in the tariff structure.- Given the complexity of the tariff structure,'it i's necessary to go beyond the average unit price in considering the changes in water and sewerage charges in Bogota over the recent years. In order to provide a first impression of the progressivity of the tariff structure, Table 8 com- pares the average unit price of the minimum allowance of water 6ver the years and across tariff categories on the assumption that the full minimum allowance is consumed by the subscriber./ In 1961 the highest unit price of water for the minimum allowance was almost six times above that of the lowest, in 1974 it was 46 times above it. This widening of the range, and thus the increased progressivity, of tariffs can also be observed when looking at the growth rate of the unit price in the individual tariff categories; except for the very lowest tariff categories, which faced quite rapidly growing tariffs, due to the combination of some of the older tariff categories,the experience was that the unit price grew more rapidly in the highest value categories than in the lower value categories. In the intermediate years, the tariff policy was somewhat less uniform, as can be observed from the variation in the ratio between highest and lowest unit prices. The tariff schedule for the year 1965-68 was especially progressive, having left the lowest tariff category unchanged and increased the highest almost tenfold. 1/ In Spring 1976 a new tariff structure was under consideration which would allow for small-amonthly increases in the excess consump&i6n charge. 2/ To the extent that low income consumers do not consume the full amount of the minimum allowance while high income consumers do, Table 9 exaggerates the progressivity of the minimum charge. �в - Тп01r. 8; It�11?L1Го Р:1ТГ� 1+oR �lCN1DIUM Ai,iA{J,'цv'Г,Ед 1.961-�19Т1ь/1 � (co1.s/тз7 Avcrдge �anuлl + Аггсеаr;од Co.r. оипдад L'r�wCFг. Pcopcrky Vn1ue 1' . �� (CO1..Q,00o) 1)61-65 1965-GS 19GA-70 197о-73 1973-74 1у74 Адсо; 7�G1-1�174 о- 7. о.аб о.об о.33 о.ЭЭ п.зЬ о.зб . 1ь.1,. 1, - 9 о.о8 о.о8 n.33 о.3Э о.96 о.зь 1з.4 3- t4 о.о8 о.з,о о.зз п•зз о.36 о.зь 1з.4 ао - i5 о.13 o.ie о.33 о.эз о•з6 о.зь 8.& 15 - гп а.]6 � o,z2 о.67 о.б7 о.72 о.�2 1з,4 2о - зо о.г5 о.з1 a.G'г' а.67 о.7г о.�г s.г 3о -�о о.з5 О.I,д о.67 0.67 о.7г 0.72 ь.2 1}о - 5n о.Э5 о.бе о,67 п.б•г о.72 о.7г ь,2 ' Sо -'75 п.35 о.79 1.по э..67 � 1.8о 2.оо 16.6 75 - з.ао о.35 о.89 а.по 1..67 L8o z.oo 1ь.ь э.оо - 125 о.ЭS о.8о з..оп а..67 i;8o 2.оо 1ь.6 1гу - 15о о.35 о.88 з.бо г.67 г.88 з.во ' 1s.z 15о - i75 о.35 о.97 1.бо 2.67 2.88 з.во 1в.г ' i7S - гоо о.35 1.о5 i.6o 2.67 2.88 з.во 1s.2 гео - гг5 о.35 1.з.з 1.бо 5.33 5•76 6.5з zo.4 : г.г5 - г5о о.з5 z.2i i.бo 5.33 5.76 ь.sз гь.4 г5о - г75 о..35 1•зо i.6o 5.33 5,76 ь аз 26.4 г75 - 3оо п.з5 1.39 i.6o 5.33 5.76 б.sз гь.4 .у____._ ...__..,.. __ __.... _.. -- • -.. __ _.._. .._..,�_•---..._. _.. . ----__ -- зпе - зг5 о.35 1.�{7 1..бо 5.33 5.7Ь ь.sз zь.4 3г5 - 35о о:з5 з..55 з..бо 5.Э3 , ;.76 б.sз гs.ч � 35о - 375 о.35 1.63 1,бо 5.33 5.7Е� 6,53 26.4 � 375 - lGOO о.35 1.7г z.6e 5-33 5.7Ь б.sз гь.4 � � lдио -�,о о.35 1.8у 1.бо 5.33 5.76 ь.5з 2ь.4 1,SG - 50о о.з5 г•05 э..бо 5•33 5•76 6.53 26.4 5оо - S5o о.Э5 7..89 1.бо 6.67 7.го 1о.оо га.7 55о - бпо о.35 г.оз з..6n 6.67 7.го 1п.оо 2а.7 боо - 65n о.35 2.У7 i.6� 6.67 7,го 1о.оо z�.� 65о - 7оо о.з5 г.13 �.ба 6.67 7.гп 1о.оо га.� 7оэ - 75о о.35 г.45 з..бо 6.67 7,го 1о.оо 2ж.7 75о - 8оо о.35 г,59 1.бо 6.67 � 7.го ia.oo г�.7 еоо - 85п о.35 г.73 з..бо 6.67 7.го 1о.оо г�.э 85о - 9оп о.35 г.87 1..бо 6.67 7.20 io.oo 2е.7 • 9оп - 95о о.35 Э.и1 1..6о G.67 7,zп 1о.оо 2а.� 95о -?сао о.з5 з.15 1.бо 6.G't 7,го 1о.оо �гF.7 . iooo апа o�or о.з5, 3.г9 з..бо 8.по, 8.6lс 1ь.67 зi,� Rat1o Ьсtнсеп п1�;псзt ,na 5.8Э ,4.83 lг,85 г1�,г}а г1{.со 4ь.з1 corract rntiэs /1 Con�putcd by divtdlпs lhe ohue$n lior miuimum и1lоs+ппсе by klгс г(и+зпL•it:y af Chc rnCrriiuum и1lоWдпсд; rlms 1t 18 ctsSUred t1rпL [;�с тз9аlг.ит sllowancu 1в fu11.y cnur.umc;d. 5ourcn; Tulrles 5 L•hrough 7. -19 This drastic change was reversed by the tariff adjustment of 1968., which actually lowered the minimum allowance rate for the highest tariff cate- gories. Similarly though less strongly progressive, has been the average total tariff (i.e. basic charge plus excess consumption charge) shown in Table 10., which is derived by dividing total revenue per tariff category by the amount consumed in the same category. In 1971 the average unit price per m3 of water ranged from Col.$0.65 for the lowest tariff category to Col-$4.40 for the highest category. In 1974 the range had increased from Col.$0.74 to Col.$7.45. The highest tariff category thus paid ten times as much per unit of water as did the lowest category- l/ Table 9 also indicates that in recent years a shift in subscribers has taken place from the lowest two consumption categories -to middle and upper categories. This shift can be explained by property assessment changes during these years., and by a sluggish rate of extension of services in the poorer neighborhoods. Considering then the distribution of the number of subscribers and water consumption between the four main consumption ranges which are presently distinguished in the tariff structure. Table 10 shows that the distribution remained virtually unchanged between 1972 and 1974. Only about 16 percent of all subscribers consumed in the minimum allowance range, while over three l/ The impact of this progressivity in tariff rates relative to consumers, incomes is further analyzed below in Section VI. 2/ This in turn may at leatt in part be explained by the high connection fees; see below, pp. ........... "I'll, ............. Table 9: PERCENTAGE DISTRIBUTION OF SUBSCRIBERS, AVERAGE CONSUMPTION PER CONNECTION, AID AVERAGE TARIFF ACROSS CON UMER CATEGORIES 1971 to 1974 (December)-! Tariff Percentage of Subscribers Average Consumption per Connection (m /month) Average Tariff (Col$/m3) Category 1971 1972 1973 1974 1971 1972 1973 1974 1971 1972 1973 1974 Residential/ Commercial 1 23.2 17.5 16.6 15.7 36.3 38.0 36.5 41.1 0.65 0.66 0.70 0.74 2 36.1 34.9 35.9 35.3 37.8 37.7 34.9 38.5 1.00 0.99 1.06 1.07 3 23.7 27.9 28.0 28.4 43.2 42.7 40.5 42.7 1.73 1.69 1.82 2.12 4 9.0 10.7 10.6 10.8 52.4 50.8 48.5 50.1 2.16 2.10 2.30 3.18 5 6.3 7.2 7.1 7.8 82.9 76.5 71.5 70.9 2.91 2.91 3.20 4.48 6 0.8 0.9 0.8 1.1 187.3 176.8 169.5 152.2 3.45 3.49 3.75 5.81 7 0.3 0.4 0.4 0.4 652.2 587.1 514.6 537.6 4.45 4.40 4.72 7.45 Subtotal 99.3 99.4 99.4 99.4 46.0 46.6 43.8 47.3 1.67 1.62 1.86 2.40 Industrial 0.1 0.1 0.1 0.1 5,474.0 6,025.6 5,859.2 5,333.2 3.20 3.20 3.50 5.70 Official 0.6 0.6 0.5 0,5 665,0 680.7 699.5 657.8 0.90 0.91 0.90 1.32 TOTAL 100.0 100.0 100.0 100.0 52.9 53.6 50.3 53.1 1.70 1.68 1.88 2.49 Source: EAAB, Boletin de Estadistica Financiera, 1975 1/ Percentages may not add to 100.0 due to rounding. 0 -21- Table 10: PERCENTAGE DISTRIBUTION OF DOMESTIC AND COMMERCIAL SUBSCRIBERS AND WATER CON- SUMPTION ACROSS CONSUMPTION RANGES, 1972, 1974 Consuption Range Number of Subscribers Water Consumption (m3/month) Dec. 1972 Dec. 197 Dec. 1972 Dec. I17 0-15 15.8 15.6 3.2 3.1 15-100 77.3 77.1 66.4 66.0 100-200 5.2 5.4 14.1 14.7 200 and over 1.7 1.8 16.3 16.1 T6tA1 100.0 100.0 100.0 100.0 Source: EAAB, Boletin de Estadistica Financiera, 129$. - 22 - quarters of the accounts were located in the next higher range. Even for the lowest property value categories the proportion of subscribers in the minimum allowance range is below 20 percent (Table 11). The amount of water consumed in the lowest consumption group (for all property value categories) is as low as 3rpercent. These figures provide some basis for the conclusion that the minimum allowance of 15 m3 per subscriber/per month is hardly sufficient to cover the basic needs, which would be in line with the practice in other Colombian cities, where the minimum allowance is 1/ generally 25 m311 This conclusion is strengthened by a consideration of the average consumption level in the lowest tariff categories (Table 12) which are more than double the minimum allowance. An analysis of the variation of average consumption levels across tariff categories and over timeL is of further interest, since it allows some preliminary conclusions regarding the income and price elasticity of demand for water. Beginning with the income elasticity, assume that the assessed property value ranges on which the tariff categories are based reflect at least in proportionate terms the income levels of the households living on the respective properties. One may then interpret the elasticity of consumption with respect to property values to approximate the income elasticity of water consumption. Table 12 shows the arc-elasticities calcu- lated for each adjacent pair of tariff categories. From this one may conclude 1/ Junta Nacional de Tarifas, Resultados de la Informacion Basica Anual Sobre los Servicios de Acueducto y Alcantarillado de los Principales Ciudades del Pais, 1974, Documento INT-279-UINF, September 1975. - 23 - Table 11: PERCENTAGE DISTRIBUTION OF RESIDENTIAL/ COMMERCIAL SUBSCRIBERS BY CONSUMPTION GROUP AND TARIFF CATEGORY, DECEMBER 1974 Consmt ion Consumption Consumption Consumption Category 0-15 m-5/mth 16-100 m3/mth 100-200 m3/mth 200 m3/mth & over Total 1 16.21 78.81 h.63 0.35 100.0 2 16.57 79.o 3.78 0.61 100.0 3 16.76 76.85 5.22 1.17 100.0 4 13.93 77.45 6.71 1.91 100.0 5 10.19 73.25 11.08 5.48 100.0 6 7.16 45.h4 22.25 25.15 100.0 7 5.97 17.66 15.86 50.51 100.0 TOTAL 15.64 77.12 5.44 1.81 100.0 So 2c: EAAB, Boletin de Estadistica Financiera, 1975. -24 - Table 12: ELASTICITY OF CONSUMPTION WITH RESPECT TO ASSESSED PROPERTY VALUES, 1974 Tpriff Assessed Property Cumulative Percentage Category Value/ of Subscribers/2 Elasticity/3 1 7*5 15.7 0.00 2 32.5 51.0 0.17 3 87.5 79.4 4 162.6 90.2 0.27 0.47 350.0 98.0 1.00 6 750.0 99.1 7 2,500.0 99.5 1.04 /1 Midpoint of value class; the value for Category 7 was chosen arbitrarily. /2 O d all subscribers, including industrial and official connections. /3 Arcelasticity of consumption with respect to assessed property values. Source: Table 11. that for the first four categories, which comprise 90 percent of all sub- scribers, the income elasticity is close to zero. In contrast, for the last three consumption categories, which comprise the highest property value classes, the income elasticity is between 0.5 and unity. A number of caveats are, however, in place. First, residential and commercial properties are combined in this analysis. To the extent that commercial properties (espetially office buildings, etc.) fall into the high property value categories, this would explain the relatively high average consumption level for those categories. On this account the true income elasticity in those categories would be below those shown in Table 12. Second, even for residential properties, assessed property values may not approximate relative income levels of consumers very well due to the large dispersion of the effective assessment ratio of properties in Bogota.1/ Moreover,as was previously mentioned,for a substantial number of properties an assessment of the construction budget is used originally for classification into tariff categories, rather than the assessed property values. And of course, to the degree that larger rental housing units exist in Bogota which usually only have one connection, the relationship between income aid assessed property value is distorted. Finally, the fact that higher tariff categories pay higher unit prices for water will, in the face of a price elasticity larger than zero (in absolute terms), result in a downward bias of the income elasticity of consumption. Given these caveats it is not possible to arrive 1/ See J. Linn, "Property Taxation in Bogota, Colombia", World Bank, forth- coming. - 26 - at .any firm conclusions concerning the income elasticity of demand for water. However, since the 12 percent of subscribers (less than 3,500) in the highest two tariff categories may be expected to represent largely multiple unit residential and commercial properties, it appears safe to conclude that the income elasticity of water consumption is quite low, falling between zero and 0.5. For an analysis of the price elasticity the data shown in Table 9 above also provide some useful information, but they are more difficult to interpret for a number of reasons: First, it is marginal, rather than average price which determines the demand of a rational consumer, and it is impossible in the aggregate to determine the marginal price per consumer category in Bogota. Second, changes in demand for water over time are a function not onlyzof price, but also of a large number of other variables, such as income and climate. Third, as was previously mentioned, the distribution of subscribers across categories shifted between 1971 and 1974, which might also affect the consumption per subscriber. Finally, allowance has to be made for the fact that the nominal tariff changes over the years do not reflect the real changes in the relative price of water services, when the general price level increases rapidly, as has been the case in Colombia. An across the board adjustment of tariffs by the consumer price index can only imperfectly solve this problem. For the years 1973 and 1974 it was nevertheless attempted to estimate the (are) price elasticity of consumption per connection, where the average unit price and the consumption data from Table 9 served as the basis for the calculations. Table 13 summarizes the results. With the exception of two residential/commercial consumption groups the elasticity - 27 - Table 13: ESTIMATED ARC-PRICE ELASTICITY OF WATER DEMAND BY TARIFF CATEGORY, 1973-1974/1 Tariff Category Arc-Price Elasticity Residential/Commercial 1 -0.46 2 -0.47 3 -0.78 4 +0.42 -0.07 6 -o.49 7 +0.18 Industrial -0.34 Official -0.35 1 Calculated as the percentage change in consumption per subscriber over the percentage change in average unit price, adjusted for inflation. Source: Table 9 Consumer Price Index for Bogota for Workers. - 28 - has the expected negative sign and lies typically between 0.35 and 0.50. Using a somewhat different set of data a joint study of the EAAB and World Bank recently estimated the price elasticity to lie between 0.12 and 0.44.1/ The fact that changes in nominal rather than real price changes were used in that analysis explains the lower range of elasticity obtained there when compared with our results. 2. Connection Charges In addition to the use-related recurrent charges, EAAB levies non- current charges in the nature of capital contributions on all newly connected customers. Tables 14 and 15 summarize these fees for water and sewerage connections respectively. For water supply there are four separate fees: First, the "derecho de matricula" (connection fee) is set at 3.0 percent of the assessed value of the property where the connection is made, or alterna- tively at 3.9 percent of the provisional budget of the new building to be constructed on the lot which is connected.- Second, the "derecho de suministron (supply fee) is charged as a flat fee of Col.$11.30 per square meter of developed land, or certain proportions of this fee, if the property is located in certain low-income neighborhoods. Third, the "cuota red aeueducto" is a capital contribution for the construction of the secondary 1/ EAAB, Estudio Economico-Financiero, Bogota, June 1975. 2/ The latter form of coverage is strictly speaking provisional and is to be revised to reflect property values after termination of new construction. However, as mentioned above, p. 11, fn.1 , some two-thirds of all con- nections made between 1965 and 1975 never were subjected to such revisions. EAAB has initiated a program of recuperating some of the funds outstanding on this account and of eliminating this problem for the future. Table 14: CONNECTION FEES FOR WATER SUPPLY February 1976 Fee Rate and Coverage Legal Base Use of Revenues Derecho de 3.9% of provisional construction budget; or Acuerdo 18/1968 Investment in treat- Matricula 3.0% of the cadastral assessed value of the EAAB Resolution 18/1968 ment plants, storage property EAAB Resolution 17/1971 tanks, distribution EAAB Reglamento de mains, etc. Suscritores, Art. 47 Derecho de Col.$11.30 per square meter of developed Acuerdo 121/1959 Investment in distri- Suministro land; in certain goned areas lower rates Resolucion 468/1967 of bution network, and applylow income areas): the Superintendencia storage facilities. 40% in R-6 and R-7 zone de Regulacion Economica 30% in R-8 zone Drecreto 1119/1968 del 20% in R-E zone Distrito Especial de Bogota EAAB Resolucion 48/1970 EAAB Reglamento de Suscrip tores Art. 46 Cuota Red Cost of secondary distribution network, EAAB Resolution 1/1960 Investment in second- Acueducto distributed in proportion to frontage of EAAB Reglamento de Sus.- ary distribution net- properties benefiting. critores Art. 45 work Private developers supply their own secondary network and charge it directly to clients. Acometida de Direct cost of installation, including the Acuerdo 19/1938 Installation of house Acueducto meter, and administrative overheads Reglamento de Suscri- connection, including tores Art. !l meter and materials, labor and overheads. Source: EAAB, Subgerencio Financiera Table 15: CONNECTION FEES FOR SEWERAGE Fee Rate and Coverage Legal Base Use of Revenue Cuota Red de Cost of secondary collection network, distrib- Reglamento de Investment in Alcantarillado uted in proportion to frontage of properties Suscritores, secondary col- benefiting (100% of cost when pipes of one meter Art. 45 lection net- or less in diameter; if more than one meter, works then cost of one-meter-pipe-equivalent is charged) Private developers supply their own secondary net- work and charge it directly to clients. Valorizacion According to distribution of costs by IDU over Acuerdo 30/67 Investment in the properties located in the zone of influence EAAB Resolution 29/69 primary col- of an investment program/l EAAB Resolution 30/70 lection net- National Tariff Board works and Resolution 36/74 disposal facilities 1 See J. Linn, Valorizacion in Bogota, D.E.", World Bank, forthcoming. Source: EAAB, Subgerencia Financiera. I - 31 - distribution network which is computed on the basis of project costs and distributed in proportion to frontage for all properties actually or potentially connected to the new system. The charge is, however, only levied once a consumer connects officially, which may occur only years after the original construction of the distribution net.-/ Finally, the "acometida de acueducto" covers the actual costs of installation, including materials, labor cost, and the meter. For standard residential connections of 3/8" or 1/2" diameter the cost was Col.$2,105.85 in 1975. Properties valued below Col.$5,000 pay only 25 percent of this amount, those between Col.$5,000 and Col.$10,000 pay 75 percent. For all properties below Col.$50,000 the pay- ment period is 20 months, while for those above it is 12 months. 2/ In the case of sewerage only two types of capital charges are levied: The "cuota red de alcantariallado", which is the parallel to the "cuota red de acueducto" previously described; and the valorization,charges, i.e. betterment levies which are used to finance large scale sewerage dis- posal projects utilizing the same methods as employed by Urban Development Institute (IDU) in Bogota. - In fact, IDU is in charge of assigning and collecting these charges for EAAB. 1/ Until recently the same charge was levied per meter of frontage on all properties within each project area, irrespective of the actual time of connection. EAAB has, however, argued that with inflation this erodes the real contribution of those who join later. As a result it has been suggested that an interest rate of 18 percent p.a. be levied on the charge starting from the year of construction until the year of con- connection; see EAAB, Actualizacion de las Cuotas de Redes Locales de Acueducto y Alcantarillado, undated (1975). 2/ In 1974 51 percent of all subscribers lived on properties valued below Col$50,000. Approximately 16 percent lived on properties valued below Col$15,000 (see Table 9). 3/ See J. Linn, "Valorizacion in Bogota, D.E.", World Bank, forthcoming. -32- The resulting capital charges xre high by any standard of compari- son: First, the charges have contributed a significant share of total EAAB revenues, and always were large relative to operating revenues, although their importance has recently declined (see Table 16). Second, despite various provisions to provide some relief to low-income groups., through lower connection charges and easier financing terms, ELAB has estimated that for the average low income family the capital contributions spread out in 42 monthly inmtallments at 114 percent interest p.a. for water supply alone amount to between 9 and 12 percent of monthly family income.- Considering that this is the average low income family., this implies a higher percentage for many potential low income subscribers.* This and the fact that many low income families have very volatile incomesz implies that many low income families are not willing or able to connect to the water and sewerage systems. The high rate of illegal connections coupled with a relatively low percentage of the population served (as compared for instance with Cali and Medellin) would appear to be a direct result of the high capital chargs.- C. Revenues and EMpenditures of the EAAB EAAB accounting in general is based on the accrual system of account- ing. This means that all detailed accounts on revenues and expenditures in 1/ EAAB., Estudio Economico-Financiero, Bogota, June 1975. 2/ See Georges Vernez., "Pirate Settlements, Housing Construction by Incre- mental Development and Low Income Housing Policies in Bogota., Colombia"., The New York City - Rand Institute., mimeo, May 1973., pp. 1l4ff. 3/ It should also be noted that at least in some other Colombian cities connection fees are very low, as for instance in Cali. - 33 - Table 16: REVENUES FROM CAPITAL CONTRIBUTIONS AS PERCENTAGE OF OPERATING REVENUES, 1961 to 1974 1961 63.1 1962 41.6 1963 60.2 1964 84.4 1965 67.0 1966 93.0 1967 61.1 1968 56.5 1969 59.2 1970 65.7 1971 48.2 1972 38.0 1973 58.1 1974 49.0 Source: Table 18; includes ail1"derechos", private contributions to construction, and valorization charges under capital contributions; and revenues from sale of water and from sewerage operations under operating revenues. - 34 - particular on current accounts are presented in annual, semestral, and quarterly reports as they have accrued to the enterprise in the preceding period, not as they were actually realized in terms of cash flows. As a supplementary accounting proocedure, there is also a monthly treasurer's report, which does, in broad summary categories record the cash flows of the enterprise. These treasurer's reports, however, are not integrated into the general financial reports of the enterprise, are generally not retained, and are therefore not available for putting together a time series of revenue and expenditure flows. The task of reconstructing the cash flow data from the available materials in the files of the enterprise is practically impossible, given the incompleteness of information for especially the earlier years, and, even with more complete information, would be extremely time consumaing. On this basis one has to accept accrual accounts as reflecting, at least in general terms, the development of the financial performance of the enterprise. However, two problems need mentioning: First, for valoriza- tion payments and other capital contributions the accrual figures are likely to be quite misleading, since the collection problems with this type of revenue are significantly larger than in the case of the ordinary water charges. This is linked to enforcement instruments and practices: With water charges services can be cut in the case of non-payment. For valoriza- tion charges no such immediate enforcement instrument is available.