New water regulations are just the beginning. The water and sewer industry is in for a costly revolution

New water quality regulations, rising energy costs, PFAS and the pending wastewater directive could completely change Poland’s water and wastewater sector. Companies will have to invest in climate change resilience, new treatment technologies and water safety. These will be costs counted in the tens of billions of zlotys,” says Dr. Klara Ramm, an expert at the Polish Waterworks Chamber of Commerce and Poland’s representative at EurEau.

Agnieszka Hobot: One of the most important events of recent weeks for the water and wastewater industry was the passage of an amendment to the law implementing EU regulations on the quality of water intended for human consumption. The law was signed by the President. Has Poland really comprehensively implemented the requirements of the directive?

Klara Ramm: In my opinion, key elements have been taken into account. I would even say that in places we went further than the directive itself requires. This is, by the way, characteristic of the Polish way of implementing EU law – sometimes we create regulations that are more restrictive and more ambitious than necessary, which may later limit the flexibility of the sector’s operations. The water and sewage industry is experiencing this, for example, in the context of the Wastewater Directive, the implementation of which is still a source of numerous difficulties.

The devil, of course, is in the details, and a real assessment of the new regulations will only be possible after they have been in effect for some time. We are also still waiting for some of the implementing legislation, primarily the Health Minister’s regulation on the quality of drinking water, which is currently under consultation.

There is also a lot of excitement about water leakage. Virtually every member country has adopted its own methodology for counting them, making the data largely incomparable today. Nevertheless, the most important mechanisms – such as risk assessments and information obligations to the public – have been implemented. At this stage, therefore, I do not see a significant risk of violating EU law.

A.H.: And which of the new obligations under these regulations will be the most difficult for water and wastewater utilities themselves to implement?

K.R.: By far the biggest challenge will be risk management in water supply systems. And by that I mean the entire chain – from the intake supply areas, to the intakes themselves, to the delivery of water to the end user, that is, literally to the tap.

This is a huge change in approach, because until now the system was much more focused on controlling the quality of the water itself. Now the focus is shifting to comprehensive risk analysis and risk prevention at every stage of system operation.

Importantly, the very understanding of collective water supply has also changed. A broader category of suppliers has emerged, so the obligations will not only apply to classic water and sewerage companies. In practice, they may also cover smaller entities, water companies or larger regional operators, such as the Upper Silesian Water Company.

The second major challenge will be risk assessments in internal water supply systems, especially in so-called priority facilities. This is a completely unknown area of responsibility for building administrators and institutions. It can be said that a new market segment and a new specialty related to water safety in indoor systems is emerging.

A.H.: For several years, the industry has strongly emphasized the difficult economic situation of water and sewer companies. Even after the changes in tariffs, there was still talk of liquidity problems. What is the situation today?

K.R.: The Economic Chamber of Polish Waterworks regularly monitors the financial situation of companies, and these analyses show that the liquidity of the sector is gradually improving. Of course, the discussion around tariffs continues all the time, and further amendments to the law on collective water supply are being processed in parallel.

There are proposals to partially return tariff competencies to municipalities, while leaving a certain role to Polish Water, especially with larger tariff increases. And in my opinion, this is where the biggest problem arises – the risk of creating a hybrid system in which responsibility will be dispersed among different institutions.

This may mean more uncertainty and procedural complications, but with no real improvement for companies or consumers. Merely mixing competencies will not solve the industry’s fundamental problems, those related to energy costs, investments or infrastructure maintenance.

A.H.: Well, just where is this improvement in liquidity actually coming from? Energy costs have risen sharply, and water tariffs have remained virtually frozen for a long time. Have companies simply cut back on investments and new commitments, or has the sector learned to function in this financial reality?

K.R.: I think you have to look at the situation in multiple ways. First of all, tariffs are gradually increasing. These are not sharp increases, but after the process was unblocked by Wody Polskie, companies began to update their tariff applications more effectively, and this means a greater flow of funds into the sector.

Secondly, we really don’t see large-scale infrastructure investments today, as we did a dozen years ago, when the industry made extensive use of EU funds. Many projects have been completed, some companies have already come out of their investment sustainability periods, and new large-scale programs were simply lacking for some time.

