Environment in emerging and transition economies

Performance-based contracts between municipalities and water utilities in EECCA


Over the past decade, the Eastern Europe, Caucasus and Central Asia (EECCA) countries have undertaken significant reforms in the water and sanitation sector. As part of the restructuring of the sector and in order to improve the performance of their water utilities, a number of countries have turned to performance contracting. To support the EECCA authorities that are willing to contractualise their relationship with their water utilities, the OECD developed its “Guidelines for Performance-Based Contracts between Municipalities and Water Utilities in EECCA”. These Guidelines address the key elements for preparing, negotiating and implementing successful performance-based contracting mechanisms. They include, among others, the choice of performance indicators, tariff structures and mechanisms for monitoring and enforcing the contract.


Using the criteria and benchmarks identified in the Guidelines, the Environmental Action Programme (EAP) Task Force reviewed several contractual arrangements (management, lease, concession, privatisation) in Armenia, Kazakhstan and Ukraine, and provided practical recommendations for the improvement of these contracts in line with international good practices. The lessons learnt from these reviews have been summarised and have contributed to the revision of the original Guidelines with the purpose of making them more relevant to the region by better reflecting in this document the actual developments in the EECCA countries.


The Guidelines are addressed to both practitioners and policy-makers primarily in the EECCA region but could potentially be applicable in other regions as well.