-/ As a result the arrears in these categories tend to be higher relative to the 1/ The valorization payments are collected by IDU and are subject to the same enforcement rules as other valori,zation debts; see J. Linn, 'Valorization", oP. cit. revenues generated, and the repayment period is significantly longer (see below for more details). Second, in the case of transfers from official entities, difficulties are frequently incurred in obtaining payment of com- mited grants; this has plagued the EAAB especially in the most recent years with respect to the grants which it was to receive from the District Admin- istration and from CAR. These payments were never made in some years, but still appear under the heading of transfers in the closed accounts of the enterprise.L/ A second comment on the accounting practices of the enterprise is necessary. The EAAB in recent years has generally not distinguished between water and sewerage accounts although in reporting some revenues and some expenditures, it is possible to determine the source, or destination of the respective payments. In other words, the EAAB not only applies common fund accounting for these two services, but in addition it does not separately record payments made for, or received from, water and sewerage operations. This practice apparently is encouraged by the World Bank on grounds that it is desirable to view water and sewerage operations as one single service process. This approach is conceptually correct in a situation where the coverage of water and sewerage services is expanding hand in hand in a city. However, in cities where the coverage of sewerage services and water services is not identicalit may be important to have detailed information separately on the two services in order to determine relative efforts made in the extension and financing of these two services. Moreover, in such a situation, 1/ See below pp.43f.for an analysis of arrears. - 36 - i.e. where water services are available to some people without access to sewerage services, it may be important to look into cross subsidies between sewerage and water services to determine whether the pricing policies adopted by the enterprise in the context of sewerage and water charges are efficient and equitable. This is not possible in the case of Bogota given the present recording practices.- Finally, in explanation of the data on revenues and expenditures which are presented below, it should be emphasized that the state of the accounts before 1967 is very confused, due to the incompleteness of the original reports and the often contradictory nature of the secondary sources which may be used in compiling the data. In the presentation of Tables 17 and 19, the basic expenditures and revenue tables, it was attempted to make the data as comparable and consistent as possible over the years. However, breaks in the series still exist, most importantly between 1966 and 1967, when the accounting format of the enterprise changed, and when changes in coverage among the categories may have occurred which were not fully accounted for in the derivation of the present data. Despite these shortcomings, it is believed that, short of a more extensive historical study of the enterprise accounts, the presently presented data tables offer the best possible series available. Turning then to a more detailed discussion of the tables, Tables 17 and 18 reflect the developments of revenues over the years. The classification 1/ Since the percentage of the population covered is approximately equal for both services in Bogota, this may not be as much of a problem there, as it is for instance in Cartagena. See J. Linn,, "Urban Public Finances in Developing Countries: A Case Study of Cartagena, Colombia", World Bank, forthcoming. Tablel7: EAAB REVENUES 1961 to 1974 (Col$,000) 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Current Revenues Sale of Water 16,792 28,428 25,507 28,176 42,032 44,170 .50,823 88,176 108,389 138,959 195,808 224,743 255,749 304,193 Reconnection charges e,150 8,193 8,676 10,866 13,625 12,905 15,291 22,026 27,077 34,690 47,877 45,276 62,330 73,256 Sewerage charge 1/ 121 137 186 270 264 429 268 926 1,247 2,257 2,061 3,242 4,931 5,340 Non-operational revenues 1,981 1,710 2,289 2,025 801 1,980 4,675 6,829 4,115 6,939 8,802 18,049 22,078 29,479 -- Total Current Revenue 25,044 38,468 36,658 41,337 56,722 59,284 71,057 117,955 140,828 182,845 254,548 291,310 345,088 412,268 Canital Revenues Revenue from "Derechos" 2/ 9,330 9,183 9,979 19,629 22,884 26,487 25,493 45,770 59,483 70,297 74,139 95,964 135,042 111,137 Private Contributions to 4,069 5,460 8,406 10,015 9,999 15,199 9,960 5/ 12,710 13,490 16,837 14,432 21,092 27,758 21,344 Construction (Water) 3/ Private Contributions to 1,161 652 2,312 3,532 4,592 11,826 6/ 5,116 5/ 4,278 5,353 5,142 6,263 6,907 6,171 5,901 Construction (Sewerage) 4/ Vzlorization (Sewerage Master - - - - - - 2,646 23,347 23,744 16,499 15,722 46,552 Plan) Transfers: District Admin. 1,333 4,000 1,000 3,000 3,500 3,500 3,500 4,000 5,000 - - - - - E.E.E.B. - - - - - - - - - - - - 21,519 34,293 CAR - - - 2,833 3,292 6,176 6,400 5,400 5,389 4,900 4,900 4,200 - - National Govt. 1,000 3,547 7/ 6,500 - - - - 20,000 - - 11.371 8/ - - - Borrowing (long-term) 3,594 4,727 8,987 16,971 7,230 9,737 53,375 70,372 160,173 239,505 209,738 342,149 305,009 284,958 Total Capital Revenue 20,487 27,569 37,184 55,980 51,497 72,925 103,844 162,530 251,534 360,028 344,587 486,811 511,221 504,185 Total Revenue 45,531 66,037 73,842 97,517 108,219 132,209 174,901 280,485 392,362 542,873 599,135 778,121 856,309 916,453 Sources: FMB, Estados Financieros, 1964-1972 EAAB, "Informacion Estudios Financieros", 1967 EAA3, Estudio de Factibilidad, Informe Basico, 1970 EAAB, Division de Contabilidad y Presupuesto, "Estado de la Deuda Publics", 1966, 1967 EAAB, Boletin de Estadistica Financiera, 1975; EAAB; Informe de Auditoria Financiera, 1974; World Bank Staff estimates. 1/ 1961-1967: Consists of "Servicio de Desague", "Desagues Finales", and "Otros Ingresos Indirectos de Operacion-Alcantarillado". 1968-1972: Consists of "Servicio de Desague". 2/ 1961-1967: Consists of "Derechos de Abastecimiento" and "Tuberias de Alimentacion" and "Otros Ingresos Indirectos de Operacion -- Acueducto". 1968-1972: Consists of "Derechos de Matricula" and "Derechos de Suministro". 3/ Consists of "Instalaciones Domiciliarias Acueducto", "Cuotas Red Acueducto", "Medidores". 4/ Consists of "Instalaciones Domiciliarias de Alcantarillado", and "Cuotas Red Aldantarillado". '/ Since for 1967 a breakdown of "Private Contributions to Construction" was not available,' the total figure of private contributions was divided between water and sewerage by using the average proportions of 1966 and 1968. These proportional factors were obtained by siming the private contributions for water in 1966 and 1968, and dividing the sum by the sum of total private contributions for the same years; the parallel procedure was followed for sewerage. 6/ Dcludes "Redes Donadas" (i.e. transfer of fixed assets to EAAB from private developers), amounting to Col$ 58,819 thousand. 7/ Includes ColS47 thousand from INSFOPAL. 8/ Obtained by inference, by deducting the known contribution for CAR from the total contribution from government; 4lso, it is known that no contributions were made , (or promised) by the Bogota District Administration; this leaves the national government as the only source for these funds. Table 18: EAAB: REVENUES. PERCENTAGE DISTRIBUTION, 1961-1974 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Dirrent Revenue: Sale of Water and 37.15 3.26 34.79 29.23 39.08 33-73 29.21 31.77 27.94 26.01 33,03 39.30 30.44 33.78 Reconnection Sewerago Operation 13.51 12.41 11.75 11.17 12.59 9.76 8.74 7.85 6.90 6.39 7.99 5.82 7.28 7.99 Non-oerational h.35 2.$9 3.10 2.08 0.74 1.35 2.67 2.43 1.0 1.28 1.47 2.32 2.58 3.22 Revenue Total Crrent $$.oo $8.25 49.64 42.48 $2.41 4h84 40.63 42.05 35.89 33.68 42.h9 37-44 40.30 44.99 Ctal. Reverne Derechos 20.h9 13.91 13.51 20.17 21.1$ 20.03 1.58 16.32 15.16 12.95 12.37 12.33 15.77 12.13 Private Contributions 11.9 9.26 14.$1 13.92 13.48 20.44 8.62 6.06 4.80 4.05 3.45 3.60 3.96 2.97 to Construction Valoriza tion - -- - 0.67 4.30 3.96 2.12 1.84 5.08 Official Transfers 5.12 11.43 10.16 5.99 6.28 7.32 5.66 10.48 2.65 0.90 2.72 0.5L 2.51 3.74 Credits 7.89 7.16 12.17 17.hb 6.68 7.36 30.52 25.09 40.82 44.12 35.01 43.97 35.62 31.09 Total Cital 46.00 41.75 50.36 57.52 47.59 55.16 59.37 57.95 64.11 6.32 57.51 62.56 59.70 55.01 T6tal Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.00 100.00 Sourde: Table 17. *.1 - 39 - system adopted here is to group all revenues obtained directly from recurrent operations or services or other recurrent revenues into the category of "current revenues", while all other revenues, i.e. from "derechos", I.e. installation fees and valorization revenues, and official transfers, that are paid on a non-recurrent basis are grouped under "capital revenues". Over the years the contribution of current revenue in overall revenue has (with some fluctuations) declined. Whereas in earlier years it amounted to over 50 percent of total revenue, it only contributed some 37 percent in 1972. In line with this the share of capital account revenues increased. Among current revenues the revenue from sale of water although generally on a declining trend as a share of total revenues, was subject to fluctuations, which are explained by the changes in tariff rates in 1961, 1965, 1968 and 1970. After each adjustment in the tariffs the temporarily increased share of sales revenues falls again until a further change in tariffs occurs. The contribution of all other current revenues also declined over years, particularly those of sewerage operations, which in the face of expanding sewerage coverage in the city, does appear surprising. Among capital revenues, the main growth item is credits, which increased their share of total revenues from about 8 percent to almost 4h percent between 1961 and 1972, reflecting the increased reliance on outside finance. On the other hand, the contribution from "derechos" and private'.contributions to constructions declined over the years. Valorization payments have not been in existence long enough to determine a clear trend. In any case, for the last two items care is required in interpreting the data, since they are accrued, not actual payments. - 40 Turning to expenditures, current and capital account are again presented separately (Tables 19 and 20). The former covers all operational and other recurrent expenditures, which includes debt service (i.e. interest payments and debt amortization);1/ the latter covers all capital expenditue on land, buildings, water and sewerage infrastructure, equipment and machinery, but not the expenditures of the planning department of the EAAB, on the assumption that this is a general recurrent need of the enterprise, not directly linked to or dependent on particular investment projects. Comparable to the revenue side the emphasis on the expenditure side shifted over the years from current to capital account (Table 20) although it appears somewhat less pronounced than on the revenue side. This would explain why the share of debt service charges actually fell quite noticeably over the years, although in the last five years an increase took place in response to the increased borrowing during the previous years. The delayed effects of the past increase in capital revenues, in particular borrowings, will continue to make themselves felt during the years ahead, when the share of debt service obligations in total revenues may be expected to increase even more. On capital account the main thrust in the expansion program began in 1967, with continued acceleration through 1969, when it slowed down somewhat; in 1972 it reached a new peak. In this expansion program capital outlays on water and on sewerage respectively proceeded roughly in successive waves, with sewerage investment being particularly important during the years 1967 to 1969. This indicates that the enterprise management is tuning the respective expansion programs such as not to stress the overall financial capacity of the EAAB more than necessary at any particular time. 1/ But excluding depreciation. Table 19 :EAAB: EXPENDITURES, 1961-1974 (Col.$,000) 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Current Exnenditures Salaries, Wages, Social 10,931 12, 13 14,712 21,398 25,134 30,311 43,968 61,297 77,612 92,372 114,522 147,297 241,596 288,377 Paynents Pumping 744 855 1,351 1,452 1,171 2,953 3,678 5,814 10,611 14,076 10,261 12,567 20,086 19,58j TreatmentLi 1,253 1,468 1,093 . 2,579 3,456 3,846 4,701 5,833 5,645 5,941 5,946 6,487 9,637 14,926 Deb- Service 10,569 11,965 11,908 8,819 11,436 12,777 19,874 15,844 42,466 54,733 71,918 108,504 203,675 224,997 Interest PaymentsL2 3,888 3,706 3,443 3,903 4,206 2,872 L,12 3,881 18,196 39,640 44,161 75,412 115,604 129,655 Amortization 6,681 8,259 8,465 5,916 7,230 9,905 15,745 11,963 24,267 15,093 27,757 33,092 88,071 95,342 Otler Current 2,508 6,381 9,326 10,173 12,527 15,704 18,208 21,089 29,793 35,41 42,661 46,11 60,849 79,587 :rendituresL3 ! tal Current 26,005 33,114 39,090 45,421 53,724 65,591 90,42 109,877 166,124 202,537 245,308 320,970 535,843 627,472 cantri aendimro/4 .ater 6,784 9,547 7,939 10,376 2 ,286 40,f9 17,303 61,840 162,530 247,012 131,866 341,561 n.a. 275,16& Sewerage 6,921 9,738 22,564 25,095 6,825 14,045 60,662 90,015 199,093 106,363 91,733 101,065 n.a. 69,991 Other15/ 5,847 6,415 9,513 7,049 8,478 5,518 19,037 20,083 17,485 22,357 23,681 30,098 n.a. 24,562 otal 0aital 19,5 2 25,700 40,016 42,520 4o,589 60,022 97,002 171,938 379,108 375,732 297,280 472,724 470,900 369,619 Ecenitures :taL Emer.ditre 45,557 58,814 79,106 87,941 94,313 125,613 187,427 281,815 545,232 518,269 542,588 793.694 1,006,743 997,091 i1 1961-1966: "Gastos de Tratamiento"; 1967-1972: "Productos Quimicos". /2 Includes all interest charges. /3 1961-1966: "Gastos Generales" (without interest payments and depreciation) and "Materiales de Mantenimiento"; 1967-1972: "0tros Gastos Corrientes" and "Otros Materiales". 4 Includes investment in equipment, machinery and other investments not specifically related.to water or sewerage services. 15 For all years, investment figures cover only direct expenditure on investment projects, now however expenditures on the technical and planning department of the enterprise, nor interests charged to works in progress according to accounting practices. For years 1967-1972, this item covers "Inversiones en Reforestacion", "Obras Menores de la Red", "Obras Varias en Uso General", and "Propiedades en Uso General". Sources: EAB, Estados Financieros, 1964-1972; EAAB, "Ihformacion Estudios Financieros", 1967; EAAB, Estadisticas de Nomina y Personal, 1969; EAAB, Division de Contabilidad y Presupuesto, "Estado de la Deuda Publica", 1967, 1968; EAAB, Estudio de Factibilidad, Informe Basico, 1970; EAAB, Division de Contabilidad y Presupuesto, "Ejecucion de Ingresos y Egresos a Diciembre de 1968, Comparada de Anos Anteriores", 1968; EAAB, Bolatin de Estadistica Financiera, 1975; EAA, Informee de Auditaria Financiera, 1974; World Bank staff estimates. I' Table 20: EAAB: EXPENDITURES: PERCENTAGE DISTRIBUTION, 1961-1974 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Current Expenditures Salaries, Wages, Social Payments 23.99 21.16 18.60 24.33 26.65 24.13 23.46 21.75 14.23 15.97 21.11 18.56 24.00 28.92 Debt Service 23.20 20.34 15.05 11.17 12.13 10.17 10.60 5.62 7.79 9.46 13.25 13.67 20.23 22.57 All other Current Expenditure 9.89 14.80 15.76 16.15 18.19 17.91 14.19 11.62 8.45 9.59 10.85 8.21 9.00 11.44 Total Current Expenditure 57.08 56.30 49.41 51.65 56.96 52.22 48.25 38.99 30.47 35.02 45.21 40.44 53.23 62.93 Capital Expenditure Water 14.89 16.23 10.04 11.80 26.81 32.21 9.23 21.94 29.81 42.72 33.52 43.03 n.a. 27.60 Sewerage 15.19 16.56 28.52 28.54 7.24 11.18 32.37 31.94 36.52 18.39 16.91 12.73 n.a. 7.02 Oiher 12.83 10.91 12.03 8.02 8.99 4.39 10.16 7.13 3.21 3.87 4.36 3.79 n.a. -2.46 Total Capit Total Capital Expenditure 42.92 43.70 50.59 48.35 43.04 47.78 51.75 61.01 69.53 64.98 54.79 59.56 46.77 37.07 Total Expenditure 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Source: Table 19. - 43 Table 21 provides some further insights into the past develop- ments of revenues and expenditures by comparing current, and capital account to determine whether implicit transfers were made in the past from one account to the other. Of particular importance is the development on the current account: Only in four out of the twelve years did the current account produce a surplus; of course, each of these years was a year in which a tariff change took place, or a year immediately following a tariff change. In other words, the EAAB was in general not able to finance its recurrent expenditures from recurrent revenues, except shortly after tariff changes. This indicates that service charges in the past have generally been too low and were adjusted too infrequently to allow a financially balanced expansion of services, so that as a result the capital account had to bear the main burden of the expansion, not only in covering capital expenditure.1/ This may also be expressed as a failure of the enterprise to apply consistently and effectively the long run average pricing principle. Finally, a look at the collection problems of the enterprise is in order. Tables 22 and 23 summarize the outstanding debts due to the EAAB for the last five years and their percentage distribution by type 1/ The fact that in some years both capital and current accounts are in deficit results from accrual accounting which affects in particular the capital revenues, i.e. valorization payments, installation fees and credits. The current account in contrast can be taken as reflecting quite closely the cash flows that actually occurred since on the revenue side only service charges are included which have a relatively short payment period and small arrears, and since on the expenditure side operational expenditure commitments may be assumed to approximate quite closely the actual cash flows. In other words, the current account deficit may be taken as reflecting current account cash deficits quite closely, while the capital and total deficits (surpluses) are not necessarily approximating the cash flow balances. Table 21: EAAB: CURRENT AND CAPITAL ACCOUNT REVENUES AND EXPENDITURES COMPARED: 1961-1974 (Col.$,000) 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Current Account Revenue/l 25,Ohh 38,468 36,658 41,337 56,722 59,284 71,057 117,955 140,828 182,845 25h,548 291,310 345,088 412,268 Expenditure 26,005 33,114 39,090 45,421 53,724 65,591 90,425 109,877 166,122 202,537 245,308 320,970 535,843 627,472 Current Surplus - 961 + 5,354 - 2,432 - 4,o84 + 2,998 - 6,307 - 19,368 + 8,078 - 25,294 - 19,692 + 9,240 - 29,660 -190,755 -215,204 (deficit) Capital Account Revenue /2 0,487 27,569 37,184 55,980 sL,497 72,925 103,844 162,530 251,534 360,028 344,587 486,811 511,221 504,185 Expenditure 19,552 25,700 40,016 42,520 40,589 60,022 97,002 171,938 379,108 375,732 297,280 472,724 470,900 369,619 Capital Surplus + 935 + 1,869 - 2,832 + 13,460 + 10,908 + 12,903 + 6,842 - 9,108 -127,574 - 15,704 + 47,307 + 14,087 40,321 134,566 (deficit) Total Surplus - 26 + 7,223 - 5,264 + 9,376 + 13,906 + 6,596 - 12,526 - 1,330 -152,868 - 35,396 + 56,547 - 15,5793 -150,434 -80,638 (deficit) /1 Revenue from sale of water, reconnection charges, sewerage operations, and non-operational revenues. /2 Revenue from "derechos", all transfer, and credits. Source: Tables 17 and 19. - 45 - Table 22: EAAB: UNPAID BILLS AND DEBTS TO THE ENTERPRISE, 1968-1972 (end of years) (col.$,ooo) 1968 1969 1970 1971 1972 Unpaid Bills for Service and Installations Private n.a. 11,602 19,646 22,050 24,641 Official n.a. 21,619 22,880 15,949 22,472 Sub-total 29,589 33,221 42,526 37,999 47,113 Valorization 12,599 11,668. 14,126 17,296 21,462 Debts Unpaid Grants 5,077 9,027 13,927 16,354 19,632 Total 47,265 53,916 70,579 71,649 88,207 Source: EAAB, Estados Financieros; 1968-1976. - 46 - Table 23: EAAB: UNPAID BILLS AND DEBTS: PERCENTAGE DISTRIBUTION 1968 1969 1970 1971 1972 Service and Installation Private n.a. 21.52 27.84 30.78 27.94 Official n.a. 40.10 32.42 22.26 25.48 Sub-total 62.60 61.62 60.25 53.03 53.41 Valorization 26.66 21.64 20.01 24.14 24.33 Debts Unpaid Grants 10.74 16.74 19.73 22.83 22.26 Total 100.00 100.00 100.00 100.00 100.00 Source: Table 22. - 47 - of debts. Debts on account of service and installations increased over the years but showed a declining trend relative to the share in overall outstanding debts; this is due mainly to the relative stability of the official debts, while private debts increased considerably over the years. In fact, private debts increased at an average annual compound rate of 28.5 percent, while the revenues accruing during the same period (including revenues from operations, derechos, installation, etc.) increased only at a rate of 23.8 percent. This indicates that the enterprise in encountering difficulties in the collection of its private sector bills, since with a constant turnover rate revenues and receivables ought to be growing at the same rate. The ratio of unpaid bills to revenues declined over the years (cf. Table 24) despite the collection problems on the private accounts as a result of the relatively good performance of the official sector in paying its service and installation bills. As regards the debts outstanding from valorization payments, although fairly constant in the con- tribution of all over outstanding debts (Table 23), they increased considerably relative to accrued revenues (Table 24); in other words, the valorization operations of the enterprise have encountered serious difficulties, which, in turn, reflects on the problems of taking the accrued revenue data as appro-ximating actual revenues from valorization operation. Finally, while the official sector proved to be reliable in its payments for services, it Table 2h: EAAB: UNPAID BILLS AND DEBTS IN RELATION TO REVENUES (in %) 1968 1969 1970 1971 1972 Debts on Service and 16.37 15.16 15-46 10.88 11.3 Installations 1 Valorization Debts/2 /5 32.31 6o5o 72.84 130.08 Unpaid Grants/3 5h.01 86.89 284.22 333.76 467.43 Total Bills and Debts/ 24.86 23.22 23.27 18.95 20.23 Notes: /1 As percentage of the sum of EAAB revenues from operations, non- operational revenues, and private contributions to construction (3, 4, 5, 7, 9, 12, 15) /2 As percentage of revenues from valorization (16) 3 As percentage of revenues from public, non-national government grants (17,18) /h As percentage of all revenues excluding credits and national government grants (26 minus 24,20) 15 No valorization revenues were accorded in 1968 Source: Tables 18 and 23. - 49 - was much less reliable in paying its commitments in the context of grants and transfers, as shown by the fact that its share in overall outstanding debts more than doubled over the last five years. The offenders here were the District Administration and CAR. In December 1972 the following con- tributions wee outstanding; Col.