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Executive Summary

This report analyzes the progress and challenges of 16 countries in the Danube watershed in delivering sustainable water and wastewater services to all, while meeting the European Union environmental acquis communautaire. After putting the services that are being delivered into context, the report analyzes the organization of services in the region and the level of access to services, that is, how well countries are doing in terms of providing access to water and wastewater services for the entire population. It then looks at the performance of the sector, including the quality of services provided and customer satisfaction with it. It also draws a picture of the efficiency of services, including whether they reflect accepted good practices. Finally, it analyzes the financing of services, looking at whether the financing of operation, maintenance, and investments is secured and affordable. The report is complemented by 16 country notes available at

The report draws largely from existing public data sources at the national and regional level, and consolidates them into a coherent, regional narrative and analysis. The methods of analysis include horizontal comparisons among countries at a given point in time and trends within the countries or the region over a given period of time. Given shortcomings in the availability and comparability of data across 16 countries, the report seeks to encourage and inform a policy dialogue around sector challenges rather than provide a definitive set of policy recommendations.


Most of the Danube catchment area has shared a common trajectory over the last 30 years, and the development of water and sanitation services has broadly followed a similar process of transformation—one driven mainly by two major politico-economic processes—the fall of communism and European Union (EU) integration. While in the post-socialist period most countries saw strong decentralization and significant involvement of the private sector, EU integration has led to a need for enhanced regulation of municipal services, introduction of the cost recovery principle, a drive toward structural change, and increased efficiency and sustainability in service provision.

With the embracement of market-based economic principles and open borders, countries have achieved sizable growth in their per capita GDP, although with variations among and within countries, but about 2.3 million people within the Danube region live on less than $2.50 a day (purchasing power parity [PPP]), which is the regional level for extreme poverty. The poor disproportionately reside in rural areas, and there are 10 million to 12 million Roma, the largest and poorest minority group in the region.

The Danube River basin is relatively rich in water resources, and although this wealth is unevenly spread among different parts of the basin, only one country—the Czech Republic—can be qualified as water stressed, with a level below 1,700 cubic meters of renewable water resources per capita per year. Groundwater is the dominant source of water supply in the region, producing around 72 percent of the drinking water. Water management in the Danube basin is driven by the principles of the EU Water Framework Directive (WFD), under the auspices of the International Commission for the Protection of the Danube River (ICPDR).

Organization of Services

The organization of services is characterized mainly by the decentralization of service provision and ownership at the municipal level, while private sector involvement remains largely limited. Driven by the EU accession process, some of the recent trends include the aggregation and corporatization of service providers and the establishment of independent regulatory authorities.

About three-quarters of the region’s population receive public service from one of the more than 10,000 formal utility providers in the region, leaving one-quarter to rely on informal providers or self-provision, mostly in rural areas. The size of the formal providers varies greatly, with private providers serving, on average, the largest customer base, followed by regional, municipal, and small providers. In an effort to benefit from economies of scale and facilitate the absorption of EU funds, several countries are promoting the aggregation of small providers into regional ones. Water and wastewater service management are often provided by the same utility company, except in a few countries where they are separate entities.

Sector policy formulation remains the responsibility of central government authorities, whereby the EU agenda and transposition of the EU water directives, such as the Urban Waste Water Treatment Directive and the Drinking Water Directive, are a key force driving changes in the sector. In the last 15 years, there has been a trend toward greater independent regulation of water and wastewater service provision, and nine countries have such a regulatory authority. All nine regulators play a formal role in tariff setting and approval, often alongside the local governments, but only three are specific to the water sector, and they vary greatly in their independence. Common to all is the difficulty of regulating a large number of public, municipally owned utilities that are largely driven by local priorities rather than financial profits.

Except in a few countries, data and information about the sector and its service providers are still relatively scattered, and are sometimes inconsistent or of limited quality. Efforts to track utility performance and benchmark it against their peers and international good practices are increasing, but the information is seldom made publicly available.

Access to Services

Access to water and sanitation services in the region is high compared to the rest of the world. The collection and treatment of wastewater, however, generally lags behind the high level of access to piped water and private flush toilets, especially with regard to EU standards. Household coverage with piped water has remained consistently high since the beginning of the millennium, with 83 percent of the population having piped water in their dwellings, leaving 17 percent, or almost 22.5 million people, without this service, mostly in rural areas. The Roma generally have lower access to water and sanitation than the rest of the population. Almost 80 percent of the population of the Danube watershed report having a flush toilet in their homes, yet only 66 percent are connected to public sewer networks, with the greatest differences discernable in Bosnia and Herzegovina, Croatia, and Montenegro. Less than 20 percent of the poorest and less than half of the bottom 40 percent of the population have access to a private toilet in Bulgaria, Moldova, and Romania. Wastewater treatment coverage has shown significant improvement in recent years, but still remains the least developed sector service in the region.

