September 2004
ASSESSMENT AND DEVELOPMENT OF
MUNICIPAL WATER AND WASTEWATER
TARIFFS AND EFFLUENT CHARGES IN
THE DANUBE RIVER BASIN.
Volume 2: Country-Specific Issues and
Proposed Tariff and Charge Reforms:
Hungary National Profile
AUTHORS
Gabor Ungvari,
Zsuzsanna Mohai
TARIFFS AND CHARGES VOLUME 2
PREFACE
The Danube Regional Project (DRP) consists of several components and numerous
activities, one of which was "Assessment and Development of Municipal Water and
Wastewater Tariffs and Effluent Charges in the Danube River Basin" (A grouping of
activities 1.6 and 1.7 of Project Component 1). This work often took the shorthand
name "Tariffs and Effluent Charges Project" and Phase I of this work was undertaken
by a team of country, regional, and international consultants. Phase I of the
UNDP/GEF DRP ended in mid-2004 and many of the results of Phase I the Tariffs and
Effluent Charges Project are reported in two volumes.
Volume 1 is entitled An Overview of Tariff and Effluent Charge Reform Issues and
Proposals. Volume 1 builds on all other project outputs. It reviews the methodology
and tools developed and applied by the Project team; introduces some of the
economic theory and international experience germane to design and performance of
tariffs and charges; describes general conditions, tariff regimes, and effluent
charges currently applicable to municipal water and wastewater systems in the
region; and describes and develops in a structured way a initial series of tariff,
effluent charge and related institutional reform proposals.
Volume 2 is entitled Country-Specific Issues and Proposed Tariff and Charge
Reforms. It consists of country reports for each of the seven countries examined
most extensively by our project. Each country report, in turn, consists of three
documents: a case study, a national profile, and a brief introduction and summary
document. The principle author(s) of the seven country reports were the country
consultants of the Project Team.
The authors of the Volume 2 components prepared these documents in 2003 and
early 2004. The documents are as up to date as the authors could make them,
usually including some discussion of anticipated changes or legislation under
development. Still, the reader should be advised that an extended review process
may have meant that new data are now available and some of the institutional detail
pertaining to a specific country or case study community may now be out of date.
All documents in electronic version Volume 1 and Volume 2 - may be read or
printed from the DRP web site (www.undp-drp.org), from the page Activities /
Policies / Tariffs and Charges / Final Reports Phase 1.
TARIFFS AND CHARGES VOLUME 2
We want to thank the authors of these country-specific documents for their
professional care and personal devotion to the Tariffs and Effluent Charges Project.
It has been a pleasure to work with, and learn from, them throughout the course of
the Project.
One purpose of the Tariffs and Effluent Charges Project was to promote a structured
discussion that would encourage further consideration, testing, and adoption of
various tariff and effluent charge reform proposals. As leaders and coordinators of
the Project, the interested reader is welcome to contact either of us with questions
or suggestions regarding the discussion and proposals included in either volume of
the Project reports. We will forward questions or issues better addressed by the
authors of these country-specific documents directly to them.
Glenn Morris: glennmorris@bellsouth.net
András Kis: kis.andras@makk.zpok.hu
TARIFFS AND CHARGES VOLUME 2
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
3
TABLE OF CONTENT
LIST OF ACRONYMS......................................................................................................................... 5
INTRODUCTION................................................................................................................................. 6
1
LEGAL AND INSTITUTIONAL SETTING............................................................................. 7
1.1
LAWS GOVERNING PROVISION OF SERVICE........................................................................... 7
1.1.1 Common Provision ............................................................................................................ 7
1.1.2 Self service....................................................................................................................... 10
1.2
MANAGEMENT UNITS .......................................................................................................... 11
1.2.1 Administrative Units ........................................................................................................ 11
1.2.2 Operating Units ............................................................................................................... 12
1.3
SERVICE USER...................................................................................................................... 12
1.3.1 Classification of Water Users.......................................................................................... 12
1.3.2 Classification of Sewage Service Users........................................................................... 13
1.4
REGULATORY UNITS............................................................................................................ 13
1.4.1 Environmental Regulation............................................................................................... 13
1.4.2 Economic Regulation....................................................................................................... 13
2
PRODUCT QUANTITY AND QUALITY - DATA ................................................................ 15
2.1
WATER PRODUCTION........................................................................................................... 15
2.2
WATER CONSUMPTION ........................................................................................................ 15
2.3
WASTEWATER PRODUCTION................................................................................................ 16
2.4
WASTEWATER EFFLUENT .................................................................................................... 17
3
ECONOMIC DATA ................................................................................................................... 20
3.1
PRICES AT VARIOUS POINTS IN THE PRODUCTION/DISTRIBUTION SYSTEM AND DIFFERENT
SUS 20
3.2
SALES ................................................................................................................................... 21