$,'000 CAR: Grant for Sewerage Master Plan: from year 1969 280 1970 4,900 1971 4,900 1972 4,200 Computer installation: 102 Total 14, 382 District Administration: Grant for Sewerage Master Plan: from year 1968 2,250 1969 3,000 Total 5,250 50- III., ELECTRICITY SERVICE A. History, Organization and Service Level The Electricity Company of Bogota (EEEB) was created in 1892 as a private enterprise and began operations in 1900. A second power company was founded in Bogota in 1923 (Compania Nacional de Electricidad), but few years later the Municipal Administration initiated a merger of these two companies and acquired 51 percent of the stock of the new enterprise (Empresas Unidas de Energia Electrica S.A.). In 1951 the municipality bought the remaining 49 percent of the stock, financed by a loan from the Banco de la Republica, the Banco de Bogota, the Banco de Colombia, and the Banco Comercial Antioqueno. Since then the electricity operations in Bogota have been entirely owned by the municipality, and administered by the Bogota Electricity Company (EMpresa de Energia Electrica de Bogota, The EEEB is an autonomous entity, governed b, a Board of Directors which since 1968 consists of the Mayor, who presides over it; two members elected by the District council, one member appointed by the President of the Republic, and three selected from lists of names submitted to the District Council by the Manfacturers Ar-ociation, the Merchants Association, and the Bankers Association. The Board of Directors is in charge of approving all major decisions affecting the management of the enterprise, including the yearly budget, investment plans, contracts, the administrative structure of the enterprise, service tariffs, etc. Moreover, the Board appoints the manager of the enterprise, who in turn is responsible for the day-to-day operations, personnel, budget, and investment plan preparations. The EEEB supplies electricity to the Special District of Bogota, and to parts of the Department of Cundinamarca directly, and by bulk supply to other areas in Colombia through the interconnection of ICEL (Instituto Colombiano de Energia Electrica). The EEEB also participates in the Interconnection Agency (ISA), a stock company owned by the major public power companies of Colombia. Electricity generation of the FEEB relies principally on hydro- electric power sources, in particular the system utilizing the River Bogota, which in 1973 reached a total capacity of 555 MW (consisting of four plants arranged in cascade--Colegio, Laguneta, Salto, Canoas). A thermal plant (Zipaquira) with a capacity of 70 MW completes the existing system. Through its participation in the ISA project at Chivor the EEEB is involved in providing an additional increase in electric capacity of 500 MW Finally, the construction of the Chingaza project through the EAAB has a direct impact on the energy production capacity, due to the diversion of water from the Chingaza River basin into the Bogota River basin, which will allow the full capacity use of the River Bogota power generating system that the EEEB is presently completing. As in the case of the EAAB, the EEEB appears to lag in its distri- bution facilities and fails to utilize fully the existing energy generation capacity. However, the enterprise is implementing an expansion program which during 1972 has added 829 transformers with a capacity of 102,357 KVA, pro- viding an increase of 52 percent in the transformation capacity of the EEEB. Furthermore, the distribution net was extended by 202 km, an increase by 86 percent. Table 25 presents the production and consumption data for the EEEB since 1954. Production increased at an annual exponential growth rate of 12.7 percent during the period, consumption increasing slightly faster due to the reduction in the percentage of lo5ses. Per capita con- sumption figures are difficult to obtain for the Bogota area due to the fact that EEEB is not serving the District alone. Using the population figures of the District to obtain an approximation of the per capita con- sumption in the city and its changes over the years, it is found that per capita consumption grew at an annual colapound growth rate of 5.9 percent between 1960 and 1976 reaching a level of 880 kwh per year in 1972. On the assumption that 20 percent of the consumption does not take place in the District itself (12.7 percent alone were exported to areas outside Cundinamarca and Bogota in 1972) present per capita consumption in Bogota is about 704 kwh per year. Table 26 further provides a detailed breakdown of the distribution of electricity consumers for the years 1963 to 1972. The total number of subscribers over the period grew at an annual compound rate of 6.7 percent, which shows, when compared with the rate of about 5 percent per annum, that the density of electricity services increased over the period, although not very rapidly. The rate of increase in subscribers was somewhat higher among residential consumers (7.5 percent), which is also reflected in the increased share of residential consumers among all subscribers. The share of industrial subscribers also increased, while that of official subscribers - 53 - Table 25: EEEB: TOTAL GENERATION AND CONSUMPTION OF ELECTRICITY 1954-1972 (in Kwh x 106) Generated Consumption Consumption Electricity (incl. of % Loss in per capita/l Year Purchases) Electricity Distribution (Kwh) 1954 332 287 13.55 1955 375 322 14.13 1956 409 353 13.69 1957 453 394 13.02 1958 535 456 14.77 1959 608 517 14.97 1960 703 606 13.80 464 1961 723 625 13.55 445 1962 776 677 12.76 455 1963 906 783 13.58 453 1964 1,028 909 11.58 536 1965 1,143 1,029 10.15 567 1966 1,271 1,118 12.04 578 1967 1,415 1,247 11.87 604 1968 1,649 1,453 11.89 659 1969 1,936 1,690 12.71 722 1970 2,285 2,025 11.38 810 1971 2,516 2,193 12.84 822 1972 2,843 2,507 11.82 880 /1 Using Bogota D.E. population figures. Source: EEEB Annual Reports 1965-1972. Table 26: EEEB: NUMBER OF SUBSCRIBERS, ENERGYi CONSUMPTION, AND VALUE OF SALES, BY TARIFF CATEGORY, 1963-1972 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Residential Number of Subscribers (,000) 132 149 163 174 187 199 214 233 247 266 (%) 76.3 78.1 78.7 79.1 80.0 80.6 81.2 81.9 82.1 82.5 Energy qonsumption (kUh x 10b) 228 262 307 337 386 438 494 567 61 702 (%) 29.1 28.9 29.9 30.1 30.9 30.1 29.2 28.0 29.2 28.0 Value of Sales (Col$,000) 21,457 24,766 34,532 51.,624 57,624 58,786 69,900 83,952 109,070 139,200 (W) 26.5 . 26.4 25.7 24.8 22.9 22.5 22.3 22.1 23.8 24.7 Commercial -Number of Subscribers 36 36 38 ' 38 39 39 40 41 43 4 (0) 20.8 18.8 18.4 17.2 17.6 15.9 15.3 14.5 . 14.1 13.8 Energy Consumption 176 200 218 229 237 257 268 293 315 341 (") 22.5 22.0 21.2 20.5 19.1 17.7 15.9 14.4 14.4 13.5 Value of Sales 24,585 26,560 36,180 03,087 66,218 71,394 79,620 87,442 103,177 124,101 (%) 29.1 28.3 26.8 27.1 29.3 27.3 24.8 23.0 22.5 22.1 Industrial Number of Subscribers . 4 5 5 6 7 7 8 8 9 10 (%) 2.3 2.6 2.4 2.7 2.8 2.9 2.9 3.0 3.1 3.1 Energy Consumption 253 300 343 370 392 449 494 561 620 676 (%) 32.3 33.0 33.3 33.1 31.5 30.9 29.2 27.7 28.3 27.0 Value of Sales 26,833 31,741 49,584 59,102 83,367 94,854 110,906 131,175 161,974 189,786 (%) 33.1 33.7 36.8 37.1 36.9 36.3 35.3 34.7 35.4 33.7 Official & Public Lighting Number of Subscribers 1 1 1 2 - 2 .2 2 2 2 2 (M) 0.6 0.5 .0.5 1.0 0.6 0.6 0.6 0.6 0.7 0.6 Energy Consumption . 109 124 132 135 165 187 227 260 252 258 (%) 14.0 13.6 12.8 12.1 13.2 12.9 13.5 12.9 11.4 10.3 Value of Sales 8,045 8,992 11,903 13,012 17,529 21,189 30,978 37,791 41,346 48,598 (M) 9.9 9.6 8.8 8.2 7.7 8.1 9.9 10.0 9.0 8.7 Bulk Sales Number of Subscribers - - - - - - - - - - - Energy Consumption 17 22 28 47 67 122 20.7 344 366 529 (%) 2.1 2.5 2.8 4.2 5.3 9.4 12.2 19.0 16.7 21.1 Value of Sales 1,179 1,874 2,572 4,430 9,286 15,089 24,052 38,851 42,936 60,859 (W) 1.4 2.0 1.9 2.8 3.2 5.8 7.7 10.2 9.3 10.8 Total Electricity Number of Subscribers 173 191 207 220 -235 247 264 285 301 322 (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Energy Consumption 983 909 1,029 1,118 1,247 1,458 1,690 2,025 2,193 2,507 (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Value of Sales 81,099 93,933 134,771 159,129 226,024 261,312 313,456 379,211 458,308 562,544 (%) 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: EEEB Annual Reports, 1965-1972. Il remained unchanged, and that of commercial consumers declined. In the distribution of consumption, the most striking fact is the increase of the share of bulk sales from a low 2.1 percent in 1963 to 21.1 percent in 1972. The share of industrial, commercial and official consumption declined simul- taneously, while that of residential consumption remained relatively unchanged. This in turn means that the residential consumers over the years increased their share of non-bulk sales, i.e. the sales to. consumers predominantly in the Bogota District Area. The number of EEEB personnel increased from 937 in 1962 to 1,620 in 1972 at an annual compound rate of growth of 4.2 percent. Simultaneously productivity of labor increased such that the number of personnel per million kwh annual sales declined from 1.4 to 0.6 at an annual average compound rate of 8.9 percent (Table 27). B. ElectricitZ Tariffs As in the case of the EAAB, the National Tariff Board has issued guide lines for the setting of electricity rates.-/ Again the fundamental pricing principle appears one of long run cost pricing, under which the electricity company is required to produce a surplus on current account (including depreciation) sufficient to finance the expansion of services. The tariff structure derived from this basic principle is to be such that in each service category (residential, commercial, industrial, official and 1/ Republica de Colombia, Departamento de Planeacion, Junta Nacional de Tarifas, de Servicios Publicos, "Informe sobre la metodologia applicada a los analisis tarifarios del sector de energia electrica", Documento JNT-144-UINF, Feb. 1973. - 56 - Table 27: EEEB PERSONNEL, 1962-1972 No. of No. of Personnel per Year Personnel Kwh x 106 Sold 1962 937 1.4 1963 1,115 1.4 1964 1,201 1.3 1965 1,279 1.3 1966 1,333 1.2 1967 1,408 1.1 1968 1,431 1.0 1969 1,492 0.9 1970 1,506 0.7 1971 1,546 0.7 1972 1,620 0.6 Sources: EEEB, Annual Report 1969 EEEB, Subdirectorate of Finance Table 25. - 57 public lighting, bulk) the long run average of producing energy for the particular category is covered. Superimposed on this basic principle are redistributive criteria and some efficiency considerations. The former are reflected in the fact that low consumption subscribers (i.e. below 100 kwh/m) among residential users are to be charged at a lower unit rate than high consumption subscribers. Also, the commercial users are to be charged at a higher rate than the residential users, because "the capacity to pay of the commercial sector is above that of the residential sector".- Similarly a redistributive intent must be the explanation for the lower rates for small industries (below 5 kwh employed capacity). Efficiency criteria in turn explain the fact that higher rates are prescribed for peak consumption periods. Table 28 compiles the various rate structures employed by the EEEB since 1960. The rates were changed frequently, practically every other year, but the basic structure of the rates did not vary significantly. The EEEB has always employed the tariff categories required by the Tariff Board, and since 1966 dropped the separate category for domestic heating consumption. In the residential category, the EEEB has followed the general outline of the Board prescriptions too, except that from 1969 to 1973 the number of residential consumption groups was larger, and that, when only two groups were applied, as before 1967 and since 1973, the dividing line was drawn at 200 kwh consumption.2/ 1/ Ibd; of course, these higher industrial rates may be passed on to consumers, and as a result the incidence of the rates relative to residential rates is far from clear. 2/ Between 1960 and 1962, the unit charge actually declined for increased consumption, while from 1962 to 1964 only one consumption group existed. Also, in all years, EEEB employees were granted discounts. There seems to be no economic rationale for this use of a consumption subsidy. .t . T.ble 28: ELECTRICITY RATES, 1960-1973 RESOLUTION 0192/1960 RESOLUTION #0019/1962 RESOLUTION #0285/1964 RESOLUTION #448/1966 RESOLUTION #006/1969 RESO .TION #00051/1971 RESOLUTION 700004/1973 1 put into effect June 1,'60 put into effect March 1,'62 put into effect Feb 1, '65 put into effect Nov 1,'66 put into effect June 1,169 put into effect Mar 2,71 put into effect Feb 8, '73 ?esIdential 0 - 29 Kwh 0 Col$ 0.09 Kwh 0.07 all consumption 0 0.09 0-200 Kwh 0 0.09 0-200 Kwh a 0.11 0-200 Kwh a 0.11 0-200 Kwh 0 0.13 0-200 Kwh 0 0.165 ;0 - above Kwh 0.055 201 - above Kwh Q 0.125 201-above 0 0.145 201-500 n1 0.16 201-500 ft 0.18 201- over 0.30 ZEB Ezplo.ees J discount 50% to 30% discount 50% to 30% to 30% discount 0 to 30% 501-above t 0.17 50-7o 0.20 discount 5o%t 0% discount 50% to 30 cut 0 o3% 701- above 0.23 discount 50% discount 509 C-727-ial. Sing.e Meter: each Kwh Q 0.14 each Kwh @ 0@18 each Kwh 0 0.225 each Kwh 0 0.28 0-1,500 vb a 0.29 each Kwh 0 0.34 each Kwh a 0.L2 1,501-10,000 0 0.30 Double Meter: Night 18-24 h " 0 0.1 " " 0 0.18 n f 0 0.225 10,001-200,000 @ 0.31 Day 0-18b " a a 0.01 " " 00.07 n1 n f O 0.11 200,001-above 0 0.30 Special Services n I a 0. n n 0 0.15 - n -0 0.19 each Kwh 0 0.28 each Kwh 0 0.30 " 'I 0 0.37 " 0.45 Industrial Radio stations each Kwh D.. each Kwh @ 0.08 each Kwh 0 0.10 each Kwh 0 0.14 each Kwh @ 0.16 each Kwh 6 0.19 each Kwh 0 0.23 S:all Industry n 0.C " n oo.06 " n0 0.06 1 s 0 0.0865 " A 0.085 0 n 0.10 C 9§ 0.165 (up to 2 HP) Other Industrf (over 2 HP) 0 n 0.14 . 0 0.19 n n . 0.25 . 0.30 0-5,000 Kwh 0 0.31 " 0 0.375 . a o 0.425 Night Cons. (18-24h) 5,001-100,000 " 0.32 100,001-1,000,000 " 0.33 1,000,001-above " 0.32 Day0Cns. (0-186h) a o0.06 0 0.08 o n . 0.12 " a 00.19 0-5,000 Kwh @ 0.20 0 0.24,5 n n0 0.275 5,001-100,000 " " 0.21 100,001-1,000,000 " " 0.22 1,000,001-above " 0.21 Early Morning Cons. (0-6h) (Res.0COl, 1/15/1970) each Kwh 0.15 " 0 0.175 . " 0 0.22 (went into effect- Feb 1,70) D- stic Heating each Kwh 0 0.055 each Kwh 0 0.09 0-200 Kwh 0 0.09 (Incorporated into (Incorporated into (Incorporated into (Incorporated into 201 - above 0 0.125 Residential Service) Residential Service) Residential Service) Residential Service) 0O- cil and Yon-profit each Kwh 0 0.;,7 each Kwh @ 0.08 each Kwh 0 0.10 each Kwh 0 0.125 each Kwh 0 0.145 each Kwh @ 0.17 each Kwh 0 0.23 Pubhlic Lighting each Kwh 0 0.06 each Kwh 0 0.06 each Kwh 0 0.09 each Kwh 0 0.115 each Kwh 0 0.145 ech Kwh 0 0.17 each Kwh 0 0.23 B Ilk Service each Kwh @ 0.06 each Kwh 0 0.07 each Kwh 0 0.09 each Kwh 0 0.11 each Kwh 0 0.11 each Kwh @ 0.13 each Kwh 0 0.13 Monthly 1eter Rental Charte Col$.50 Col$.50 C.50 50 Col1.60 - Col$.60 Col$.60/2 . 11 There vill be a 2 % fine for overdue bills and serviae will be suspended after 30 days and $20 will be charged to re-establish service. L2 Rental charge for simple meter; for double meters, a monthly charge of Col$1.50 has been applied since 1969. Source: EEES: Subdirectorate of Finance. Ul3 -59- In the commercial category, the EEEB discriminated between night and day use for those enterprises that had double metering devices, a practice which was dropped in 1966. Also, there was a short lived attempt between 1969 and 1971 to charge rising block rates for commercial consumers. Among the industrial users, preferential treatment is given to radio stations and small industries (below 2 hp installed engine capacity). For all other indistrial users two, and since 1970 three, time periods per day were charged at different rates to reflect peak usage: the lowest charge during the early morning period, the highest charge during evening and night time. As in the other tariff categories, the period 1969-71 was marked by the attempt to apply differential rates to different consumption levels. This practice was later discontinued. Since 1969 equal charges apply for official and public lighting services, and one single tariff category has been employed over the years for bulk service. Among miscellaneous charges, there is a monthly rental fee for meters, with different rates for single or double meters (the latter record energy consumption separately for different day time periods). Also, there are charges for the checking of electrical installations by EEEB personnel, and penalty payments for overdue bills and reconnection after service was cut due to failure of payment. Finally, installation fees are charged by the EEEB progressively with installed capacity and with different charges for the various tariff categories (Table 29). Compared with the installation fees charged by the EA.AB for water and sewer- age connections, the fees levied by the EEEB appear quite low, and thus encourage connection even by low income users. -60- Table 29: EEEB INSTALLATION FEES, 1969- 1973 Installed Capacity installation Fee (Col $ 199 1971 1971 - 1973 1973 Residential 0 -1 75 75 100 1 - 3 100 100 150 3 - 5 200 200 250 over 5250 250 500 Comiercial (ciW)- 0 -3 180 180 200 3 - 5 220 220 280 over 5280 280 360 Industrial 0 -3 120 120 150 3 - 10 150 150 200 over 10 180 180 250 Source: EEEB, Subdirectorate of Finance. -61- Since 1960 the statutory electricity rates were steadily increased. Table 30 shows for selected service categories the average rate of change in tariffs that was implied by these adjustments. The slowest adjustment took place in the low residential category, followed closelT, by bulk supply prices. The fastest rate of increase was experienced by small industrial users, with day time charges for industrial users and the rate for high consumption residential users not much behind. These changes imply that within the residential category the spread between high and low consumption groups was actually widened, while among other industrial consumers the spread between day-time consumption and night-time consumption was reduced, as was the spread between small scale industry and other industrial users. With the exception of small industry charges, none of the rates kept in line with the consumer price index during the same period. In terms of the actual unit charges resulting from these electricity tariff structures over the recent years, Table 31 shows the average unit price derived by dividing the revenues collected by EEEB in each service category by the total amount of electricity consumed. It may be then observed that industrial and commercial consumers paid above average rates on the whole, while the other categories, i.e. residential, official, and bulk paid below average rates, resulting in cross subsidies between these groups.-/ Moreover, the degree of cross-subsidies between the major categories was actually increased over the years, since, excluding the case of tariffs for official users (which grew fastest), the high rate categories (industrial and commercial) 1/ In the case of industrial users the higher peak-load prices and usage may contribute to the higher average charge. To what degree this is the case is impossible to say on the basis of the data here available. - 62 - Table 30: AVERAGE ANNUAL COMPOUND RATE OF CHANGE OF ELECTRICITY RATES, BY TARIFF CATEGORY, 1962-1973 Rate of Charge (%) Residential Low (0-200 KWh) 5.6 High (over 200 kWh) 11.6 Commercial 8.0L1 Industrial Small,Industry 13.8 Other Industry 18-24 7.6 0-18 11.9 Official 10.1 Bulk 5.8 Consumer Price Index 13.3 /1 Obtained by using the unit charge for single meter subscribers in 1972 (Col$.18) Source: Table 28. - 63 - Table 31: EEEB AVERAGE UNIT PRICE FOR ELECTRICITY SERVICE, BY TARIFF CATFGORY 1963-1972/1 (Col$/kwh) Average Ann. 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Compound Rate of Change. 1963 - 1972 Residential 0.09 0.10 0.11 0.12 0.13 0.13 o.14 0.15 0.17 0.20 9.3 Conmercial 0,4 0.14 0.17 0.19 0.28 0.28 0.29 0.30 0.33 0.36 11.1 Industrial 0.11 0.11 0.15 0.16 0.21 0.21 0.22 0.23 0.26 0.28 10.9 Official and Public Lighting 0.07 0.07 0.08 0.10 0.11 0.11 0.14 0.15 o.16 0.20 12.4 Bulk Sales .06 0.09 0.09 0.09 0.11 0.12 0.12 0.11 0.12 0.12 8.0 Total 0.10 0.10 0.13 0.1h 0.18 0.18 0.19 0,19 0.21 0.22 9.2 Consumer Price Index 10.5 /1 Derived by dividing revenue from energy sales by the amount sold. Source: Table 27. -64 - grew faster than the low-rate categories (residential and bulk). Unless it is believed that there are underlying real cost differences in supplying energy to the different users (which may indeed justify the low rates on bulk sales) there appears little economic reason for the price differential between residential and official users on the one side, and industrial and commercial users on the other side. Differential peak-time uses in different consumer categories would constitute one reason for different prices. How- ever, this is clearly not the major reason for the significant difference in unit prices. Instead, an ability-to-pay rationale is probably implicit in the differential rates; but in terms of incidence, as was explained in the case of water charges, the net effect is not at all clear, since higher electricity costs are likely to be shifted forward at least in part, and thus fall on the final consumers of industrial and commercial products. The distributive result of this pricing policy therefore remains as dubious, as does the economic rationale for it, if any exists.L/ C. Revenues and Expenditures of the EEEB EEEB accounting is based on the accrual system. Thus the pub- lished reports and records maintained by the company do not reflect true cash flows as realized over the years, but only revenues as they accrued to the enterprise during a year as a result of the services rendered, or the expenditures as they were committed, but not necessarily disbursed during the same year. As in the case of the E&AB this presents problems particularly with non-service revenues, e.g. those from installation fees, which are not necessarily paid on a regular basis as the service charges, and where enforcement traditionally is not handled as rigorously as with 1/ The distributive impact of differential residential charges is discussed in greater detail below. - 65 - ordinary service charges. But even for service charges distortions will occur, if for any reason the collection efficiency of the enterprise changes over time thus changing the otherwise steady relationship between cash and accrual flows. As will be seen below, this has been the case in recent years for the EEEB. Tables 32 and 33 summarize the revenue experiences of the enterprise for the period of 1961 to 1972. Current revenues here include the revenues from installation fees, which, strictly .speaking, should have been included under capital revenues; unfortunately, the information was not available in such a detailed form. This possibly biases somewhat the development of the percentage distribution between current and capital revenues. Not allowing for this problem Table 33 shows that capital revenues have accounted for a declining share of total EEEB revenue over the years, that there was thus an increased reliance on internal funding.1/ This development is reflected also in the fact that revenues grew annually by 21.0 percent (annual compound rate) on current account during the same period, while total revenue grew only at the rate of 11.O percent. One explanation for this experience becomes clear when considering the expenditure side of the EEEB finances, where a very similar shift between current and capital account has taken place (Tables 34 and 35). The shaz- ,S capital expenditures declined from 79 percent in 1962 to 27 percent in 1972, while the share of current account expenditures increased commensurately. It is, however, worth noting that this development was not quite as continuous 1/ Among the capital revenues, loans from abroad have always provided the predominant share. Table 32: EEEB REVENUES 1961-4972 (in CoI41,0o0) 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Revenues Revenues from Operation 62,627 77,356 93,899 108,849 149,861 174,424 237,300 270,524 332,208 408,928 493,596 619,548 Other Revenues 1,286 557 1,818 1,221 845 476 2,249 4,895 3,837 4,646 7,512 26,988 Total Current Revenues 63,913 77,913 95,717 110,070 150,706 174,900 239,459 275,419 336,045 413,374 501,108 646,536 Capital Revenues External Credits 55,845 92,583 154,674 122,616 118,550 67,131 24,450 85,640 104,141 126,238 334,673 118,910 Domestic Credits - 29,171 3,690 11,351 1,340 5,000 3,575 .2,980 5,021 - - 3,025 Total Credits 55,845 122,754 158,364 133,967 119,890 72,131 28,025 88,620 109,135 126,238 134,673 121,935 Total Revenues 119,758 200,667 254,081 244,037 270,596 247,031 267,574 364,039 445,180 539,612 635,781 768,471 Source: EEEB Annual Reports 1965-1972. CN 0*% Table 33: EEEB REVENUES: PERCENTAGE DISTRIBUTION 1961-1972 1961 1962' 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Revenues 53.37 38.83 37.67 45.10 55.69 70.80 89.53 75.66 75.49 76.61 78.82 84.13 Capital Revenues 46.63 61.17 62.33 54.90 44.31 29.20 10.47 24.34 24.51 23.39 - 21.18 15.87 Total Revenues * 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Source: Table 32. Table 34: EEEB EXPENDITURES, 1961-1972 (in Col$,000) 1961 1962 1963 1964 1965 1956 1967 1968 1969 1970 1971 1972 Current Expenditures Operations ) 14,392 ) 10,397 ) 26,959 ) 37,962 ) 48,203 56,194 66,,02 72,765 92,741 110,239 140,416 184,224 Various Expenditures ) ) ) ) ) 2,926 4,153 5,167 7,691 1,629 17,325 38,685 Public Lighting/l 3,710 2,165 2,828 2,879 4,711 5,393 5,436 16,376 23,214 31,919 40,839 50,364 Interest payments/2 4,772 7,861 25,812 29,494 35,586 41,455 66,883 67,101 78,890 92,408 89,904 107,871 Debt Amortization . 