Now the situation will begin to change again – NIP funds and more support programs are coming in. This could mean the return of greater investment, and with it an increase in depreciation and new costs.

Of course, cost pressures remain formidable. Energy prices remain one of the most serious burdens on the sector, and in theory many indicators should suggest a further deterioration. Meanwhile, it is not so much improving, but rather stabilizing at a difficult level. The industry continues to operate under severe financial pressure, but at least for now we are not seeing a sharp deterioration in liquidity.

A.H.: And what are the most pressing investments for the sector today? What could prove to be the biggest financial challenge for water and wastewater companies in the coming years?

K.R.: It is becoming increasingly clear that the water and sewer sector will have to invest primarily in the resilience of systems to the effects of climate change. In many regions, there are problems related to the availability of water resources, the need to look for new intakes or to modernize existing supply systems.

The second huge challenge is new, previously unknown contaminants, primarily PFAS, or so-called “perpetual chemicals. perennial chemicalswhich have been included in the EU directive on drinking water quality. This will force the development of new monitoring and treatment technologies. For now, this problem is growing gradually, but in a few years it will become one of the key costs for the industry.

At the same time, another major legislative change is already hanging over the sector – the new wastewater directive. And this will be a real revolution for wastewater management in Europe. we are talking about a much deeper technological and organizational transformation than in the case of water quality regulations.

There will be obligations related to, among other things, the fourth stage of wastewater treatment, removal of micropollutants or improving the energy efficiency of treatment plants. These will be investments counted in the tens of billions of zlotys. And it needs to be made clear: this cannot be financed by tariffs alone. The industry will need a long-term support system and very large public funds.

A.H.: Aren ‘t you concerned that the sector will be trapped again? The industry has barely regained partial stability after the recent cost crises, and already a new directive with huge investment requirements is on the horizon. Meanwhile, water prices in Poland – especially compared to other utilities – remain relatively low. On the other hand, in some European countries, households hardly pay directly for water. How to reconcile this?

K. R.: There are very different models for financing water and sewerage services in Europe, so direct comparisons of tariffs are sometimes misleading. In some countries, prices are much higher than in Poland – there are times when rates reach as high as 11 ^euros/m3 – but it is important to remember that there are completely different levels of household income, other tax systems and other support mechanisms in operation.

The example of Ireland, where households do not formally pay for water, is the exception rather than the standard, and in itself generates a number of problems, including in terms of compliance with EU regulations.

It should be made clear: practically nowhere in Europe does the water and sewer sector finance itself solely through tariffs. For years there has been talk of the 3T model – tariffs, taxes and transfers – that is, tariffs, public funds and external transfers. Without subsidies, preferential loans or support mechanisms, tariffs would have to be much higher.

On top of that, there are systemic differences, such as in VAT. Poland has an 8 percent rate on water, while some countries have a higher rate. All of this affects the final costs of consumers and means that simple price comparisons between countries often lead to erroneous conclusions.

A.H.: If you had to name the three biggest risks and three biggest opportunities for the water and wastewater sector in the coming years, what would be on that list?

K.R.: The greatest risk today remains the growing environmental pressures associated with climate change and pollution. The paradox is that water and wastewater utilities bear the consequences of processes for which they themselves are least responsible. It is this sector that is later expected to clean up pollution and respond to the consequences of years of environmental policy neglect.

The second major challenge is growing regulatory pressure. One example is the new wastewater directive and the associated obligation to implement a fourth stage of wastewater treatment. This is not a technology on the rise, but a defensive response to the real problem of the presence of micropollutants in the environment.

The third risk is a crisis of public confidence in scientific and expert knowledge. In the public debate, facts, data or the need to implement costly environmental solutions are increasingly undermined. This is very evident today, for example, in the discussion around extended producer responsibility. Meanwhile, without public understanding of these processes, it will be increasingly difficult for the sector to make the necessary changes.

But alongside these dangers are great opportunities. The water and wastewater industry today is developing competencies that seemed futuristic just a dozen years ago. There is more and more talk of a closed-loop economy, recovery of water, energy or raw materials and fertilizer components from wastewater.

The sector is ceasing to be solely a utility provider and is beginning to become a modern technology and environment sector. And this could be one of the most important transformations of the coming decades.