The Union of Municipalities of Montenegro (UoMM) once again calls on all relevant institutions to take timely action within their respective areas of responsibility regarding the determination of water prices, in order to avoid further complications in the water supply sector and improve the quality of this service for the benefit of all our citizens.
The model for determining water prices for the upcoming year, which is based on operating costs from the previous two years, is—as we have repeatedly pointed out—unfounded, unrealistic, and detrimental to water utility companies.
The current pricing methodology fails to take into account numerous factors that play an important role in water supply operations and, consequently, in the overall functioning of Montenegro’s water utility companies.
One of the major shortcomings of the current system is that water prices are calculated on the assumption of a 100 percent collection rate of receivables, which, due to circumstances beyond the control of utility companies, is never achieved in practice. In addition, costs related to the expansion of operational assets and contributions to reserve funds intended to mitigate business risks during periods of macroeconomic disruption are not included among the elements used to determine service prices. As a result, this pricing approach—based on the principle of “simple reproduction”—prevents any meaningful development of utility services. Furthermore, operating costs are adjusted using the official inflation rate, which does not reflect actual market conditions. In recent years, the average inflation rate has been significantly lower than the increase in the prices of construction materials, water supply and sewage infrastructure materials, as well as chlorine.
One of the most significant shortcomings of the tariff methodology is that it does not allow for an adequate response to a rapidly changing business environment when circumstances change, nor does it enable timely adjustments during the course of the regulatory year when such action is necessary.
All of these shortcomings of the methodology were identified last year by the expert working group of the Union of Municipalities, which, in a document entitled Analysis of the Impact of the Methodology for Determining Prices for the Provision of Regulated Utility Services on the Operations of Regulated Utility Service Providers, also put forward proposals for addressing and correcting these shortcomings.
The fact remains that, if we want to ensure a reliable and high-quality water supply, an increase in water prices is inevitable. At the same time, appropriate intervention measures should be introduced to enable subsidies that would prevent negative impacts on socially vulnerable groups of the population.