12,490 21,857 24,509 17,715 57,638 66,804 53,234 82,172 56,713 83,123 106,649 105,104 Total Current 35,364 42,280 80,108 88,050 146,138 172,773 196,008 243,581 259,249 319,318 395,133 486,248 Capital Expenditures/3 160,825 227,420 197,044 151,357 88,313 65,529 233,033 207,377 143,005 216,456 181,813 Total Expenditures 203,105 307,528 285,094 297,495 261,086 261,537 476,614 466,626 462,323 611,589 668,061 /1 For the years 1961-1966, this item consists of 10 percent from the net returns from operations (allowing for depreciation). For the years 1967-1972, it consists of 10 percent from net returns from operations plus costs of maintenance of the public lighting system. In the EEEB accounts this item is referred to as "participation" by the District Administration in EEEB revenues, or in other words, a transfer to the District. Strictly speaking this' is not a transfer, however, since no cash flows occur to the District. The EEEB simply assumes responsibility for public lighting expenditures and the public lighting expenditures do not appear in the District budget. /2 Interest payments include the payments made by the EEEB after 1966 on behalf of debt originally incurred by the District government. These payments are recorded in the EEEB annual accounts as payments on behalf of the District, with an explanatory note detailing the exact nature of these payments. /3 Investment outlays were computed for any particular year by adding for these years gross fixed capital stock and work in progress, and subtracting from this sqm the sum of gross fixed capital stock and work in progress of the previous year. From 1967 onward, however, allowance was also made for revaluation of fixed capital. Source: ESEB Annual Reports, 1965-1972 Subdirectorate of Finance EEEB. co Table 35: EEEB EXPENDITURES - PERCENTAGE DISTRIBUTION, 1962-1972 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Expenditures Operations and Various Expenditures 6.12 8.77 13.32 16.20 22.6h 26.94 16.35 21.52 24.20 25.79 33.37 Public Lighting 1.07 0.92 1.01 1.58 2.07 2.08 3.h 4.97 6.90 6.68 7.54 Debt Service 14.63 16.36 16.55 31.34 42.46 45.92 31.32 29.06 38.83 32.14 31.88 Total Current 20.82 26.05 30.88 49.12 66.17 74.94 51.11 55.56 69.07 64.61 72.78 Capital Expenditures 79.18 73.95 69.12 50.88 33.83 25.06 48.89 4h.hh 30.93 35.39 27.22 Tota_Expenditures 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Source: Table 34 - 70 - as on the revenue side, as can be observed from the fact that in 1968 the share of investment outlays almost doubled as compared with the previous year, after which another decline set in. Among current expenditures the debt service component was very important throughout the years, and it was only in the most recent years that debt service requirements were surpassed by operational and related expenditures, which offers an indication as to the high burden of external financing which the enterprise had in the earlier years, and which only diminished later on, relative to other current expenditures. Comparing revenues and expenditures on current and capital account (Table 36) one finds that for all years the EEEB experienced a current account surplus (since non-credit capital revenues are likely to have been small relative to operational revenues, the inclusion of these under capital account would not have changed the picture significantly). In contrast, the capital account has been permanently in deficit. The implication is that the EEEB has used its current account revenue surplus to finance with internal funds a proportion of its non-recurrent expenditures. Unfortunately, the overall surplus (deficit) on capital and current account cannot be taken on face value due to the fact that accrual accounts were used to prepare the tables. But for similar reasons as in the case of the EAAB, more confidence may be place in the figures of the current, than on the capital account; and thus the conclusion that current surpluses have financed in part capital expenditure can be taken as reliable. In concluding this discussion of the EEEB finances two further comments need to be made. First, on the expenditure side, the contribution of wage and Table 36: EEEB CURRENT AND CAPITAL REVENUES AND EXPENDITURES: A COMPARISON, 1961-1972 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Account Revenues 63,913 77,913 95,717 110,070 150,706 174,900 239,549 275,419 336,045 413,374 501,108 646,536 Expenditures 35,164 42,280 80,108 88,050 146,138 172,773 196,008 243,581 259,249 319,318 395,133 486,248 Current Surplus (Deficit) +28,549 + 35,633 + 15,609 + 22,020 + 4,568 + 2,127 '+ 93,541 + 31,838 + 76,796 + 94,056 +105,975 +160,288 Capital Account Revenues 122,754 158,364 133,967 119,890 72,131 28,025 88,620 109,135 126,238 134,673 121,935 Expenditures 160,825 227,420 197,044 151,357 88,313 65,529 233,033 207,377 143,005 216,456 181,813 Capital Surplus (Deficit) - 38,071 - 69,056 - 63,077 - 31,467 - 16,182 - 37,504 -144,413 - 98,242 - 16,767 - 81,783 - 59,878 Total Surplus (Deficit) - 2,438 - 53,447 - 41,057 - 26,899 - 14,055 + 56,037 -112,575 - 21,446 + 77,289 + 24,192 +100,410 Source: Tables 32 and 34. i - 72 - salary payments to overall current expenditures declined between 1963 and 1969 (unfortunately more recent figures are not available as regards the wage bill of the enterprise), which indicates that with the increase in labor productivity over the years labor as an input contributed a smaller share to current operational expenditures. This was the case despite the fact that the average real wage rate during the same period increased. (Table 37). Second, on the revenue side, the collection problems of the enterprise must be considered by comparing the development of receivables of the EEEB on service accounts with revenues that accrued from operations during the same period (Tables 37 and 38). Table 37 shows that unpaid bills as a proportion of revenues from operations more'than tripled between 1965 and 1972 which indicates that receivables have risen consistently and con.- siderably faster than revenues and that the turnover of bills has been lengthened for the enterprise. Looking into the composition,of receivables for the last two years, it may be seen that official accounts contribute a substantial share (almost 50 percent in 1971) to unpaid bills, far above their contribution to overall revenues from operations (see Table 26 above). It is also noteworthy that the EEEB has in recent years attained a worse turnover rate of its service accounts than the EAAB (Table 24 above), which would seem to indicate that the difficulties are specifically those of the EEEB, and not typical for all public utility companies in Bogota. - 73 - Table 37: EEEB: SALARY AND WAGE PAYMENTS, 1963 - 1969 ,% of Personnel Average Annual Real Year Salary and Wage Payments in Opera- 1/ Wage Rate 2/ Wage Rate 3/ Payments tional Expenditures (in current prices)(in 1963 pri-es) 1963 21,077 70.76 18.90 18.90 1964 24,551 6o.11 20.44 17.47 1965 29,047 54.90 22.71 18.77 1966 35,681 55.62 26.76 18.33 1967 48,159 63.46 34.20 21.78 1968 54,535 57.83 38.11 22.96 1969 61,825 50.00 I'.o4 21.47 Source: EEEB, Annual Report 1969 Tables 27 and 33. Notes: 1/ Operational expenditures are here defined as all current expenditures with the exception of debt service payments. 2/ Derived by dividing Salary and wage payments over number of personnel. 3/ Adjusted by the consumer price index for workers in Bogota. - 74 - Table 38: EEEB: UNPAID BILLS FOR SERVICES 1965-1972 Ratio (Unpaid Bills/Revenues Year Unpaid Bills from Operations) (Col$3000) (W) 1965 7,901 5.3 1966 16,032 9.2 1967 22,546 9.5 1968 30,729 11.4 1969 45,577 13.7 1970 59,369 14.5 1971 79,064 16.6 1972 113,520 18.3 Source: EEEB Annual Reports 1965-1972. TaLe9.: UNPAID BILLS BY CATEGORY OF CONSUMERS 1971/1972 Year Private Officials Total (Col$,OOO) (%) (Col$,OOO) (w) (Col$,000) (W) 1971 40,26o 50.9 38,804 49.1 79,064 100 1972 66,465 58.5 47,05 4l.5 113,520 100 Source: EEEB, Annual Report 1972. IV . TELEPHONE SERVICE, A. Historical Background, Organization, and Service Level Bogota received its first telephone services in 1884 with the foundation of the private telephone company in Bogota, "Compania Colombiana de Telefonos". With Acuerdo 64/1940, the municipality of Bogota acquired the entire operations of this company and transferred it into the public domain. Since then the "Empresa de Telefonos de Bogota" (ETB) has been operating as an autonomous, decentralized agency similar to the other municipal public utilities in Bogota, EAAB and EEEB. Acuerdo 72/1967 some- what redefined the charter of the ETB; since then the enterprise is governed by a Board of Directors, consisting of the Mayor, who presides over it; the Personero; two District Council members; and two other members, selected by the District Council from a list suggested by the Mayor. The functions of the Board of Directors are to approve all con- tracts, design the statutes for internal operations of the enterprise, appoint the general manager, determine all programs and plans for the enterprise operations, and approve the annual budget and closed accounts. The General Manager is responsible for the appointment of the staff below him, for the execution of all the orders and directives of the Board, for the preparation of all plans and studies, including the annual budget and the annual accounts; moreover, he is the legal representative of the company. In contrast to the other decentralized agencies in Bogota, D.E. ETB has a special link to the national government. The Ministry of Com- munications has a veto power on all technical aspects of ETB operations - 76 - and planning, in order to ensure inter-regional compatibility of telephone services all over the country. The ETB has exclusive responsibility for local telephone service in Bogota, D.E., but shares with the national telephone company "Telecom" the responsibility for handling the long distance telephone services. ETB provides the local interconnection and exchange service, while Telecom is responsible for the long distance telephone network and coordination in long distance exchanges. ETB collects the long distance telephone service charge for Telecom, of which it retains a proportion to cover the costs incurred in providing the long distance service (for more detail see below). Local telephone services in Bogota have been automated since the installation of the first automatic exchanges in 1948. Table 40 gives an impression of the level of telephone services. Between 1961 and 1972 the number of telephone lines in Bogota grew from 101,782 to 225,844, i.e. at an annual rate of 7.1 percent. According to ETB projections, the total number of lines is to increase to 530,h44 by the end of 1976, i.e. increas- ing at a significantly higher rate of 23.8 percent annually. As a result, the density of telephones in the city, which up to 1972 had only increaced to 7.9 from 7.3 in 1961, will almost double by 1976. Clearly this would provide a significant improvement in the telephone services and lead to considerable improvement of coverage, if not quality. Table 40 also gives some information on estimates of accumulated demand for telephone services. In 1972 accumulated demand accounted for 41 percent of total lines in services having increased from 38 percent in 1961. Thus the necessity of increased capacity of services, or the s.ope for increased charges, is clearly recognizable. - 77 - Table 40: TELEPHONE LINES, DENSITY0 AND SERVICE DEMAND 1961-1972 (ACTUAL AND PLANNED) #f Density (# # Telephone Population of Tel. Lines Accumulated Lines (in ,000) per 100,000) Demand 1961 101,782 1,394 7.3 38,263 1962 108,489 1,489 7.3 47,152 1963 114,176 1,590 7.2 57,103 1964 118,973 1,697 7.0 69,998 1965 123,474 1,812 6.8 81,676 1966 136,250 1,935 7.0 85,835 1967 153,228 2,065 7.4 92,732 1968 158,364 2,206 7.2 1969 172,280 2,340 7.4 1970 187,366 2,499 7.5 1971 199,160 2,669 7.5 90,000 1972 225,844 29849 7.9 93,000 1973 1/ 292,8644 3,040 9.6 1974 1/ 384,244 3,241 11.9 1975 1/ 463,244 3,455 13.4 1976 1/ 530,444 3,680 14.4 1/ Planned number of telephones aczording to ETB contracts. Source: ETB, Estudio de Factibilidad, Oct. 1968 ETB, Division of Development and Planning ETB, Estudio Tanifazio, June 1972 Alcaldia Mayor de Bogota, Political de Desarrollo Urbano 1972, Bogota, D.E. 1972 Alcaldia Mayor de Bogota, Anuario Estadistico de Bogota, D.E. 1964-1969, Bogota 1970 - 78- Table 41 presents a breakdown of users into separate categories following the tariff classifioations, for two separate years, 1970 and 1972. The fastest rate of increase in services occurred in Category 1, i.e. the residential user group in the lowest property value class. The share of all other important user groups, in particular that of the non- residential users, declined in overall numbers of lines. The quality of the telephone services provided by the ETB varies and long periods of conne6"ing time are the rule. The fact that the demand for fast access lines (which are given speical priority in connection) has increased rapidly between 1970 and 1972 (Table 41) is a reflection of this problem. Between 1968 and 1972 the number of employees of the ETB increased from 1,560 to 2,148, at an average annual rate of 11.1 percent (Table 42). Labor productivity measured in terms of employees per 100 lines did, however, not improve by much: the ratio fell from 0.99 in 1968 to 0.95 in 1975, but was subject to considerable fluctuations so that a clear trend cannot be established. The fact that labor productivity in the ETB is at the low end of the range of a number bf telephone companies in other Colombian cities (Table 43) raises the question of whether prudent personnel policy is being followed presently by the enterprise. B. Telehone Tariffs As all Colombian public utilities, the ETB is subject to control by the National Tariff Board in setting its telephone rates. The guidelines issued by the Tariff Board for the Colombian Telephone companies prescribe a tariff structure which is set such as to cover long run average costs, while at the same time making allowance for differences in income groups 1/ Table 4l: ETB: NUMBER OF TELEPHONE LINES: JULY 1970, MAY 1972 2/ # of Lines % of Total # of Lines Category - 1970 1972 1970 1972 (1) Residential 39,222 53,342 22.02 25.68 (2) Resid., Government, Non-Profit 59,774 65,835 33.56 31,69 (3) Residential 12,954 14,867 7.27 7.16 (4) Commerical & Residential 19,900 55,532 28.01 26.73 (5) Private 599 830 0.34 0.ho Exchanges 8,676 9,1492 4.87 4.57 Direct Lines 2,170 2,721 1.22 1.31 Fast Lines 175 338 0.10 0.16 Public (local) 4,626 4,780 2.60 2.30 Public (Long Distance) 3 2 Total 178,099 207,739 100.00 100.00 Notes: 1/ Without lines used by ETB internally. 2/ The classification is as follows: (1): Residential, with assessed property value (AV) smaller than Col $100,000 (2): Residential, with AV 0ol $100,000 - $200,000, and public service users and government (3): Residential, with AV Col $200,000 - $300,000 (4): Residential, with AV greater area Col $300,000, and all non-residential (commercial & industrial users) Source: ETB, Estudio Tarifario, June 1972 ETB, Subdirectorate of Finance Table h2: ETB- PERSONNEL AND WAGE DATA 1968-1972 Real Annual Average Wage Payments Lnnual Average Number of Employees Wage Payments Wage Rate as Percent of Wage Rate 1/ EMployees Per 100 Lines (Col$,000) (Col$) Current Expenditure -(Col$) 1968 i,56o 0.99 35,325 22,64h 42.38 1969 1,562 0.91 42,227 27,034 32.14 1970 1,676 0.89 50,289 30,005 62,28 1971 1,932 0.97 61,114 31,633 43.53 1972 2,148 0.95 69,035 32,139 27.82 1/ In 1961 constant prices, deflating by the Consumer Price Index for Workers in Bogota. Sources: ETB, Division of Development and Planning. ETB, Estudio Tanfairo, Bogota, D.E., June 1, 1972. 0D - 81 - Table 43: EMPLOYEES PER TELEPHONE LINE IN SELECTED COLOMBIAN CITIES, 1972 Number of Employees City per 100 lines Barranquilla 1.04 Cartagena 1.02 Bogota 0.99 Palmira 0.67 Ibague 0.56 Pereira 0.55 Bucaramanga 0.53 Villavicencio 0.42 Cartago 0.38 Source: Departamento National de Planeacion, Analysis Financiero y de la Solicitud de Tarifas Presentado par la Compania Telefonica de Cartagena, S.A., Documento UINF:C: 003-1973, February 1973. - 82 - as approximated by differences in assessed value of property on which the users live.-/ The telephone tariffs, which were changed approximately every five years, are summarized in Table 44. The main component of the tariff structure has always been a basic monthly rate, progressively structured according to property values for residential users, and more recently according to registered asset values for industrial and commercial users. The basic rates remained unchanged between 1957 and 1968, but were increased in 1968. In 1973, a major overhaul of the basic rate structure occurred, with the separation of industrial and commercial rates from the residential rates. In both categories larger numbers of progressively structured groups were defined, for the residential consumers six rate categories, for the industrial users four rate categories; again the highest residential user charges were identical with the charges for the industrial and commercial users. Between 1957 and 1973 the lowest rate charged doubled, the highest rate charged tripled, which means also that the lowest rate grew at an average annual rate of 4.7 percent, and the highest rate at an average annual rate of 7.6 percent; even the latter rate of increase was below the rate of inflation during the same period, which ran at about 9 percent p.a. Besides the basic monthly fee, users pay a number of lumpsum charges or deposits. First, there is a returnable security deposit, which is forfeited in the ( .se of non-payment of service bills. This deposit is now identical for all users, in contrast to the earlier practice of progres- sive gradation with property value classes. Second, since 1968, a connection 1/ Long-distance rates are set by Telecom for the whole nation. Table 44: ET TARIFFS (Col$) SERVICES mONTLY BASIC RATE . SECURITY DEPOSIT CONNECTION FEE INSTALATION CHARGE OTHER SERVtCES L957 1962 1968 1973 1957 1962 1968 1973 1957 1962 1968 1973 1957 1962 1968 1973 1957 1962 1968 1973 Industrial or Commercial/1 Categories: 1 s&e 70 see ) 900 ( see ) 3,200 ( see ) 400 2 ( under ) 80 ( under ) under ) 5,200 ( under ) 400 3( Residen- ) 90 ( Residen- ) 900 ( Residen- ) 7,200 ( Residen- ) 400 4 (_tial )90 tial ) tial 9,200 ( tial ) 400 Residential /2 /3 10 Categories: 1 5 5 10 10 150 200 900 900 100 50 150 400 2 10 10 20 30 150 200 900 900 500 1,500 50 150 300 400 3 15 15 20 45 300 500 900 900 1,300 2,500 50 150 300 400 4 130 30 30 70 300 500 900 900 2,400 3,200 50, 150 300 400 5 .80 900 5,200 400 6 90 900 7,200 400 Private Lines (unlisted) 50 100 900 900 /6 2,400 300 400 Private Exchane /5 /5 50 100 500 900 900 /6 2,400 150 300 400 Public Telenhone 500 900 900 Direct Line (Permanent) 15 150 250 900 900 2,400 2,400 50 150 300 400 Telex 100 150 2,400 2,400 300 400 Direct Line (Temnorarv) 120/day 120/day 300 AdJitional Line on ENchange 3 5 10 Extension of Phone 1.50 150 500 600 50 100 Phone Transfer (External) 40 120 500 1,000 Phone Transfer (Internal) 20 25 100 100 Change in Number 50 50 100 100 Char5e in Contract 10 20 100 1,000 Reinstallation 150 50 150 1,100 Chan5e of Phone 100 Realace"'out of LAst Telephone 600/7 Extension without Phone 100 "o'Iaccnent Because of Wear Free Outside Urban Perimeter 50+ Special Service Cost +40% Adlitional Post . 700 lrmediate Connection Line 50 50 50 100 300 500 900 900 2,400 /1 150 300 400 Direct Phone Transfers (External) 1,000 L Depends upon value of assets registered with the Chamber of Commerce or assessed property value. L2 $900 if it is a touch button phone. /3 Classification for groups in 1973 depending upon value of assets registered with the Chamber of Commerce($Col): (1) 0-200,000 non-profit organizations and professional offices (2) 200,000- 300,000 (3) 300,000-550,000 (4) 550,000-Above or without documentation. /4 Classification for groups in 1973, depen1ing upon assessed property value: (1) 0-100,000 (2) 100,000-200,000 (3) 200,000-300,000, public service organizations and government offices (4) 300,000-500,000 (5) 500,000-1,000,000 (6) 1,000,000-Above, or without documentation. 15 Classification for groups in 1968, depending upon assessed property value: (1) 0-100,000 (2) 100,000-200,000, and public service organizations and government offices (3) 200,000-300,000 (4) 300,000-Above, and non-residential (industrial and commercial). /6 Classification for groups in 1957 and 1962, depending upon the following conditions: (4-a) having capital valued over $80,000 (4-b) having a rent of over $400 (4-c) more than one line from the same establishment (4-d) having a telephone used for industrial, commercial, or agricultural use (3) having an assessed property value over $120,000 or revenues totaling over $800 a month (2) having an assessed property value between $50,000 and $120,000 or revenues totaling between $300 and $800. (1) having an assessed property value under $50,000 or revenues totaling under $300. Also schools, public service organizatiors, cooperatives and sidicates. L7 Commercial exchanges had a monthly charge of $40; residential exchange had a monthly charge of $30. Source: ETB. - 84 - fee has been levied, steeply rising with the higher property value classes, from Col.$100 to Col.$7,200. Finally, there is an installation charge, which is equal for all users, but has increased eightfold since 1957. In addition to these charges for general services, consumers pay for special services, as for instance fast access lines, additional telephones on the same line, etc. Table 43 shows these various charges in detail. C. Revenues and Expenditures of the ETB The ETB employs the accrual accounting principle for its budgets and financial statements. The data here presented are based on this account- ing principle and do not reflect actual cash flows, with the exception of investment expenditures and debt amortization. Tables 45 and 46 summarize the information on the ETB revenues, broken down by current and capital revenue. The breakdown is unfortunately not fully consistent since it was not possible to separate out all capital revenue items, as e.g. installation charges for all years; and for others no separation from other current revenues was possible for any of the years. Current revenue increased at an annual rate of 20.2 percent between 1961 and 1972. Total revenues increased somewhat faster at a rate of 22.7 per- cent, which shows that, despite large fluctuations from year to year, capital revenues increased more rapidly than current revenues. As regards the dis- tribution of revenues between its various components, it appears that the share of revenues from service subscribers of local telephone services has declined over the years, a rising share being contributed by the receipts of ETB from long distance telephone calls. The ETB share in long distance revenues collected in Bogota was raised from 18 percent to 22.5 percent in 1964, and when full automation came into use for certain categories of long Table 45: ETB: REVENUES, 1961 - 1972 (Col$,000) 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Revenues Subscribers/I 25,182 27,687 31,468 36,417 40,323 54,329 67,460 85,744 128,867 136,146 140,718 181,827 Public Telephones 5,052 5,413 6,117 4,632 6,638 6,803 7,253 8,537 11,525 15,091 18,000 16,906 Share in Long Distance Revenue 2,035 2,810 4,366 6,250 7,465 8,958 12,228 7,816 28,287 23,913 35,975 39,126 Directory SalesI2 341 525 809 1,262 1,795 2,209 -2,578 2,953 4,539 7,162 12,223 11,989 Other Revenues/3 690 842 1,911 1,855 3,517 1,421 12,512 9,739 10,834 16,382 16,517 13,609 Allowance for Non-recoverable Bills/4 234 -333 14 24 16 21 -639 -1,696 -3,495 -2,626 -2,742 -3,756 Total Current Revenues 33,066 36,945 44,685 50,440 59,752 73,740 101,383 113,093 180,558 196,068 220,693 259,759 Capital Revenues - Credits 1,141 19,233 14,893 7,172 10,053 19,359 95,219 59,560 57,132 39,620 80,234 239,686 Total Revenues 34,207 56,178 59,578 57,612 69,805 93,099 196,602 172,653 .237,690 235,688 300,927 499,445 /1 This includes "Servicio, Multimedicion, Instalaciones, Traslados, Recargo por Mora, Trabajos especiales, Acometida Red, Otios Productos; this breakdown is available only since 1966. /2 Since 1968, this is a receipt, shared with Telecom. /3 This includes 'Aprovechamientos, Descuentos, and Varios". /4 This is an accounting form uscd in the context of the accrual accounting system to allow for the fact that the Ministry of Communications and the District Administration do not pay for the telephnne services. /5 The loan data were obtained by subtracting from a given year's debt the debt in the previous year, and adding to this difference the amortization payments made during the given year. Source: ETB, Estados FinanciLros, Balance Anual, 1960-1972. - 86 - distance call, the ETB share in fully automated long distance call revenues was further increased to 25 percent; the share in other long distance call revenues remained at 22.5 percent. On the expenditure side, current spending grew at an annual rate of 21.0 percent between 1961 and 1972, i.e. slightly faster than current revenue during the same period (Table 46). Total expenditures increased more rapidly at an annual rate of 23.8 percent, which indicate that capital spending grew more rapidly over the years, despite its erratic pattern on an annual basis. Debt service charges were also subject to sig- nificant fluctuations over the years, some of them so significant that they raise doubts about the reliability of the data base. In considering the impact of the wage and salary component on total current revenue, reference to Table 41 above indicates that although the average wage rate increased between 1968 and 1972 (at an average annual compound rate of 9.1 percent just in line with the increase in the general price level), while the number of employees also increased over the years (at an average annual rate of 8.3 percent), the overall contribution of wage and salary payments to current revenues does not appear to have been subject to a particular trend discernible over the wide fluctuations to which the share of wage payments was subject due to the erratic movements of debt service and capital expenditures. In other word, it appears that labor costs have risen roughly in line with overall current revenues through the period under consideration. Comparing the current and capital account performance over the years taking revenues and expenditures together (Table 48), it may be Table 46: ETB: REVENUES: PERCENTAGE DISTRIBUTION, 1961-1972 1961 1962 1963 1965 1965 1966 1967 1968 1969 1970 1971 1972 a. Total Revenue 96.66 65.76 75.00 87.55 85.60 79.21 51.57 65.50 75.96 83.19 73.34 52.01 Current Revenue 96.66 65.76 75.00 87.55 85.60 79.21 51.57 65.50 75.96 83.19 73.34 52.01 Capital Revenue 3.34 34.24 25.00 12.45 14.40 20.79 48.43 34.50 24.04 16.81 26.66 47.99 Total Revenue 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 b. Current Revenue Subscribers and Public Telephones/1 75.45 74.04 70.45 72.25 67.50 73.70 65.90 74.31 69.44 68.09 62.52 68.55 Share in L. D. Revenues 6.15 7.61 9.77 12.39 12.49 12.15 12.06 6.91 15.67 12.20 16.30 15.89 All Other Current Revenues 18.40 18.35 19.78 15.36 20.01 14.15 22.04 18.78 14.89 19.71 21.18 15.56 Total Current Revenues 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 /1 Net of allowance for non-recoverable bills. Source: Table 45 Table 47: ETB: EXPENDITURES, 1961-1972 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Cu-rent axpenditure Adnin4atration 1,607 3,780 4,594 5,219 6,604 7,710 10,271 11,954 20,395 25,744 L3,277 5o,oo Operation and Maintenance/t 4,314 5,395 7,161 6,496 9,218 11,221 15,h49 79,658 19,582 25,678 38,817 51,996 Io Service/2 8,322 10,731 14,229 16,392 9,101 19,798 3,017 30,053 48,896 17,925 18,p8 93,12 Pension Payento, Social Sec. etc.L3 2,603 2,986 24,422 5,470 6,240 8,212 12,014 13,032 28,245 28,599 19,558 25,913 Vehicles, Furniture, Tools, SquipnentL4 199 826 661 369 486 468 2,348 1,077 4,949 3,922 8,101, 3,575 other Expenditure3L5 3,071 2,918 3,318 3,620 4,110 4,514 6,786 7,579 9,318 17,065 12,525 23,L8 Total Current Expenditure 20,136 26,636 34,405 37,566 35,759 51,983 49,885 83,353 131,385 118,133 140,369 224,161 Casital Excenditure/6 10,851 26,222 23,955 17,672 24,818 59,25 14,50i 63,898 103,147 130,407 184,016 277335 Total Expenditure 30,987 52,858 58,360 55,238 60,577 111,408 194,386 107,251 234,532 249,320 321,35 525,1496 L1 1961-1968: "aintenance Expenditures" in source; 1969-1972: "Operational Expenditures" in source. INote that in 1969 a change in the accounting practices took place and according to ETB officials oome expendit:ures previously classifed under "Maintenance" were recorded under "Administra- iva" after 1968. This accounts, at least in part, for the large increase in administrative expenditures between 1968 and 1969 and the slow down in operational expenditures. /2 1961-1966: All interest payments and amortization of domestic and external loans; 1967-1968: "Various Deductions" (which includes interest payments plus general cash fluctuations, insur- ance payments and banking commissions) net of insurance payments and banking commissions; thus cash fluctuations have, due to lack of data, not been netted out. Amortization payments are also included; 1969-1971: "Various Deductions" adjusted as for 1967-1968; plus amortization payments as supplied by the Accounting Department of ETB; 1972: All interest and &mortication payments (evaluated at Col$22.79 - US$1.00). 