4
INFRASTRUCTURE - PLANT AND EQUIPMENT............................................................. 23
4.1
PRODUCTION ........................................................................................................................ 23
4.2
PROCESSING OF DRINKING WATER...................................................................................... 23
4.3
OVF (2002) DISTRIBUTION.................................................................................................. 24
4.4
SEWAGE COLLECTION.......................................................................................................... 25
4.5
OVF (2002)PROCESSING OF WASTEWATER ........................................................................ 25
5
MANAGEMENT UNITS........................................................................................................... 26
5.1
TYPES OF MANAGEMENT UNITS .......................................................................................... 26
5.2
TRENDS IN FORMATION OR CONSOLIDATION OF MUS ........................................................ 27
5.3
SPECIAL OBLIGATIONS......................................................................................................... 28
4
UNDP/GEF Danube Regional Project
5.4
FINANCIAL CONDITION ........................................................................................................ 29
5.4.1 Current Account Balances............................................................................................... 29
5.4.2 Capital Account Balances ............................................................................................... 30
6
NATIONAL REGULATORY UNITS...................................................................................... 31
6.1
MAIN REGULATORY UNITS.................................................................................................. 31
6.2
NATIONAL PLANNING AND PERMITTING ............................................................................. 32
6.2.1 Data Collection................................................................................................................ 32
6.2.2 Activity Permitting........................................................................................................... 32
6.3
ECONOMIC REGULATIONS OR LIMITATIONS........................................................................ 32
6.3.1 Taxation........................................................................................................................... 33
6.3.2 Pricing (tariffs)................................................................................................................ 36
6.3.3 Grants and Subsidies ....................................................................................................... 36
6.4
ENVIRONMENTAL REGULATIONS AND RESTRICTIONS ........................................................ 39
6.4.1 Quality of Drinking Water............................................................................................... 39
6.4.2 Effluent Quality................................................................................................................ 39
7
SERVICE USERS....................................................................................................................... 40
7.1
MU CUSTOMER TYPES......................................................................................................... 40
7.2
POPULATION SERVED........................................................................................................... 40
7.3
FINANCIAL CONDITIONS ...................................................................................................... 42
8
POLICY ISSUES........................................................................................................................ 43
8.1
ECONOMIC PERSPECTIVE ..................................................................................................... 43
8.1.1 Efficiency ......................................................................................................................... 43
8.1.2 Equity............................................................................................................................... 43
8.1.3 Sustainability Stability of Operation ............................................................................ 43
8.2
POLICY FIELDS ..................................................................................................................... 44
8.2.1 Economic Regulation....................................................................................................... 44
8.2.2 Cost Recovery/Economic Sustainability .......................................................................... 44
8.2.3 Tariff Structure ................................................................................................................ 45
8.2.4 Cross Subsidy .................................................................................................................. 45
8.2.5 Benefits Commensurate with Costs ................................................................................. 45
8.2.6 Administrative Units ........................................................................................................ 46
8.3
POLICY RECOMMENDATIONS AND EVALUATION ................................................................ 46
8.3.1 Economic Regulation....................................................................................................... 46
8.3.2 Economic Regulation/Cost Recovery/Economic Sustainability ...................................... 47
8.3.3 Tariff Structure/Cross Subsidy ........................................................................................ 47
8.3.4 Benefits Commensurate with Costs/Sustainability/Administrative Units ........................ 48
8.3.5 Sustainability Principles.................................................................................................. 48
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
5
List of Acronyms
KvVM - Ministry of Environment and Water Management
Earlier names:KöViM - Ministry of Transport and Water Management
KHVM - Ministry of Transport, Telecommunication and Water Management
KöM - Ministry of Environment
TF - Regional Environmental Inspectorates
KTFF - Chief Environmental Inspectorate
PDWS - Public Drinking Water Supply
VCsOSzSz - National Professional Association of Water and Sewerage Companies .