Performance of Services

The overall performance of water and wastewater services in terms of their quality and efficiency varies widely within the region, and is generally below international good practices. However, there have been positive trends in a number of dimensions. In many of the countries, water service is generally continuous, and drinking water reaches national quality standards. Unsurprisingly, customer satisfaction is highest where service quality is highest, but overall customer protection mechanisms are somewhat underdeveloped, especially in countries without regulatory agencies. The level of customer metering has steadily increased to nearly universal coverage in many countries, bringing down individual consumption of water to 100 liters per capita per day to 120 liters per capita per day in most countries, which is in line with EU standards. Despite overall improvements and convergence, the efficiency of utilities in most countries is below international standards, and nonrevenue water and overstaffing of utilities continue to present significant challenges.

The report uses a proposed Water Utility Performance Index (WUPI) to evaluate the overall performance of utilities. The WUPI analyses show that performance varies widely within the region and each country, but generally increases with the level of economic development of the country. Overall, the performance of water utilities has improved over the last 10 years, with the ones that display higher performance also generally charging higher tariffs. An econometric analysis shows that while larger utilities tend to perform better than smaller utilities, it is less clear that merging utility companies (aggregation or regionalization) always has a positive effect on overall performance.

Financing of Services

Increasing costs have driven increases in tariffs throughout the region to the point where services might become unaffordable for low-income customers in some countries; yet the region is far from implementing the Water Framework Directive’s principle of cost recovery. Overall, the level of sector financing from tariffs, taxes, and transfers varies widely among countries, with EU countries showing the highest per capita financing. The structure of financing also shows variations from country to country, but investments are in general supported by public funds and external transfers, while operational expenditures are mostly covered by utilities’ own tariff revenue. Despite the widespread adoption of the cost recovery principle in national legislation, only two countries—Austria and Moldova—the richest and the poorest, respectively—rely mostly on tariffs to finance the sector. Few countries have developed a dedicated water sector financing mechanism providing predictable funding, and the EU Funds now represent the largest share of external financing in the region.

On average, the sector directs about half of overall expenditures toward operating and maintaining infrastructure and half toward renewing or expanding it. Water and wastewater investments in the region are around €3.5 billion per year, significantly below the €5.5 billion estimated by the respective countries as needed to achieve EU and national targets. The costs of providing services vary among countries, but overall have grown significantly over the last 20 years, leading to parallel increases in tariffs. Both operation and maintenance costs and residential tariffs usually follow the level of economic development of countries, with costs and tariffs highest in EU member states.

Despite this increase in tariffs, current levels are still affordable to the average consumer, and estimates of the expenditure share of the bottom 40 percent show that affordability constraints are prevalent only in Ukraine. Several countries have defined thresholds to identify affordability constraints of below 5 percent of income, and Croatia, Hungary, FYR Macedonia, Slovenia, and Ukraine report having formal subsidy schemes to ensure affordability for low-income earners.


The report concludes that the water and wastewater sector has been strongly impacted by the region’s trajectory over the last 30 years, going from a socialist period through a transition phase to the EU accession process. The EU accession process serves as a motivator to improve access, quality, and efficiency of water services, and assessments show that the status of the countries in terms of EU accession is positively related to the level of development of wastewater services. The availability of data is limited, including, surprisingly, in more advanced countries such as Austria and Slovenia. Further analytical work is necessary to understand some aspects of service provision in the region, such as the situation of the population without access to public supply, the drivers of utility performance, the impact of ongoing institutional reforms, the ways to address long-term affordability of services, and how to best manage wastewater treatment from a financial and institutional standpoint.

Regardless of the data and information gaps, some clear challenges emerge as countries seek to provide sustainable services to their citizens while meeting the EU environmental acquis communautaire, including the following: (a) while service provision remains a local government responsibility in most countries, policy trends around EU accession tend to subject it to increased central government regulatory and institutional oversight, creating the need for clear accountability mechanisms; (b) despite the overall high level of access to services in the region and focus on wastewater collection and management, there are still 22.5 million people without access to piped water on their premises and 28 million without flush toilets; (c) service providers’ performance has improved in the last 15 years but continues to be below international standards, threatening the long-term sustainability of ongoing investment programs; (d) the sector’s overall financing framework does not guarantee universal, high-quality service in the long run, and while the cost recovery principle has been widely adopted, many utility companies are barely recovering their operating costs from tariffs, and invest too little into asset management and development.

Despite these challenges, the region can still build on a few important opportunities. Recent history has shown that the water and wastewater sector is open to change, and if those governments, considering reforms in around a third of the countries, base their efforts on solid analyses, they can continue to build positive momentum for the sector. EU integration continues to present a tremendous policy and financing opportunity for many countries; the widespread adoption of formal regulatory frameworks and utility corporatization reforms can help promote greater accountability; and despite managerial shortcomings, the sector has a strong technical workforce. The report also shows the need for further work to be done in response to some of the challenges identified and where the current information available was too limited to draw clear conclusions. Examples for further analyses include developing models to provide sustainable services in areas beyond the reach of public utilities, addressing potential affordability challenges through well-targeted subsidies, and/or improving the financing and institutional framework for wastewater treatments in those countries with no or limited prior experience.