73 1961-1965: "Other Expenditures" in source consists of "Prestaciones Sociales" and "Other Operational Expenditures" but these are not broken down; to adjust for this, the amount of Col$ one million was subtracted from "Other Expenditures", to obtain an approximate figures of "Prestaciones Sociales", since in 1966 "Other Expenditures" amount to Col$1,114 thousand; 1966-1972: "Prestaciones Sociales". /4 The ET generally regards these expenditures as part of its investment; where no separate figures were directly available from the source, they were obtained by subtracting from the respec- tive assets of a given year those assets held at the end of the previous year. 15 1961-1965: "Gastos de Trafico", "Castos Comrciales", plus Col.0l million for "other operational expenditures" (see Note 3); 1966: "Gastos de Trafico", "castos Cocmerciales", "Otros castos"; 1967-1968: Same as 1966 plus insurance payments and banking commissions; 1969-1970: "Otros Gastos" plus insurance payments and banking commissions; 1971: "Otros Gastos", "Servicioa", "Conision Tel. Publ.", "Mantenimiento de Edificios", "Auxilios Varios", plus insurance payments and banking commissions; 1972.: Same as 1971, plus "Fluctuaciones de Cambio". /6 All expenditure on fixed capital, excluding tools, furniture, equipment and vehicles. Where no separate investment figures are given in the source, they are derived from the balance sheets o by subtracting the sum of gross fixed assets in the previous year and of work in progress from the sum of this year's gross fixed assets and of work in progress. Source: ET: Eztados Financios, Salance Consolidado, 1961-1972 ETB: Subdirectorate of Finance. 7 Table 0$: ETB: EXPENDITURES - PERCENTAGE DISTRIBUTION, 1961-1972 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Expenditure Administration, Operation and Maintenance 19.11 17.36 20.14 221.21 26.12 16.99 13.23 21.47 17.05 20.62 25.31 19.41 Pension Payments, etc. 8.40 5.65 7.58 9.90 10.30 7.37 6.18 8.85 12.04 11..7 6.03 4.93 Debt Service 26.92 20.30 24.42 29.68 15.02 17.77 1.55 20.41 20.85 7.19 5.58 1773 All other Expenditures 10.55 7.08 6.82 7.22 7.59 4.53 4.70 5.87 6.08 8.42 6.36 5.15 Total Current Expenditures 64.98 50.39 58.95 68.01 59.03 46.66 25.66 56.61 56.02 47.70 43.27 47.22 Capital Exp Cait eitures 35.02 49.61 41.05 31.99 40.97 53.34 74.34 43.39 43.98 52.30 56.73 5278 Total Expenditures 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Source: Table 47 cD \O Table 49: ETB: CURRENT AND CAPITAL ACCOUNT COMPARED, 1961-1972 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Account Current Revenue 33,066 36,945 44,685 50,440 59,752 73,740 101,383 113,093 180,558 196,068 220,693 259,759 Current Expenditure 20,136 26,636 34,405 37,566 35,759 51,983 49,885 83,353 131,385 118,933 140,369 248,161 Surplus (Deficit) on Carrent Account +12,930 .+10,309 +10,280 +12,874 +23,993 +21,757 + 51,498 + 29,740 + 49,173 _ 77,135 + 80,324 + 11,598 Capital Account Capital Revenue 1,141 19,233 14,893 7,172 10,053 19,354 95,219 59;560 57,132 39,620 80,234 239,686 Capital Expenditure 10,851, 26,222 23,955 17,672 24,818 59,925 144,501 63,898 103,147 130,407 184,016 277,335 Surplus (Deficit) on Capital Account - 9,710 - 6,989 - 9,062 -10,500 -14,765 -40,571 - 49,282 - 4,338 - 46,015 - 90,787 -103,782 - 37,649 Total Surplus (Deficit) + 3,220 + 3,320 + 1,218 + 2,374 + 9,228 -18,814 + 2,216 + 25,402 + 3,158 - 13,652 - 23,458 - 26,051 Source: Tables 45 and 47. 0 * 0 -91- observed that the current account has produced a surplus, throughout the years, while the capital account was always in defibit. In other words, the pricing policy of the enterprise was such that the current account revenues were sufficient not only to cover current expenditures, but also to contribute to paying some of the capital expenditures. Thus the enterprise employed a pricing system with average price above average long run cost (being here defined as all current cost including debt amortization and interest payments). With the exception of the last year (1972) the trend was also such thatb current surpluses and capital deficits increased. In the absence of cash flow data, one can, unfortunately, not make a more precise judgment as to how much these developments reflect the underlying real forces of the pricing policy in the enterprise. It should be pointed out however, that despite the fact that between 1961 and 1972, prices were changed only twice (1962 and 1968), the financial viability was never seriously in question. Table 50 adds some information on this account. It shows that the number of calls per line for residential users is only about half the number of calls per line for industrial and commercial users. Moreover, Table 50 provides some information on the average charge per call in the Table 50: ETB: SUBSCRIBERS, CALLS, REVENUES, AND UNIT CHARGES BY USER CATEGORY, 1972 No. of No. of Revenue Average Charge 1,000 Calls Subscribers Calls Unit/1 from Billing pyr 1,000 Calls per Subscriber (,000) (Col$,000) (Col$/l,000 Calls) Residential 144,959 756,211 86,779 114.76 5.22 Commercial & Industrial 52,400 563,433 64,618 114.68 10.75 Official 11,901 64,932 7,385 113.73 5.46 Exchanges l0,550 198,007 22,709 114.64 18.77 Private 914 19318 2,215 114.66 21.1 Fast Access 370 8,049 923 114.67 21.75 /1 Measured by ETB in terms of "marcaciones". Source: ETB. -93- various user groups. The striking fact is that with the exception of official users, all categories pay very similar average prices, indicating that the differences in the monthly service charges are all but eradicated as a result of the higher usage of the facilities by the high tariff groups. On the other hand, within the broad categories transfers are likely to be taking place from higher to lower tariff categories, unless the usage even within residential, and industrial/commercial categories respectively, varies in line with the assessed value of properties and enterprise asset values. The data are not detailed enough to permit a verification of this hypothesis, however. Despite the claim by ETB officials that the arrears in payment are not significant and are merely changing in response to changing overall conditions of revenue increases within the two-month period allowable for payment of a service bill, Table 51 shows that the ratio between receiv- ables on service accounts and service revenues has not been steady over the years. For the period of 1961 to 1972 as a whole it has somewhat increased, but in the intermediate years, especially 1967 some particular problems appear to have arisen. Clearly, a situation where receivables equal more than half total annual service bills must present serious liquidity problems to the enterprise and be the result of problems in the collection process. Since 1967 the collection rate has again improved, but in 1972 still lay above that of the earlier years. It was mainly the private sector which created the collection difficulties, while public - 94 - Table 51: FTB: OUTSTANDING DEBTS ON SERVICES (Col$,OOO) Official as Ratio Debt! Total Official Percentage Receipts from of Total Services 1960 2,820 1,903 67.5 11.20 1961 3,824 1,728 45.2 15.19 1962 4,239 20154 50.8 15-31 1963 5,512 2,283 41.4 17.52 1964 5,278 2,517 47.7 14.49 1965 7,685 2,368 30.8 19.06 1966 11,292 2,743 24.3 20.78 1967 38,602 4,414 11.4 57.22 1968 28,375 6,381 22.5 33.09 1969 29,204 4,063 13.9 22.66 1970 27,817 3,383 12.2 20.43 1971 19,089 3,613 18.9 1357 1972 33,879 3,058 9.0 18.69 Source: EB: Estados Financieros. - 95 - sector receivables, although increasing for the period as a whole fell drastically as a proportion of overall receivables. At this point it should also be mentioned that the ETB is required by statutes (Acuerdo 72/1967) to pay a transfer of 4 percent of its gross revenues from services to the District Treasury to be used in equal halves for secondary school construction and for the construction of a childrens' home (Instituto Paulo VI). However, according to ETB officials no cash payments have been made between 1967 and 1972 on this account, although the accrued annual payments appear in the annual reports of the enterprise since 1969 (see Table52 ).1/ 1/ But note that according to the Financial Report of the District Controller Col.$l,989,000 was paid to the District's Revolving Fund for the Develop- ment of Sports and Culture, which amoiunts to approximately 50 percent of the transfer recorded in the ETB balance sheet for the same year. - 96 - Table 52: AGCRUED TRANSFERS TO DISTRICT ADMINISTRATION (Col$,000) 1968 - 1969 4,161 1970 5,449 1971 4,597 1972 h,724 Source: ETB, Estados Financieros, Balance Consolidado- 1969-1972 -97- V. SOLID WASTE DISPOSAL AND OTHER URBAN PUBLIC SERVICES A. History, Organization, and Service Levels Acuerdo 30/1958 set up an Enterprise for Refuse Collection and Street Cleaning (Empresa Distrital de Aseo), which in 1960 (Acuerdo 75) was expanded into the Public Services Enterprise (Epresa Distrital de Servicios Publicos, EDIS), extending its functions to include, in addition to street cleaning and refuse collection, the administration of the municipal slaughterhouse, markets, and cemeteries. 1/ In 1971 (Decreto 1393) the Mayor revised the statutes of the enterprise, defining the structure, functions and resource base of EDIS as described in this section. The enterprise is an autonomous, decentralized municipal agency, governed by a Board of Directors. This Board is presided over by the Mayor or his representative (the Secretary of Health of the District Administration). It further consists of the Personero; two members selected by the Council, and belonging to two different political parties; two members who have to be ex-Councillors, and who are chosen by the Mayor from a list of candidates drawn up by the Board of Directors of the Banco de la Republica; and finally two members, selected by the Mayor from a list of candidates proposed by the city banking associations. The functions of the Board are to formulate the general policy of the enterprise, its plans and programs; supervise the functioning of EDIS; appoint its General Manager and General Secretary; set service charges, and determine rules governing the provision of services; approve the yearly budget and the annual closed accounts; and approve all contracts and loans. In decision 1/ Before the creation of EDIS these functions were in the hands of the District Administration. - 98 - relating to service charges the Mayor has a veto power. The General Manager is in charge of directing, coordinating, and supervising the execution of the enterprise programs and plans; he prepares all plans, budgets, annual accounts, tariff structure changes, etc. for approval of the Board. He also names and dismisses all employees below him (with the exception of the General Secretary and the Auditor of the enterprise) with approval by the Board. In 1973, according to budgeted figures, the enterprise employed a total of 3,343 employees with a wage bill of Col$ 74,244 thousand, resulting in an average annual wage of Col$ 21,910. These figures comprise 246 professional and administrative employees with an average wage of Col$ 47,756 per annum, and 3,097 service personnel with an average wage of 091$ 21,910. Tables 53 through 57 present some indicators of the levels of EDIS services. The area served by the refuse collection services has con- tinuously expanded over the recent years, and in 1973, according to informa- tion provided by EDIS, was covering 92 percent of the total city area (Table 53). Between 1966 and 1973 the number of motorized vehicle avail- able for street cleaning and garbage collection increased from 75 to 241, 1/ while the number of large metal refuse containers rose from 50 to 330 during the same period (Table 54). Seven new markets were opened between 1969 and 1973, adding 72 shops, 242 interiors stalls and 1,798 booths, as well as six health centers (Table 55). Cemetery services increased con- siderably over the last three years (Table 56), while the services provided by the municipal slaughter house actually decreased between 1968 and 1970, increasing slowly thereafter. 1/ Placed centrally in a neighborhood for trash deposition by individuals. -99- Table 53: AREA SERVICED BY REFUSE COLLECTION Year Square Kilometers % of Total City 1967 180 72.0 1968 184 73.6 1969 188 75.2 1970 199 79.6 1971 210 84.0 1972 220 88.0 1973 230 92.0 Source: EDIS Table 54: EDIS EQUIPMENT USED IN COLLECTION AND SWEEPING Years Garbage Trucks Cranes Street Water- Bulldozers Domp Trac.tor Metal Trade Total Sweepers Spraying Trcks Trailers Containers Trucks 1966 57 4 2 3 3 2 4 50 125 1967 38 +(4o) 1/ 4 3 3 3 2 4 50 107 1968 57 +(20) 1/ 3 10 3 4 3 5 50 135 1969 85 3 10 1 I 3 5 50 161 1970 85 3 10 1 2 2 5 30 128 1971 120 2 8 11 6 2 5 20 189 1972 140 2I 18 11 6 4 8 230 441 1973 160 34 18 11 6 4 8 330 571 2/ 1974 195 45 20 12 8 4 8 430 722 NOTE: 1/ Number in parenthesis represent number. of vehicles which are rented 2/ Projected Source: EDIS 0 0 - 101 - Table 55: NEW MARKETS Interior Health Markets Year Shops Stalls Booths Center RESTREPO 1969 14 72 475 Yes FONTIBON 1969 - 34 102 No DOCE de ODUBTE 1970 31 22 370 Yes KENNEDY 1971 7 39 224 Yes SIETE de AGOSTO 1972 9 26 211 Yes TRINIDAD GALAN 1973 5 15 166 Yes VEINTE de JULIO 1973 6 34 250 Yes TOTAL 72 242 1,798 Source: EDIS -102- TABLE 56 CEMETERY SERVICE 1970 - 1972 Year Bur34als 1970 9,899 1971 10,545 1972 12,240 Source: EDIS -103- TABLE 57 SLAUGHTERHOUSE SERVICE 1970 1972 1968 Slaughter Total 131,016 1970 Cows Pigs Total Enclosure 97,615 - 97,615 Weighing 97,615 34,917 132,532 Slaughter 71,016 34,917 1o,933 1971 Enclosure 101,012 - 101,012 Weighing 101,012 35,595 136,607 Slaughter 68,810 35,59 104,40 1972 Enclosure 99,500 - 99,500 Weighing 99,500 42,040 141,540 Slaughter 75,314 42,040 117,354 Source: EDIS; Controlaia de Bogota, D.E. Informe Financiero 1968 - 104 - B. Service Charges Service charges are determined by the Board of Directors; street cleaning and refuse collection charges must be approved by the National Tariff Board. As with the other public utilities, the National Tariff Board has set down long run average cost pricing as the basic principle. Refuse collection is financed by a tariff levied on the assessed capital value of real estate. Table 58 summarizes the tariff structure in force since 1959. Until 1971, the tariff was set as a fixed charge rising in absolute terms with property value, but declining as a percentage of property ralue for the higher property value categories. Viewing this charge as a property tax, the declining rate makes the charge more regressive (less progressive) in its incidence than would a strictly proportioned charge. In 1971, this system was replaced by a tariff structure which levies rates proportional to property value, thus avoiding regressive effects o-n the income distribution* For residential properties the tariffs were raised throughout the period, starting with tariff rates ranging between 0.34 permill and 120 permill; in 1964 this was raised to a range of 0.96 to 1.73 permill; and then, in 1971, to a uniform rate of 4.2 permill, which was further increased to 4.8 permill in 1972. Government agencies and non-profit organizations pay a reduced rate of 2.4 permill, while industrial and commercial enterprises with capital assets beyond a certain size pay - 105 - TABLE 58 1/ EDIS: REFUSE COLLECTION TARIFFS 2/ 3/ Tariff 1959 Tariff 1964 4 Assessed 4/ 4/ Property Value Col$ p.a. permill Col$ p.a. permill (Col$,000) 0 - 10 - - - - 10 - 15 10.80 0.86 12.00 0.96 15 - 20 15.72 0.90 18.60 1.o6 20 - 30 30.00 1.20 39.00 1.56 30 - 40 42.00 1.20 49.80 1.42 40 - 60 $1.00 1.02 69.60 1.39 60 - 80 510 0.73 97.20 1.39 80 - 100 $1.00 0.57 136.20 1.51 100 - 120 $1.00 0.46 190.80 1.73 120 and over $1.00 0.34 247.80 1.65 5 J[OTES: 1/ Exemption for properties below Col$ 10,000 assessed value applies only if used for residential purposes. Also, a special service charge of Col$0.04 per kilogram of refuse is charged for special services (i.e. large scale or high frequency of collection). 2/ Acuerdo 77/1959. 7/ Acuerdo 36/1964. ,7/ Evaluated at mid point of value class. 5/ Evaluated at Col$ 150,000. - 106 - TABLE 58 cont'd EDIS TARI: REFUSE COLLECTION 1971: (Resolucion 2/1971, Junta Nacional de Tanfos) 1. Basic Service Charge: Col$ 0.35 per month (Col$ 4.2 per year) for each Col$ 1,000 or fraction thereof, of assessed value of property. i.e. approximately 4.2 permill tariff on assessed value of property. 2. Exemptions: properties with assessed value below Col$ 15,000. 3. Special Service: if average monthly refuse is above 10m , special rates, determined by EDIS, are charged. 1972: (Resolucion 47/1972, Junta Nacional de Tanfos) 1. Official Agencies and Non-Profit Enterprises. Col$ 0.20 per month (Col$ 2.40 p.a.) for each Col$ 1,000, or fraction thereof, of assessed property value. i.e. approximately 2.4 permill tariff on assessed property value. 2. Residential Service: Col$ 0.40 per month (Col$ 4.80 p.a.) for each Col$ 1,000, or fraction, of assessed value. i.e. approximately 4.8 permill tariff on assessed property value. Exemptions: Properties with assessed value below Col$ 15,000. 3. Industry and Commerce: a) same as residential up to Col$ 10,000 of asset value. b) Col$ 240 p.a. fixed surcharge for asset values Col$10,000-50,000. c) Col$ 2.40 p.a. surcharge for each Col$ 1,000 of asset value, additional surcharge for asset values between Col$50,000 and 2,000,000. d) for average daily load over 1m , additional charge of Col$350 per load. - 107 surcharges graded with their asset values. Finally, exemptions are granted to residential properties assessed below Col$ 15,000 and additional l/ charges are levied on extra large loads of refuse. - Slaughter operations are financed through charges levied for each animal. They have doubled between 1961 and 1973 (Table 59) but have not been adjusted during the last six years. Cemetery services are financed by the sale of burial groundp and rental fees. Street cleaning services are not financed through tariffs or charges, but out of transfers received from the District Administration. EDIS was granted 20 percent of the collection of the property tax (Acuerdo 30/1958), and an additional transfer of 5 percent of the Industry and Commerce Tax (Acuerdo 57/1962). These transfers are to be paid directly to the EDIS by the District Treasury. Discrepancies, however, appear to have arisen between the statutory transfers, and transfers actually paid to EDIS, as will be shown in the next section. C. Revenues and Expenditures EDIS applies the accrual accounting principle in its budgets and closed accounts. Since the enterprise has applied varies different accounting formats over the recent years, oscillating between separate and common fund recording, it is difficult to extract a consistent set of data for the various functions, especially on the expenditure side. According to the statutes(Mayoral Decree 1393 of December 1971) the enterprise is to follow a separate fund accounting system (Article 74); but so far this has not been applied consistently. In the annual financial st.atement of EDIS for 1972, the 1/ These tariffs are levied on the occupier of a property, not the owner, and are collected by the EAAB in the case of residential properties, and by the EEEB in the case of industrial and commercial properties. - 108 - TABLE 59 SLAUGHTER FEES 1961 (Resolucion 9/1961) Slaughter Fee (Col $) Cattle 10.00 Pigs 5.00 Sheep 3.00 Source: Lauchlin Currie, Una Politica urbana para los paiser an desarrollo, Ediciones Tercer Mundo, Bogota, D.E. 1965 1967 - 1973 Cattle Pigs and Sheep (Col$) (Col$) Slaughter Fee 40.00 20.00 Enclosure Fee 5.00 2.00 Weighing Fee 4.00 2.50 Source: EDIS, Chief of Slaughter Operations. - 109 - breakdown of current expenditures by function is possible; however, the budget for 1973 clearly applies common fund accounting, not recording separately the financial flows for each function. The problem with the common fund accounting approach is not that inter-fund transfers are freely possible, but that it is impossible to formulate a rational pricing policy for each service in the absence of adequate recording to transactions ' 1/ by function. An added problem in data gathering was encountered when the chief accountant of EDIS could not locate any financial data for the years before 1964. According to him, the statutues do not require that records be kept for more than five years. Therefore, and with the aim to limit the size of the agency's archive, all annual reports for the years before 1964 had been destroyed. In the absence of a city data bank which stores the most important information for all public sector agencies, this procedure makes it impossible to reconstruct a comprehensive financial history of the city. As a result of these limitations, the figures obtained from EDIS and present in the following paragraphs are limited to the period after 1963, and must be treated with caution, particularly with respect to their consistency between years. EDIS revenues are separated into current and capital flows, the latter consisting entirely of credits (Tables 60 and 61). Current revenues are composed of the District Administration transfers of tax revenues, 1/ For further details on this, see Johannes F. Linn, Urban Public Finances in Developing Countries: A Case Study of Cartagena, Colombia, The World Bank, forthcoming, where a similar problem arose. - 110 - TABLE 60 EDIS REVENUES 1964 - 1972 (COL $ ,000) 1961 1962 1963 1964 1 1965 1966 1967 1968 1969 1970 1971 1972 Current Revenue District Transfers 9,331 9,4660 11,780 13,355 15,175 17,337 23,350 25,698131,293 36,969 37,446 30,399 2/ 3/ 1M3 3/ Refuse Collection 1,9571 2,607 3,h79 4,638 5,936 9,490 10,732 13,527113,86i 17,4d- 55,900 85,00 Markets 1,018 1,295 1,599 1,974 2,160 2,637 3,102 3,239 4,934 5,550 6,748 7,905 Slaughter House 2 085 2,278 2,491 2,722 3,91 3,207 3,622 3,736, 4,066 4,610 4,708 4,949 Cemeteries 1,137 1,307 1,502 1,726 2,116 2,350 2,413 3,278 3,606 4,665 5,080 4,438 Total Current Revenue 15,558 16,917 20,85l 24,415 29,302 35,021 43,219 49,478 57,699 69,194 109,882 132,691 3 3/ Credits - - - - 625 - - 12,1141 6,404/1 - 13,OOU 9,60U 16,947___ 20,85142? i 4, 1 6161 69194 1142,291 Total Revenue 15,558 16,917 1,115 29,927 35,021 13,219 61,619 61,099 69,194 122,882 Source: EDIS, Subdirectorate of Development and Planning Notes: 1/ All figures for 1961 to 1963 interpolated due to lack of original data: District transfers taken from J. Linn, "Urban Public Finances", op.cit.; refuse collection revenues interpolated by using growth rate 1964 - 1970 (no tariff change) of approximately 25 percent per annum; Markets, Slaughter House, and Cemeteries interpolated by using respective growth rates 1964 - 1972 (Approximately 19%, 8%, 13% per annum respectively). The total revenue figures for these years are derived by summing individual categories. 