eeting directive obligations has in the past been a key driver of effort and expenditure, including research and development. Many of the directives are associated with environmental quality and (to a lesser extent) social concerns. These and especially the WFD will continue to require substantial investments and expenditures on the part of all EU member states. For example, a recent estimate of the cost to the United Kingdom of the Priority Hazardous Substances Directive is some USD 10 billion (Ross, Thornton and Weir, 2004). A review of water and wastewater programmes in Central and Eastern Europe (Secrest, 2001), identified a number of common issues to be addressed. Infrastructure was severely degraded due to age, a situation exacerbated by lack of maintenance, lack of performance incentives, high costs, low cost recovery and low levels of service. Tariffs generally did not reflect the full cost of the service, and the presence of cross-subsidies tends to favour domestic consumers. In many cases revenues only cover 60% of operational costs, leading to a downward spiral of poorer service. In addition, the low level of service and low tariffs reduced the incentives for customers to conserve water, and high non-payment rates (20-30%) were common, often due to the small number of industrial customers who comprise a large part of the revenue stream. As a result the projects studied aimed to improve the operating performance of the water systems and at the same time develop the institutional base of the utilities through a range of sectoral legislative, regulatory and institutional reforms. The slow progress in reform at municipal level is seen as the biggest obstacle to the improved provision of water services (OECD, 2005b). A step-wise approach to upgrading - contingent on what customers could pay for - was adopted, aiming at full cost recovery and at full revenue collection (Secrest, 2001). The review indicated that in many cases these objectives had been met. It has been estimated that in a good number of these 