2/ Includes a small proportion of "other" revenues. 3/ Data provided by EDIS rounded off to nearest Col.$100,000. I OC Table 61 EDIS REVElIJES PERCENTAGE DISTRIBUTIONg964-1972 1964 1965 1966 1967 1968 1969 1970 1971 1972 District Transfers 54.70 50.70 .49.50 54.02 41.70 48.81 35.142 30.47 21.34 Refuse Collection 19.00 19.83 27.10 24.83 21.95 21.52 25.14 45.50 59.73 Markets 8.08 7.21 7.52 7.17 5.25 7.70 8.02 5.50 5.55 Slaughter House 11.14 13.09 9.17 8.40 6.09 6.35 6.68 3.83 3.50 Cemeteries 7.10 7.07 6.71 5.58 5.31 5.62 6.74 4.13 3.11 Total Current Revenue 100.0 97.90 100.0 100.0 80.30 90.00 100.0 89.43 93.26 Credits - 2.10 - - 19.70 10.00 - 10.57 6.74 Total Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Table 60 - 112 - revenues from the refuse collection charge, and of market, slaughter and cemetery fees. Current revenue grew rapidly between 1964 and 1972 at an average annual compound rate of 23.7 percent. Within total current revenue, receipts from refuse collection tariffs rose fastest with an average annual rate of 43.8%, increasing its share in total revenues of EDIS from just under 20 percent in 1964 to almost 60 percent in 1972. Between 1964 and 1971 no tariff changes occurred and revenues grew at the lower annual rate of 24.7 percent. During the same period the property tax base increased at an average annual rate of 17.3 percent indicating that the revenues from the refuse collection tariffs grew elastically with the property l/ tax base. For the years 1971 and 1972 the revenues increased in large steps above the trend of the previous years as a result of the tariff changes which occurred during both years. One may trace the development of the tariff structure also by computing the implicit average rate on property values each year (Table 62). This shows that the average rate grew rapidly between 1964 and 1966, but stagnated thereafter until 1970. The increase in the rate in the first three years may be explained by a number of different hypotheses: First, it may have been caused by relatively more rapid growth in the middle ranges of property values, which during these years were most highly charged; second, it may have resulted from extended coverage of public utility services and thus increased coverage of properties for the refuse collection tariff; finally, it must be remembered that the refuse collec- tion tax is not purely a tax on property values, but also consists of a surcharge for special services, which may have contributed to the observed changes. 1/ The elasticity of tariff revenues during that period may be the result to two factors, First, it may have been caused by rapid value growth in the middle ranges of assessed property values, which were most highly charged; second, an increased number of properties may have been covered by the tarifff - 113 - TABLE 62 EDIS Average Annual Rate on Assessed Property Value for Refuse Collection Tariff 1964 - 1972 Year Tariff Rate 1/ (per mill) 1964 0.42 1965 0.47 1966 0.66 1967 0.57 1968 0.65 1969 0.58 1970 0.67 1971 1.78 2/ 1972 2.20 3/ NOTE: 1/ Obtained by dividing refuse collection tariff revenues by assessed property values. Since the revenue data include revenues from non-residential categories, this rate is not a "pure" rate of property taxation. However, it gives some idea as to the general trend in the tariff rate on property values. 2/ Nominal tariff rate on residential properties established January 1971: 4.2 permill. 3/ Nominal tariff rate on residential properties established October 1972: 4.8 permill. - 114 - With the changes in the tariff structure in 1971 and 1972, the implicity rate on the assessed value of property increased by more than three times between 1970 and 1972, indicating the steepness of the tariff increases. However, for both 1971 and 1972, the average implicit rate remained substantially below the regular statutory rate. The reasons for this are not entirely clear, since the revenue figures are said to be accrual data, and thus do not reflect collection difficulties. Possible explanations are, first, that the property value base for the refuse collection charge is smaller than that for the property fee; second, that the new tariffs did not apply for the whole year in which they were instituted; third, that there are exemptions and lower charges for official and non-profit organizations; and finally, it is possible, that the enterprise does not have access to the most recent * property assessments on the books in the Catastral Offices of the District Administration. In any case, the problem bears further investigation by EDIS officials. Revenues from other services grew substantially slower during the same period: revenues from market fees increased 19.0 percent at p.a.; slaughter fees 7.8 percent; cemetery fees 12.5 percent. With the exception of slaughter operations all of these growth rates were above the rate of inflation, such that real revenues did not decline during the period. Revenues obtained by EDIS from the District Administration (20 percent of the property tax, and 5 percent of the industry and commerce tax) have grown at an average annual rate of 10.8 percent, as recorded by EDIS. However, comparing the EDIS figures with those recorded as actual cash transfers by the District Administration, some discrepancies appear during the last five years (Table 63). The average annual growth rate of the TABLE 63 COMPARISON OF ALTERATIVE FIGURES ON TRANSFERS FROM THE DISTRICT ADMINISTRATION TO EDIS, 1961-1972 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 (1) Property Tax 52,359 61,179 66,348 74,097 86,299 89,091 119,729 122,741 152,923 17h,h28 181,692 212,923 (2) Industry and k 25,127 25,056 30,397 24j263 32,016 34,662 42,447 54,808 60,426 66,219 Commerce Tax - 3 (3) Statutory Share of EDIS 1/ 10,472 12,236 14,526 16,072 18,780 19,027 25,547 26,281 32,707 37,626 39,355 45,896 (4) Transfers as Recorded by District 9,331 9,460 11,780 13,355 15,175 17,338 23,350 25,000 29,936 37,304 n.a. 37,962 (5) Transfers as Recordel -by EDIS n.a. n.a. n.a. 13,355 15,175 17,337 23,350 25,698 31,293 36,969 37,h6 30,399 Ratio (4) / (3) in % 89.1 77.3 81.1 83.1 80.8 91.1 91.4 95.1 91.5 99.1 n.a. 82.7 Ratio (5)/(3) in % n.a. n.a. n.a. 83.1 80.8 91.1 91.4 97.8 95.7 98.3 95.1 66.2 Source: J. Linn "Urban Public Finances", op.cit., and Table 60. Notes: 1/ Computed as 20 percent of property tax receipts for 1961 and 1962, and the sum of 20 percent of the property tax and 5 percent of the industry and commerce tax, for 1963 to 1972. 116-. cash transfers as recorded by the District was 14.0 percent. However, there appears to be no consistent discrepancy in the recording practices between the two sets of data, since for some years EDIS figures are larger than District figures, while for other years the reverse is true. However, as Table 63 also indicates, the recorded figures of both EDIS and the District are generally below the statutory share of the enterprise in the property tax, and industry and commerce tax collections. The discrepancy was particularly strong in the earlier years; it fell during the more recent years, but worsened again during the last two years. No explanation is at present aVAilable for this discrepancy, especially as EDIS officials, when questioned in general terms, had not expressed concern about incom- plete transfers from the District Administration. According to the EDIS accounts, loan finance was received only irregularly, and in none of the years did credits constitute more than 20 percent of total revenues. On the expenditure side the picture is more difficult to piece together by functional categories, because of the changes over the years in accounting format and practices in EDIS. Table 64 presents the information available on a consolidated basis for the years 1964 to 1972; the breakdown between capital and current account was subject to considerable fluctuations over the years (Table 65). In earlier years this was due to a considerable increase in real estate holdings of EDIS,1/ in later years, it is due to the irregular investment needs 1/ It is not clear from the data whether this resulted from a purchase of real estate by the enterprise, or whether it merely involved a transfer of public land from one district agency to anotl-er without compensatory cash transfers. TABLE 64 EDIS, EXPENDITURES 1962-1972 (Col $,000) /1/ 1/ 1/ 1/ 19637 1964 1965 1966 1967 1968 1969 1970 1971 1972 Current Expenditure Salaries and Wages 11,48 14,322 16,988 20,856 24,280 29,460 Maintenance 2,970 3,960 3,088 3,70k 6,833 9,542 49,800 55,900 81,000 109,500 Social Services (Transfers to CPS) 4,641 5,591 8,091 7,694 8,900 10,394 5,8oo 6,800 11,300 12,600 Debt Service - - - - - - 10,900 2,00 9,400 7,000 Total Current Expenditure 19,069 23,827 28,166 32,256 0,013 k9,398 66,5o0 65,l00 101,700 129,100 3/ 3/ Capital Expenditure 2/ 13,56t 27,291 3,7k9 1,769 785 4,3k0 4,000 11,00 29,200 9,600 Total Expenditure 32,637 51,125 31,915 34,023 4o,798 54,738 70,500 76,500 130,900 138,700 Source: EDIS, Subdirectorate of Finance Notes: 1/ Data provided by EDIS were rounded off to Col $100,000 2/ Includes investment in tools, machinery, and vehicles 3/ Most of this investment was caused by an increase in the real estate holdings of EDIS (1963: Col $12,002th. 196k: Col $18,833th.) 4/ Except for Capital expenditure all figures for 1963 are interpolated by applying the g'owth rate between 196k and 1968 of each individual category. TABLE 65 EDIS, EXPENDITURES PERCENTAGIE DISTRIBUTION, 1964-1972 Current Expenditure 16 1965 1966 1967 1968 1969 1970 1971 1972 Debt Service - . - - 15.5 3.1 7.2 5.0 Other 46.6 88.3 9h.8 98.1 92.1 78.8 82.0 70.5 88.1 Total Current 46.6 88.3 94.8 98.1 92.1 94.3 85.1 77.7 93.1 Capital Expenditure 53.4 11.7 5.2 1.9 7.9 5.7 14.9 22.3 6.9 Tåtal Expenditure 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Source: Table 64. and programs of the enterprise. Debt service obligations arose only after 1969, as recorded by EDIS, and also constituted varying proportions of total expenditures, following in lagged fashion the fluctuations in revenues from loans. In addition to these consolidated figures, a breakdown of current expenditures by functions is available for a number of years (1965, 1966, 1969 to 1972), but the coverage of expenditures varies between years (Table 66), and the totals are not always directly comparable with those in Table 64 of the consolidated expenditure accounts. In order to get a more consistent set of figures for these years the current expenditures of the consolidated accounts were allocated by functions in proportion with the shares of the respective functions in their annual totals in Table 66. The results are presented in Table 67 and combined with the revenue figures for each function in order to determine the financial perfbrmance of each of the services provided by the enterprise. Refuse collection and street cleaning are treated in EDIS expenditure accounts always as one category ('Aseo"), although they ace financed from two distinct sources, viz. transfers of tax revenues from the District Administration, and refuse collection tariffs properly. The share of these two functions in overall expenditures increased over the years from 80 percent to 90 percent at the expense of the shares of markets and slaughter services. Comparison of current revenues and expenditures for refuse collection and streed cleaning shows that in earlier years, with the exception of 1966, expenditures outstripped revenues (Table 67). In 1971, the change in refuse collection tariffs made itself felt, however, and produced a surplus which was maintained although barely, in 1972. TABLE 66 EDIS: CURRENT EXPENDITURE BY FUNCTION 1/a/ 1/a 1/a/ 1/a/ 2/b/ 3/a/ 1965 j 1966 - 1969 1970- - 19717 1972- Col $,000 % Col $,000 % Col $,000 % Col $,000 % Co1 $,000 % Col $,000 % Refuse Collection and Street Cleaning 23,687 7.50 27,753 81.80 50,oh9 86,94 66,211 89.24 69,500 87.531 73,559 89.32 Markets 2,013 6.75 2,070 6.10 2,344 4.091 2,886 3.90 3,900 4.91 1,236 1.50 Slaughter House 3,040 10.20' 2,969 8.76 3,659 6.31 3,593 b.8h ,100 5.16 4,656 1 5.66 Cemetery 1,058 3.55 1,135 3.3W 1,12 2.62i 1,500 2.02 1,900 2.40 2,901 3.52 Total 29,798 100.00 33,927 loo.oo"57,564 100O00 74,190 100.00 79, 00 1 Notes: 1/ Includes all administrative expenditres, social services debt service, and depreciation 2/ Includes depareciation, but not administrative expenditures or debt service 3/ Includes only direct expenditure on the respective services Source: a/ EDIS, Balance Annual 1965, 1966, 1969, 1970, 1972 b/ Rep. of Colombia, Bogota Urban Development Study, Phase II, Fiscal Studies, Bogota D.E. 1973, P. 64 TABLE 67 EDIS: CURRENT REVENUES AND ExPEDiTURES COmPARISON BY FuNcTIONS (COL $,000) 1964 1965 1966 1967 1968 1969 1970 1971 1972 Refuse Collection and Street Cleaning Revenues 1/ n.a. 21,111 26,827 n.a. n.a. 45,093 54,369 93,346 115,399 Expenditures 2/ n.a. 22,391 26,384 n.a. n.a. 57,815 58,095 89,018 115,312 Surplus (Deficit) n.a. -1,280 443 n.a. n.a. -12,722 -3,726 4,328 87 Markets Revenues n.a. 2,160 2,637 h.a. n.a. 4,934 5,550 6,748 7,905 Expenditures 2/ n.a. 1,901 1,967 n.a. n.a. 2,720 2,539 4,993 1,937 Surplus (Deficit) n.a. 259 670 n.a. n.a. 2,214 3,011 1,755 5,968 Slaughter House Revenues n.a. 3,915 3,207 n.a. n.a. 4,066 4,610 4,708 4,949 0 Expenditures 2/ n.a. 2,873 2,825 n.a. n.a. 4,223 3,151 5,248 7,307 Surplus (Deficit) n.a. 1,042 382 n.a. n.a. -157 1,459 -540 -2,358 Cemeteries Revenues n.a. 2,116 2,350 n.a. n.a. 3,606 4,665 5.,080 4,438 Expenditures 2/ n.a. 1,000 1,077 n.a. n.a. 1,742 1,315 2,441 4,544 Surplus (Deficits) n.a. 1,116 1,293 n.a. n.a. 1,864 3,350 2,639 -106 Total Current Surplus (Deficit) 588 1,137 2,767 3,206 80 -8,801 4,094 8,182 3,$91 Capital Account Surplus (Deficit) -27,298 -3,124 -1,769 - 785 7,801 2,400 -11,400 -16,200 0 Total Surplus (Deficit) -26,710 1,987 998 2,421 7,881 -6,401 7,306 -8,018 3,591 Notes: 1/ District Transfers and revenues from refupe collection tariffs. 2/ Current expenditures from Table 64 were distributed proportionally between the services according to the percentage distribution in Table 66. -122- The relatively small surplus in 1972 as compared with 1971 is accounted for in part by the fact that the transfers from the District Administration as recorded by EDIS that year were not only significantly below their statutory level, but also below what the past trend of recorded receipts would have resulted in if continued for that year. In fact, if the enterprise had received its statutory share of tax revenues through all years, it would have incurred a deficit on current account of street cleaning and refuse collection only in 1969 and 1970, This analysis of financial flows indicate that the tariff changes in 1971 and 1972 were necessary on financial grounds which is not surprising in the light of the fact that refuse collection tariffs had not changed since 1964,but the analysis also shows that the enterprise would have been better able to cover expenses for refuse collec- tion and street cleaning with a full receipt of its statutory share in tax receipts. Clearly, in the absence of greater certainty with regard to the proportion of taxes actually received from the District, it is difficult for the enterprise to plan its financial affa-frs on anything but an ad hoc basis. Markets produced a generally increasing surplus on current account, which indicates that the tariffs charged and the degree of capacity 1/ utilization must have been good. Slaughter services have generally produced deficits in recent years, with the exception of quite a 1/ This is very much in contrast to the experience of Cartagena, where the market operations have run continuous deficits and have had low capacity utilization. Unfortunately, market iees are not available for Bogota, which might help explain some of the difference. - 123 - large surplus in 1970. The deficits do not appear surprising given the fact that the enterprise has had constant fees for the last six years. With rising labor costs in an inflationary economy one would expect the unit costs of operations to increase over time at least the nominal terms. The surplus in 1970 must be explained by particular circumstances affecting the current expenditures on slaughter, which were exceptionally low during that year. Finally, cemeteries produced surpluses in general, rising up to 1970, and falling thereafter. In 1972, a small deficit occurred as a result of a combination of a drop in revenues and a sudden jump upward in expenditures. A review of the fee structure for the use of cemeteries might be necessary to maintain the financial viability of this service. Considering then the relationship of net flows on current and capital accounts one finds for the period of 1964 to 1972, that the current account was in surplus with the exception of 1969, during which there was an exceptionally large deficit on current account for street cleaning and refuse collection. The capital account was generally negative except for 1969 and 1970, indicating that EDIS has in the past financed at least part, and in some years all, of its capital expenditures through current account surpluses. In conclusion one may state that with the exception of the slaughter operations, tariffs and general tax revenues were sufficient to finance the expanded service levels of EDIS, although this was possible during the last two years only with substantial increases of the refuse collection tariffs. Given the fact that it will not be possible in future to continue - 124 - 1! raising tariff rates indefinitely,jit will be important for the financial management of the enterprise that the property base continues to grow at least as fast as in the past; in fact, a faster growth is likely to be needed since between 1964 and 1970, revenue collections of the refuse collection tariff increased elastically with the change in the property base. This experience cannot be expected to continue in the future since the rate of increase in coverage of the public utilities(to which coverage of refuse collection tariffs is linked) is likely to slow down, and because with the tariff changes during the last two years, the structure has become stricly proportional, i.e. such that with constant collection rate, the increase in the base will be translated only into a proportional increase in the revenues. Thus improved property assessment strategies are crucial for the future financial viability of the enterprise. In addition, such an improvement in the assessment system will directly affect the revenues of the enterprise through its shaire in the property tax receipts of the District Administration, provided EDIS can rely on the statutory transfers, which was not consistently the case in the past. Therefore a review of the inter-agency transfer procedures is also of great importance for the future financial position of the enterprise. 1/ Although an effort can be made to raise the effective rate of the refuse collection tariff on assessed property values to approximate the nominal tariff rates as set down in the statutes. - 125 - VI. PUBLIC UTILITY COSTS AND PRICING One may then turn from a discussion of the organizational and financial structure of public utility services in Bogota to an analysis of their cost structure. A large number of important questions may be raised in analyzing public service costs but most of these are beyond the scope of the present study, which concerns itself mainly with an evaluation of the fiscal implications of urban development. For this reason, a detailed analysis of costs by service, by type of user, by location within the city, or for alternative investment strategies will not be attempted here. Only 1/ two rather narrow questions will be raised: First, have the real costs of providing public utility services in Bogota increased over the recent years; and second, what are the implications of the development of historical costs for the financing and pricing of public services in Bogota. The conclusions even t6 these narrow questions will in most respects be tentative. 2/ Further work in this area is required to derive more reliable results. In order to provide an answer to the first question a regression analysis was performed on the historical cost data available for the public utilities in Botota. Two separate cost concepts were employed: first, 1/ Costs adjusted for increases in the general price level. Nowhere in this paper are costs shadow priced to adjust for foreign trade restric- tions or labor market imperfections. 2/ Another World Bank Research Project (671-18) is currently in progress in Cali which consideres more fully some of the issues which are only tentatively raised here. Only water supply, sewerage, electricity and telephone services are covered in this section. - 126 - operational costs, which include all operating expenses and depreciation charges; second, total costs, consisting of operational costs and capital costs, where capital costs are taken to equal the opportunity cost of fixed assets invested in the utilities. This opportunity cost was derived by multiplying the capital stock by a factor of 0.08. Care has to be taken in adjusting actual expenditure and capital asset figures to price-level deflated equivalents, and only imperfect adjustments were possible given the available data. For operating costs,the Bogota cost of living index was used to deflate the nominal figures. In the case of capital assets additions to assets each year were deflated by the consumer price index and added to the capital stock of the base year (1961). These cost data were then regressed separately on the quantity of the service consumed in the case of water and electricity, and on the number of subscribers 2/ in the case of water, electricity, and telephone services. Table 68 summarizes the results of the ordinary least squares regression analysis after having transformed all independent and dependent variables into natural logs. Given the double-log form of the equations, the regression coefficients may be interpreted as constant elasticities relating costs to output, or numbers of subscribers respectively. For 1/ This may be on the low side for Colombia, but takes the rate frequently used in National Planning Department documents in similar contexts. Future work could experiment with alternative higher rates. 2/ Strictly speaking, the cost of services varies probably with the quantity consumed and with subscribers jointly. But ulti-coleinearity between these two independent variables does not make it useful to include both into a single regression equation. Instead, for water and electricity the ratio of consumption per subscriber was included as an independent variable in addition to the number of subscribers. For none of the services, however, was it found that the coefficient of this ratio is significantly different from zero. - 127 - TABLE 68. BOGOTA, D.E.: PUBLIC UTILITY COST FUNCTIONS Dependent Variable Quantity Number of 2 Dependent Variable Constant Consumed Subscribers R Years 1. Water and Sewerage Operational Cost -6.003 1.974 0.981 1961-74 (0.407) (0.080) Operational Cost 7.517* 2.129 0.984 1961-74 (0.132) (0.078) Total Cost -5.012 1.876 0.985 1961-74 (0.342) (0.068) Total Cost 7.834 2.023 0.988 1961-74 (0.110) (0.065) 2. Electricity Operational Cost -4*518 1.147 0.931 1961-72 (0.717) (0.099) Operational Cost -6.471 1.904 0.976 1961-72 (0.581) (0.106) Total Cost -5.191 1.334 0.935 1961-72 (0.808) (0.111) Total Cost -7.668 2.259 0.955 1961-72 (0.954) (0.174) 3. Telephones Operational Cost -3,948 1.479 0.934 1961-72 (0.619) (0,124) Total Cost -2.526 1.315 0.979 1961-72 (0.302) (0.061) Notes: (a) All regressions were estimated in double-log form by ordinary least squares. The regression coefficients may therefore be interpreted as elasticities. All variables are adjusted for price level increases. Operational cost includes depreciation, but not debt service expenditures. Total costs consist of operational costs plus capital costs which are estimated as eight percent of fixed capital assets. (b) Figures in brackets show standard errors. (c) Regression coefficients marked with an asterisk(*) are significantly larger than unity at the 1.0 percent significance level, using a one-tailed t-test. - 128 - elasticities greater (less) than unity, the total cost function is concave (convex). In that case,average cost increases (decreases) as consumption or number of subscribers increases, and the marginal cost is above (below) average cost. As inspection of Table 68 shows, the regression coefficients are all greater than unity and, with the exception of one of them, they are significantly greater than unity at the 1 percent level, whether consumption or subscribers is taken as the independent variable, and whether operational or total cost used as the dependent variable. This presents at least preliminary evidence that costs per unit (subscribers) increase with growing service output and increasing number of subscribers for all of the three public utilities here discussed. As explained earlier, this also points to the fact that marginal costs are above average costs. These results permit us now to begin answering the second question posed at the beginning of this chapter. The financing requirements for the urban public utility services are determined, first, by the need for providing services to that part of the population not served at any time; second, by the growth in demand for services resulting from the rapid growth of the city (and to be wider degree from rising increases); third, by the rise in the general price level, to the degree that it leads to cost increases in line with all other prices; and finally, as now established here, by the increase in most costs resulting from the diseconomies of urban growth affecting the public utility services. In order to reflect average cost and maintain long term financial viability, real prices of the public utilities should have increased over the years, which was, however, not consistently the case for any of the utilities. - 129 - On the other hand, the fact that marginal cost'lay above average cost in the past indicates that if marginal cost had been charged for the public utility services, then all three of them could have run surpluses on current account from which they would have been able to finance capital account expenditures or expenditures on other urban services. In the case of electricity and telephone the former practice was indeed the case which would indicate that actual price approximated 1/ marginal cost price in very general terms. It would not necessarily be correct to extrapolate from the historical analysis of the previous paragraphs to a prediction of future public utility costs in Bogota, or to derive a prescription regarding the desirable price level or structure on the basis of historical costs. A forward looking analysis of costs is required for these purposes, based on detailed demand projections differentiated by temporal, seasonal, and spatial factors, and on the engineering and cost data of the optimal investment program designed to meet this demand. It is in this regard, as was emphasized at the outset, that the analysis in the present paper is only a backward looking and thus very partial and incomplete approach. 1/ No effort is made here to compute the marginal cost for each service and compare it with actual price on the grounds that the regression results presented above remain only tentative and cannot be used to derive detailed pricing prescriptions. These have to be based on a forward looking cost analysis as outlined in the following paragraph in the text. - 130 - VII. EQUITY: THE INCIDENCE OF PUBLIC UTILITY CHARGES AND ACCESS TO PUBLIC SERVICES Public utility pricing hag explicitly been used for some time as a tool of income redistribution in Colombia, and in Bogota in particular.- For water supply, sewerage, electricity, and telephone services this has taken the form of progressively structured user charges, related to the assessed value of properties or to the consumption of the service. In the case of refuse collection, the charges are now based on a proportional property tax, the incidence of which depends on one's assumption regarding the shifting of the tax burden.- In any case, a tariff structure which was in use in earlier years and which was clearly more regressive (less progres- sive) than the proportional property tax, has now been discontinued, presumably with the intention of improving its distributive effects. In contrast to this explicit focus on the income distribution objective in pricing the use of public services for those who benefit from access to them, much less attention has been given to the question of how the distribution of access to these services affects the distribu- tion of income, and what in turn are the major determinants of access to services for various income groups. 1/ See Johannes F. Linn, "The Distributive Effect of Local Public Finances in Colombia: A Review of the Evidence", World Bank Staff Working Paper No. 235, March 1976. 2/ See ibid. for a discussion of property tax incidence in Colombia. 131 - This section will review some evidence regarding the incidence of public service charges in Bogota, and consider the question of service access by low income groups, with a particular view as to the linkage between service pricing, access, and income distribution. A. The Incidence of Public Utility Charges In a recent study carried out for the National Tariff Board, M.I. Gutierres de Gomez estimated the distributive effects of public utility 1/ charges for four Colombian cities, among them Bogota. The author used city specific household income and expenditure data from a DANE survey for 1970, and applied the tariff structures for 1974 in the case of water supply and sewerage, electricity, telephone, and refuse collection 2/ services. On the basis of some very strong assumptions it was possible to compute by population decile the subsidy as the deviation of actual from average tariff for each service. This measure of subsidy 3/ was the taken J§a reflection of the distributive effect of user charges. 1/ Martha Isabel Gutierrez de Gomez, "Politica Tarifaria y Distribucion de Ingresos", Unidad de Infraestructura, Junta Nacional de Tarifas de Servicios Publicos, Secretaria Tecnica, 1975, mimeo. 2/ Most importantly, it was assumed, first, that the market value of properties may be inferred from real or imputed expenditures, and second, that these market values correspond to assessed property values. Neither of these assumptions is likely to be close to reality, especially the latter, as the evidence in J. Linn "Property Taxation in Bogota, Colombia", World Bank, forthcoming, indicates. Finally, it was assumed that the charge for garbage collection, which takes the form of a property tax surcharge, is actually borne by the occupant, not the owner, which is subject to some doubt. / For a critical review of this measure of incidence of user charges, see J. Linn "The Distributive Effects of Local Government", op.cit., pp.27ff. Table 69 summarizes the results of this estimation procedure. It shows the average (per household) subsidy in pesos by population decile in the city's income distribution, and further the percentage of subsidy relative to average income in each decile. Finally, the Gini-coefficient was computed for the income distribution without service charges, and with service charges, individually as well as in total. Table 69 shows clearly that the user charges transfer income through cross-subsidies from the top two population deciles to the lower eight deciles. This is reflected in the negative subsidy figures for the top two income groups, and the positive figures for the others; as well as in the improvement in the Gini-coefficient which takes place after allowing for the user charges. The size of these transfers is not inconsiderable, in that they amount to over one percent of income in some of the income groups. Water supply and sewerage, and electricity services appear the most effective in redistributing income: the former achieves the largest absolute and proportional transfers, while the latter reaches down the farthest in the income distribution and has the largest redistributive effect as measured by the improvement in the Gini-coefficient induced by any individual service. The least important of the services is clearly the telephone service, since it does not touch at all the lowest 50 percent of the population, and since it does not involve very sizeable transfers at any income level. Besides indicating the degree to which the richest two population deciles cross-subsidize the remaining income groups, Table 60 also dEnonstrates the limitations of the use of user charges in achieving TABLE 69. BOGOTA, D.E.: SUBSIDIES FRO PUBLIC UTILITY PRICING, 1974 /1 Water and Sewerage Electricity Telephones Garbage Collection Total Population Subsidy Subsidy as Subsidy Subsidy as Subsidy Subsidy as Subsidy Subsidy as Subsidy Subsidy as Decile Col.$/Month % of Income Col.$/Month % of Income Col.$/Month % of Income Col. $/Month % of Income Col.$/Month % of Income 0- 1.0 - - 1.13 0.18 - - - - 1.13 0.18 10- 20 - - 4.66 0.40 - - - - 4.66 0.40 20- 30 - - 5.07 0.34 - - - - 5.07 0.34 30- 40 16.72 0.91 5.37 0.29 - - 13.75 0.75 25.84 1.95 40- 50 16.48 0.72 6.72 0.29 - - 11.12 0.49 34.22 1.47 50- 60 14.10 0.49 6.63 0.23 2.48 0.09 10.72 0.38 33.93 1.18 60- 70 14.10 0.38 5.78 0.15 2.96 0.08 3.21 0.09 26.06 0.70 70- 80 9.02 0.16 4.28 0.07 2.14 0.04 (1.74) (0.03) 13.70 0.24 80- 90 (15.23) (0.18) (8.92) (0.10) (2.05) (0.02) (9.86) (0.12) (36.07) (0.42) 90-100 (147.65) (0.82) (20.33) (0.11) (9.57) (0.05) (44.94) (0.25) (222.50) (1.24) GTi officients (Without Charges: 0.5103). 0.5098 0.5074 0.5102 0.5097 0.5070 L1 ' Figures in brackets are negative subsidies. Source: M.I. Gutierrez de Gomez, op.ckt., Annex Table No.6. - 134 - the redistribution objective. The lowest three deciles in the income distribution benefit hardly at all from the redistribution induced by the tariff structure. The reason is their lack of access to the services. It is this issue which has in the past been seriously neglected in public utility pricing policy in Colombia, and which needs more careful con- sideration both on the analytical and at the policy level. B. Access to Public Utility Services The importance of access to urban public services is not alone based on the realization that the distributive impact of progressive user charges is limited in a situation where the lowest income groups have no or little access to these public services. As important is the consideration that access to public services provides the users with substantial benefits in terms of consumer surplus which is realized by having in-house water and electricity supply, sanitary sewerage system and an effective disposal of solid waste. The surplus results from the fact that private substitutes for these services are either not available, or only imperfectly so (e.g., hand-carried water from stand pipes or water trucks), and then often at significantly higher prices. Data on the distribution of access to public services are scant, even for a large and well studied city such as Bogota. And those figures which are available are quite unrealiable due to the dubious basis on -vhich they are collected. The problems which are encountered in surveys trying to establish service coverage are as follows: First, the metro- polital area may not be adequately covered in its entirety by the survey, - 135 - by leaving out some of the more recently formed squatter settlements, and thus understating the degree to which services are lacking among the poorest income groups. Second, official serveys, such as the national census, may overstate the lack of services, to the degree that illegal connections are not reported out of fear of official reprisal. Thus, access figures tend to be unreliable, both in the aggregate and by income groups. By way of example one may contrast the figures for water supply and sewerage coverage as reported by a private survey conducted in the context of Phase II of the Bogota Urban Development Study with the figures reported in a'recent publication of the National Tariff Board. The former found that 83 percent of all households in Bogota had access to in-house water supply and 96 percent had access to sanitary sewage 1L/ disposal. In contrast, the Tariff Board study cites proportions of 70.9 percent and 70.2 percent respectively, which are probably closer to actual fact, based as they are on information supplied by the EAAB, adjusted to allow for the entire metropolitan area./ Based on the Phase II household survey of approximately 60 neigh- borhoods in Bogota, one may try to establish the relationship between income and access to services. Table 70 shows the simple correlation coefficient between average household income in each neighborhood and 1/ Consultecnicos, Encuesta de Hogares, Bogota, 1972, unpublished data. For electricity, this source estimated a coverage ratio of 98 percent, for in-house telephones 48 percent, and for garbage collection 91 percent. 2/ Junta Nacional de Tarifas, "Resultados de la Informacion Basica Anual Sobre Servicios de Acueducto y Alcantarillado de los Principales Ciudades del Pais, 1974", Documento JNT-279-UINF, September 1975, Annex Table 1. - 136 - TABLE 70. CORRELATION COEFFICIENTS (r) BETWEEN PROPORTION OF NEIGHBORHOOD HOUSEHOLDS WITH ACCESS TO PUBLIC SERVICES AND AVERAGE HOUSEHOLD INCOME PER NEIGHBORHOOD / 1 Correlation Public Service Coefficient (r) l-house piped water supply 0.440 In-house piped sewage disposal 0.253 In-house electricity connection 0.321 In-house telephone connection 0.621 Garbage collection 0.363 Households with Amenities 1 /2 0.523 Households with Amenities 2 /3 0.567 fl The correlation is significantly different from zero at least at the 5 percent level for services marked with *; and at least at the 0.5 percent level for services marked with **; the number of observations (neighborhoods> is 60. /2 Assuming all five service levels are linearly com- bined giving equal weight to each (0.20). /3 Assuming all five service levels are linearly com- bined giving differentially weights to water (0.30), sewerage (0.30), garbage collection (0.20), electricity (0.15) , and telephones (0.05) Source: Based on survey data from Consultecnicos, Encuesta de Hogares, Bogota, 1972. - 137 - the proportion of households served by individual water supply, sewerage, electricity and telephone connections, and by garbage collection services. For each of these services it is found that there is a significant co- relation between income and access, providing some statistical support for the generally made observation that low income groups tend to have less access to public services than the higher income groups. When com- bining the various services into a summary measure of amenities, the degree of correlation is strengthened considerably, showing that when all public utilities are combined the lower income groups tend to be even more systematically excluded than is the case for each service individually. The degree of correlation is probably understated in that the survey on which the data are based, did not include the more recent squatter and pirate settlements at the fringe of metropolitan Bogota, which lack most 1/ public services and harbor the poorest income groups. On the basis of this information and of the knowledge of the institutional setting of public utility service provision and pricing in Bogota, one may speculate as to the reasons for the lack of access to public services particularly among the lowest income groups. First, and most obviously the ability to pay for the capital and distribution costs of public services is lowest for the lowest income groups, especially since imperfect capital markets operate against lower income groups 4i 1/ More detailed information is currently being gathered by Marcelo Selowsky at the World Bank in a research project which aims, among other objectives, to ascertain the coverage of public services by income groups in the rural and urban areas of Colombia. - 138 - their ability to raise money to pay for installation fees and related expenses. This. problem is aggravated particularly in the case of water supply and sewerage services, where high connection fees are charged by EAAB. It is of interest to note that according to all available evidence the coverage of the population of Bogota achieved in these two services is considerably below the coverage of electricity services, for which the access charges are much lower. Other barriers to access, particularly among the lower income groups, may be found in the financial constraint under which the public utility companies in the rapidly expanding urban area of Bogota operate. For water supply expecially, and in part for electricity services, the recent expansion of production capacity through the Chingaza project has required substantial capital outlays which have induced a considerable debt service burden for the utilities. This in turn makes a major expansion program for the distribution networks financially difficult, as it strains further ~1/ the capital and current accounts of the companies.- This situation is aggravated by a number of additional factors: First, given the highly progressive charges related to use of the system, especially in che case of water supply, the capacity and willingness to pay of the highest income groups is exploited to subsidize the use of the services among the 1/ To the extent that the Chingaza project involves an over-extension of capacity far ahead of demand, this may represent an exceptional situation in the case of Bogota, resulting primarily from poor demand projections leading to the overly costly, premature, and imbalanced investment design. - 139 - middle income groups which have access to the services, rather than to expand the services to the lowest income groups, which have no access as of now. Second, given this progressive system of user charges, the low income groups present a net financial burden to the company on current account, when they are brought into the system. Third, this problem is aggravated by the fact that many of the more recent squatter and pirate settlements tend to be located at the periphery or in locations which are very difficult and thus costly to supply with public services, since they are located at great distances from supply sources or on mountainous terrain, requiring more costly distribution works and possibly secondary pumping. Fourth, the political pressure and clout of developers and of high and middle income residential neighborhoods, which have spread rapidly in recent years, may explain that there is little question about providing a trunk service line to such a neighborhood, once the developers have put in the secondary distribution network; or of providing garbage collection and street cleaning services once a high or middle income neighborhood has been established. In contrast, these services are provided only at a considerable lag, if at all, to low income settlements as they develop at the urban fringe in the absence of political influence of these groups.? 1/ See Vernez, 22.cit., p.7, for evidence of this type of Bogota. 2/ Thus the Colombian growth strategy under the "Four Strategies" national plan, in the early 1970's concentrating on construction as the leading sector, and encouraging especially middle-class residential development, may not only have led to inflation in the building sector and thus have hurt particularly low-income auto-construction; but it may also have directed expansion of infra-structure investment from low- to middle-class neighborhoods. - 140 - Finally, given the financial administrative autonomy of each of the public utility enterprises in Bogota, no cross-financing between utility services is possible.1/ Autonomy has been taken by some to be a desirable organizational form for public utilities in that it encourages financially sound management and pricing policies. But the case of Bogota is an example for the fact that autonomy is not a sufficient condition for achieving this particular objective, and that it limits the flexibility of investment and financing policies with at times somewhat bizarre consequences. In particular, the history of the Bogota Water Company (EAAB) shows that autonomy is not a sufficient condition for financial soundness, since it has for years fallen short in covering current account expenditures from current revenues, and given the rising costs which it faced has thus neither charged long run average, not long run marginal costs. Given its 4inancial problems and the over-extension of productive capacity in the Chingaza project the EAAB has now too much water capacity on the one hand, while on the other hand, a 7arge proportion of the population in Bogota goes without piped water, because the distribution system cannot be extended rapidly enough in the face of the existing financial straights. At the same time, the Telephone Company (ETB) is faced with an excess demand of customers willing to pay the connection deposits and the user charges at the going rates, and has for years already experienced a comfortable surplus on current account. Yet there is no ready way to transfer 1/ EDIS represents an exception in that cross-financing between the services provided by this agency is possible, and has actually occurred; the slaughter house operations, and in some years the refuse collection operations have been supported by the other services provided by EDIS. /7 -141- financial resources from ETB to RAAB to finance the extension of the water supply network, although financial resources could relatively easily be raised in the Telephone Company by increasing the connection fees to the point where actual demand matches the socially optimal rate of increase of telephone capacity in the city. If the three major public utilities had been put under one roof financially and administra- tionally, then such a transfer would have been possible, and the existing anomaly of excess capacity in production for water supply with serious lack of coverage of the population could possi:bly have been averted. Besides improving the efficiency of resource allocation, this cross-financing would undoubtedly have resulted in an improved income distribution, since it would have made it possible to extend the water supply system to the lower inoome neighborhoods more rapidly, thus giving them the benefit 1/ The case of Cali provides an interesting contrast. In Cali the three major public utility services (water supply and sewerage, electricity, and telephones) have for years been provided by one single company. From preliminary analyses it appears that the electricity and to a degree the telephone operations have supported the rapid extension of water supply and sewerage services in the city in recent years at connection charges which low income groups could afford to pay. It is of interest to note, however, that the joint utility enterprise is now at the verge of being broken up into three separate enterprises. The desirability of this move sould be subjected to careful considera- tion, given the importance and successful use of financial flexibility induced by the combined provision of public utility services. - 142 - of the consumer surplus derived from access to the service, as well as spreading the redistributive effects of the progressive water tariff structure further down into Lhe income distribution.- 1/ The financial and administrative autonomy of each public utility in Bogota has led to problems in yet a different, but related context. As a result of the Chingaza project, the Electricity Company (EEEB) experienced a considerable increase in generating capacity. However, its contribution to the capital costs of the projects have been calculated to fall short considerably of the share in the benefits received by existing and future electricity users. As a result, water users appear to be cross-subsidizing electricity users, and the EAAB is constrained in its ability to utilize the capacity increase generated by the Chingaza project to extend its service to the approximately 30 percent of the population of Bogota currently not served by the water supply system. For an analysis of the insufficient contribution of EEEB to Chingaza project costs, see EAAB, Estudio Economico-Financiero, Bogota, June 1975, -143- VIII. CONCLUSIONS All major public utility services - water supply and sewerage, solid waste disposal, electricity, and telephones - in Bogota, D.E. are provided by local government agencies, which contribute a considerable share both on the revenue and on the expenditure side of the consolidated financial accounts of local government in Bogota. This highlights the importance of these services in terms of the role which they play in the overall finances of the city, as well as in the lives of the urban population of Bogota. This concluding summary and evaluation briefly pulls together the major elements of the analysis of the previous sections, by providing an overall view ever the organization, pricing and financing of the public utility services in Bogota. A. Organizational Framework: The Benefits and Costs of Functional Decentralization The most striking feature of the organization of public utilities in Bogota is their functional fragmentation, where the major services, especially water supply and sewerage, electricity, and telephones, are provided by separate autonomous local agencies. In principle, coordination of investment planning, pricing and financing policies for these services is to be achieved through the fact that the Mayor and District Council are represented on the Boards of Directors of the public utility enterprises. Furthermore, the District Planning Department in principle has the function of coordinating the plans and policies of the decentralized agencies. And finally, the District Controller is to supervise the financial accounts of these agencies and provide consolidated records on a city-wide basis. Given these coordinating elements, the autonomy of the public utility enterprises is to assure independence from political pressures in the day-to day management and personnel decisions of I. ... .. -144h- the enterprises, by delegating these functions to professional managers and technical personnel, who are supposedly more removed from political influences than is the staff of the District Administration. Impossible though it may be to quantity and measure the degree to which these objectives have been attained in Bogota it is probably correct to say that the autonomous public utility enterprises have in general maintained a high degree of professional competence and technical management; and compared with some of the District Agencies the public utilities tend to have a more stable, and thus more experienced personnel. Of course, it is difficult to say to what degree administrative and financial autonomy'is a necessary condition for this experience. One might note, however, that public utilities, by their very nature will tend to attract more professionally and technically oriented staff and management, than do the other fields of municipal responsi- bility such as general administration and urban planning, health and education. Furthermore, even as far-reaching an. autonomy as granted to public utilities in Bogota may not be sufficient to ensure that they remain outside the political domain regarding the pricing and financing decisions. As was shown above, and will be reiterated below, in some cases - in particular water supply and sewerage services - political constraints (among others) have prevented the attainment of efficient, equitable, and financially sound pricing policies. Thus, adminstrative and financial autonomy is probably neither a necessary, nor a sufficient condition for the attainment of the objectives of professional and technical competence of staff, and for staying outside the political arena in their pricing policies. Nevertheless, it may remain true that on balance the probability is increased under autonomy that these objectives will be reached. But functional fragmentation also is associated with some costs, which have to be weighed against the likely gains. In the case of Bogota -1145- a number of these costs have become evident, although they are as difficult to quantify , as are gains which were discussed above. One of the more frequently voiced criticisms regarding functional fragmentation of urban government in Bogota is that it results in unnecessary duplication of effort in the provision of services, when for instance roads have been ripped up repeatedly, because firbt water and/or sewerage lines were laid, and then, after repaving, the Electricity Company had to put in electricity lines. While this lack of coordination may have occurred in specific case, it does not appear to have been more of a problem in Bogota than elsewhere, where all major public utility services are carried out under one roof. A more important cost may have been the overly ambitious expansion of productive capacity in the case of water supply and energy in the context of the Chingaza project. The experience with this project fits in virtually all respects the stereotypeof the technocrat-managerial decision making model, where it is hypothesized that the technocrat will try to maximize the size of the operations of his agency rather than to optimize according to socio-economic criteria, requiring for instance a more balanced expansion of production and distribution capacity, or of different types of services. One must note also, however, that the then Aayor of Bogota, as the chairman of the Boards of Directors of the Bogota Water Company (EAAB) and of the Bogota Electricity Company (EEEB), most certainly had a decisive impact in the decision making process which led to the approval of the Chingata project. It is therefore far from clear that an organizational structure, where the water operations had been more directly linked to the District Administration, 1/ Note that during recent years the provision of health services by the Di6trict Administration virtually tstagnated; see Johannes F. Linn, "Education and Health Services in Metropolitan Bogota, Colombia: Organization, Service Levels, and Financing," World Bank, forthcoming. -146- would have led to any other decision. Somewhat clearer are the costs associated with functional fragmentation and public utility autonomy when one cosiders the rigidities which are in- troduced into the pricing and financing policy under autonomy. In the case of the Chingaza project benefits are shared between water and electricity users, and therefore between EAAB and EEEB, but the former bears virtually all of the capital and systems costs.- While this has been pointed out in strong terms by the staff of EAtB-=, EEEB has steadfastly refused to make major.contributions to EEEB to share the costs of the Chingata project. Negotiations were held between the enterprises, but no solution to the impasse had been reached as of late-1975. Also largely as a result of the financial autonomy of each of the public utility enterprises cross-financing between public services is virtually ruled out. For instance, actual or potential surpluses from telephone or electricity operations cannot be utilized to finance extension of water or sewerage services to low-income neighborhoods, as has been the case in Cali, where the public utilities are operated by a single company. Neither were any financial resources from these public services generated for any other service function, such as welfare or health. In principle, such cross-fin- ancing would be possible by earmarking portions of public utility revenues for transfers to the General Fund of the District Administration, or to other local autonomous agencies. Alternatively, the District Administration could levy a tax on the users of specific utility services. An example for the successful application of this type of transfer arrangements in the presence of financial autonomy of service agencies is Cali, where the public utility enterprise (EKCALI) is required to transfer 4 percent of its gross 1/ See above, p. 142, In. 1. 2/ EAAB, Estudio Economico-Financiero, Bogota, June 1975 -147 - current revenues to the general. fund of the municipal administration. In Bogota, the evidence points rather in the opposite direction. No effort has been made by the District Administration to draw on the financial base of the public utility companies, except in the case of the Telephone Company, which is required by the statutes to transfer 4 percent of its gross service revenues to the District Treasury, but has never in fact made a payment.-/ A similar experience has been made in Cartagena, where a municipal telephone beencollctedonlyvery2/ tax has been collected only very sporadically.- In contrast, where public services are run by the same enterprise, cross-financing is generally much more freely engaged in. This has been the case in Bogota,with EDIS; in Cartagena with the municipal public service enterprise , and in Cali with the public utility company. On equity or efficiency grounds such cross- financing may well be desirable *, and the autonomy of public utility agencies appears to represent a clear impediment. To the degree that financial transfers actually take, place between the District Administration and the public utility enterprises (mainly the transfer of Distriet tax shares statutorily earmarked for EDiS), the ear- marking requirements are not systematically followed, and discrepancies occur in the records on transfers actually made, as kept by the District Administration and EDIS respectively. The functional and Administrative fragmentation certainly contributes to this confusion in the implementation of statutory regulations and in finaicial management. 1/ See above p. 95. 2/ See Johannes F. Linn, "Urban Public Finances in Developing Countries: A Case Study of Cartagena, Colombia", World Bank, forthcoming. 3/ Ibid. V/ See Johannes F. Linn, "The Distributive Effects of Local Government in Colombia: A Review of the Evidence", World Bank Staff Working_Paper, No. 235, March 1976. -148- Similarly insufficient coordination appears to occur in the relations between the District's Cadastral Office on the one side, which is in charge of maintaining the property assessment records; and the public utility enter- prises, especially EAAB, on the other side, which have to realy on the assess- ments of the Cadastral Office for their user charges. Rather than pooling resources in property assessments, the EAAB and the Cadastral Offices engage in separate assessment efforts, with apparantly no speedy or complete trans- fer of information between these agencies. In sumnary, the functional fragmentation of public utility service provision in Bogota carries with it some costs,that have to be weighed against the benefits from autonomy. On balance, the evaluation of the eperience in Bogota, and a comparison with the experiences in Cali and Cartagena suggest that a certain degree of autonomy is desirable for agencies deliverying urban public services, since this is likely to increase the stability and professional orientation with which the services are provided, and increases the probability that financial service costs are recorared from users, rather than imposing a burden on the local or national treasury. However, the case of Bogota demonstrates that extreme functional fragmentation induces a high degree of inflexibility regarding the financing of services according to efficiency and equity criteria, possibly also a lack of coordination of investment planning and execution, and some confusion in financial management. In any case, the coordinating institutions in Bogota, as represented by the Mayor and District Council, the District Planning Department, and the District Controller, have not been very successful in providing the necessary overall guidance ad control, which is crucial in a system of decentralized public decision making. 1/ See also Johannes F. Linn, "Property Taxation in Bogota, Colombia", World Bank, forthcoming. -149- B. Pricing and Financing of Public Utility Services In the previous paragraphs some of the issues of pricing and financing were already raised in commenting on the impact of functional decentralization of public service provision in Bogota. In this section the questions relating to the financial management of the utilities and the pricing of their services is raised in more general terms. The analysis of the financial flows of the public utility enterprises discussed in this paper was complicated by the accounting conventions employed. All four enterprises use the accrual rather than the cash-flow accounting system in their financial reports. While this appears not to be an uncommon practice in public utility accounting, it does present problems when arrears do not bear a steady relationship with revenues. This tends to occur parti- cularly where tax revenues contribute to enterprise resources, as in the case of Ej)IS, since enforcement is generally more difficult for taxes than for user charges, as services can be cut selectively in the latter case. It becomes a problem also, where collection performance worsens over time, as it has for most of the public utility enterprises in Bogota. Historical analysis based on accrual flow accounts will in this case provide a biased picture, and what may be more important, the enterprise management may not be readily informed of the full extent of any impending liquidity problems if it relies on projections of accrued, rather than actual revenues and expenditures. Another problem encountered was the failure of some agencies to present separate financial accounts for each of the services provided. This created difficulties particularly in the case of EDIS where the lack of a systematic separation of accounts by functional service category made a comprehensive historical analysis of financing and cross-financing virtually impossible. In the case of EAAB, the records do not show separate current accounts for -150- water supply and sewerage. However, for Bogota this is not a serious problem, since sewerage and water extension programs have tended to go hand in hand, and thus the question of cross-subsidies between water and sewerage system users respectively is net a major issue. Despite those difficulties created by data and accounting problems, this paper attempted to review the pricing and fiancing practices of public utilities in Bogota in some detail. In principle, all agencies apply a long-run average cost pricing criterion, in the sense that they aim at covering operating expenditures and debt charges from operating revenues, while financing capital expenditures from connection fees and borrowing. This pricing criterion is a necessary implication of the financial autonomy of the public utilities in Bogota, but is also in line with the general pricing principles laid down by the National Tariff Board. Exceptions to this criterion occur: EDIS receives transfers from the District Administration, representing statutorily earmarked shares of District taxes , Furthermore, EAAB has historically fallen short of covering operating and debt service expenditures from operating revenues. The deficits on current account were financed from capital account surpluses, particularly from bor- rowing and connection charges. This has resulted in a number of problems, some of them more pressing than others. First, the financial viability of the enterprise is threatened in the long-run, when borrowing is used to finance current account deficits. Second, the extension of services to those sections of the city without water supply and sewerage was adversely affected by this financing practice, s;,Lit it left insufficient funds for investment in the distribution system, cjnd,t since it required very high connection fees which in turn tend to re nee the demand for connections .i/ 1/ This aspect is further discussed belo,. Third, to the degree that borrowing is used to finance current operating expenses future consumers cross-subsidize current consumers, which prima facie does not appear equitable. Two reasons explain these pricing practices ofEAAB: First, infre- quent tariff changes result in an increasing divergence between average user charges and average real costs, due to the effect of inflation and the in- crements in real unit costs.! Rising real costs were shown to be a problem particularly for water supply and sewerage, for electricity, and to a much lesser degree in the case of telephones. However, EEEB has adjusted electricity service charges more regularly than EAAB has done for water supply and sewerage. A second reason for the low average tariff rate charged by EAAB is probably the high degree of cross- subsidization among users of these services resulting from the steeply graduated water charges. While cross-subsidization between users for a given service is advocated by the National Tariff Board in order to redistribute income from high to low inecme groups, and although some cross-subsidization between income groups accurs for all public utilities in Bogota, cross-subsidies are more pronounced in size in the case of the EAAB. Given that the charges which can be levied on high income consumers are likely to be bounded for political reasons and because of the resulting efficiency losses from the reduction in consumption, the steep gradation of water charges has made it difficult to maintain average tariffs in line with long run average costs. 1/ A more regular, and possibly continuous adjustment in user charges as practiced elsewhere in Colombia (e.g. Cali), would have helped to avoid the gradual erosion of real tariff rates through inflation. -152- Although water charges are particularly highly graduated, they do not reach very far down into the income distribution, given the fact that a substantial proportion of the lowest income groups do not have access to water supply and sewerage services. As to be expected redistribution through telephone charges is even less effective, given the much lower coverage for that service. In contrast, electricity charges though less steeply graduated than water charges, are estimated to redistribute income more effectively down to the lowest population percentile, precisely because access to this service extends to virtually all areas in the city. This would indicate that redistribution of income through user charges in urban areas is likely to be effective only where a very high proportion of the population has been connected to the service. While income redistribution and financial viability have thus been the foremost objectives in national and local utility tariff policy, efficiency considerations have not in general been incorporated explicitly in user charge structures. In particular, it does not appear that a computation of marginal systems costs, either short run or long run, has ever been attempted in Colombia, let alone been used as a basis for rate decisions. By implication, the efficiency costs incurred in pursuing financial self-sufficiency and income redistribution have never been evaluated. Given the estimates of historically rising unit (per subscriber) costs reported in this paper, it is possible that marginal costs pricing would lead to financial surpluses in public utility operations. These in turn might be used to extend services more rapidly especially in the case of water supply and sewerage, or to finance other public services sorely required throughout the city. Of course, transition to such a policy of surplus financing may not be feasible in the short run, especially for water supply and electricity, but as a long-term aim to be approached gradually, it should seriously be considered. While the use-related, recurrent charges for public utility services have been employed explicitly as instruments for socio-economic policy in Colombia in general, and in Bogota in particular, the impact of non-recurrent utility charges, particularly connection fees (derechos), has been much neglected in the past. Those charges are of importance not only as financing instruments for the utility enterprise, but also in determining the rate of official connection of low-income users to the services. High connection fees, particularly when they have to be paid over a relatively short time period can present a large burden in proportion to low-income household income, as has been demonstrated here for the case of water connection fees in Bogota. To the degree that this limits the willingness of lo'w-income households to obtain an official connection, it may result either in clandestine, illegal connections, as is frequently the case for water and electricity services in Bogota - , or substitution of an inferior, but on a per unit basis often have costly private substitute to the public service. Clandestine connections increase distribution losses for the enterprise, encourage wastage, and increase the danger of contamination for water supply, and of injuries in the case of electricity. To the degree that high connection charges force particularly low-income consumers to stay unconnected they cannot reap the consumer surplus derived from access to the service as well as from the progressively graduated user charges. Furthermore, for those services, which operate with excess capacity in production, particularly water supply after the completion of the Chingaza project, the efficiency criterion would require connection fees no higher than the marginal cost of actually hooking the consumers up to the service line2., so as to optimize the use of 1/ Clandestine connections are less likely in the case of telephone and sewerage services. 2/ Even if these costs are quite high, as for water and sewerage, they can be translated into low monthly quotas paid over a longer time horizon. the existing capacity. To the degree that positive externalities of improved public health result from a broader coverage of the urban population for water supply and sewerage services especially, high connection fees which discourage connection further reduce economic efficiency. Finally, as long as new consumers pay at least marginal operating costs once they are on the system, the higher rate of official connection which may be expected to result from lower connection fees should improve the financial viability of the enterprise. In contrast, in cases where shortage of capacity is therule, as with telehone services, and where price rationing does not carry with it undesirable income distribution implications, connection fees should be held high on efficiency and equity grounds. Price rationing allocates resources according to highest marginal benefit, and would allow the generation of a surplus from relatively high income users of telephone services, which in turn could be used to cross-subsidze low-income users of other services, assuming there are no organizational barriers to such cross-financing. Table 71 summarizes these arguments regarding the appropriate level of connection charges according to the three major criteria of socio-economic policy. On balance, are finds that the appropriate level of connection charges in Bogota is low for water supply, sewerage and electricity, and high for telephones. Comparing this with the actual level of connection charges, one finds that with the exception of electricity, just the opposite pattern of connection fees may be observed in practice. In summary, while public utility pricing in Bogota has been used as an instrument of socio-economic policies in the past it has been characterized by an insufficient concern for the economic efficiency effects of user charges; has neglected to focus the importance of connection charges and has thus not produced a rational approach towards them; and finally has been unduely constrainted by a functional fragmentation into separate, autonomous public utility Table 71: LEVEL OF CONNECTION CHARGES DESIRABLE IN B0GOTA ACCORDING TO ALTERNATIVE SOCIO-ECONCMIC CRITERIA Efficiency Income Financial Liability Desired Actual Connection Capacity Exter- Distri- Capacity Clandestine Level of Level of Costs Use nalities bution Use Connections Charges Charges Water Supply high low low low low low low high Sewerage high - low low - - low high Electricity low low - low low low low low Telephones - high low high - - high low -: not applicable or intermediate - 156 - enterprises. In all fairness, however, one must add that these difficulties are by no means exceptional, as evidence for cities in other countries suggests, including the United States where "pricing policies used by municipal governments are often fairly unsophisticated, perhaps under- standably so in light of the difficulty of determining price elasticities, marginal costs, distribution of benefits and other things that enter into the economic models of optimal pricing" 1/ Frederick D. Stocker, "Diversification of the Local Revenue System: Income and Sales Taxes, User Charges, Federal Grants," paper presented at the National Tax Association - Tax Institute of America Symposium on Urban Fiscal Problems, Washington, D.C. June 14-15, 1976, p. 13.