OVF - National Water Authority
KSH - Hungarian Central Statistical Office
MWWU- Municipal Water and Wastewater Unit
MU Management Unit
OU Operating Unit
6
UNDP/GEF Danube Regional Project
Introduction
This report is, first of all, a compilation of information and data1 that describing the institutions and
conditions that shape and characterize the provision of municipal water and wastewater service in
Hungary2. The purpose of this compilation is to provide background and inspiration for proposals to
reform both the current system of water and wastewater tariffs and effluent charges and coincident
proposals to adjust or modify the legal and regulatory system within which these tariffs and effluent
charges function in Hungary. Indeed, some chapters include brief analyses suggesting such reforms
and Chapter 8 concludes this report with preliminary proposals for reforms in the institutional setting
and design of these tariffs and charges. The aim of the these proposals is to improve the management
of water and wastewater resources used in the municipalities of Hungary generally and, including
protection of water resources from nutrient loading and toxic substance originating from municipal
systems.
Since 1970 the structure of the water and sewerage sector in Hungary has been changed dramatically.
In the 70's the Hungarian waterworks were organised in 33 state-owned companies.
In 1990 the ownership of the majority of water and sewerage infrastructure has been passed to the
local governments. The transformation of companies owned by the state and the local councils has
begun. In 1991 and 1992 the 33 water companies were replaced by five regional and a vast number of
local companies held by the new local governments or theirs groups. This process resulted in an
extremely fragmented structure. By the end of 2001 altogether 369 companies supplied drinking water
and/or sewerage services in Hungary3.
In the past decade the water consumption (and therefore wastewater emission) decreased significantly
due to the economic transition. The transition involved transformation of the industry, closure of some
of the great water user factories and fall of the GDP. Increasing service prices and relatively low
incomes resulted in the drop of water usage of the households.
The drinking water provision in the country reached a level that is reasonable economically and is
available in almost every settlement (99.7 per cent), but it differs heavily by water quality (see section
6.4.1) and settlement type. Situation/provision of settlements with less than 15,000 inhabitants is the
least satisfying, 11-12 per cent of the population within these municipalities has no connection to
piped drinking water, but within distance of 150 m have access to pipe stands.
The level of sewerage lags far behind that of piped drinking water. According to the data of 1993, 43
per cent of the population was connected to the public sewerage system, 10 per cent owned
appropriate sewage solutions without drainage, 21 per cent solved it inefficiently, and 26 per cent
lived in areas without drainage [Somlyódy 2000]. Due to investments during the 1990's, wastewater
services became available for 48 per cent of the households in 1998, and 53 percent in 2001, although
the possibility for immediate connection is available for another 9 per cent. If one takes into account
the settlements, the picture is darker because only one third participates in public sewage services.
This shows that mainly the densely populated settlements, bigger towns and cities are canalised.
The gap between the level of drinking water and sewage service in Hungary is one of the greatest
within OECD countries, where this difference almost doesn't exist.
The EU accession process has resulted not only in new pieces of legislation (see 2.1), but in expensive
- and sometimes neither thought over, nor justified investments.
1 The collection of information was closed in November 2003.
2 for a list of the main regulatory units and their abbreviations, see 6
3 130 of these only produces and distributes water, 53 have interests only in sewerage services and 194 are
engaged in both activities. 190 companies out of the 369 are operating only at one settlement.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
7
1 Legal and Institutional Setting
1.1 Laws Governing Provision of Service
1.1.1 Common Provision
The Act LXV/1990 on local governments defines the drinking water provision and sewerage as a task
of the local governments. Paragraph 8(4) set the provision of drinking water as an obligatory task that
implies, in this case, per capita grant from the central government budget in order to fulfil it.
According to Paragraph 8(1) sewerage services, general water management (outside of drinking water
supply) and rainfall drainage (vízrendezés és a csapadékvíz elvezetés) was up to the decision of
municipalities4. The latter became obligatory with Act LXXI/2001 amending Water Management Act
LVII/1995. The LVII/1995 Act deals with the main aspects of water management, such as state
assignments concerning waters and related infrastructure, conditions of operating state property, rights
of water authority and establishment of water management associations (vízgazdálkodási társulatok)
aiming at treating inland water damages.
Act LXXXVII/1990 on tariff elaboration amended by Act CIV /1993 and its modifications5 declared
that local governments have the right to set the prices of drinking water, wastewater collection,
treatment and disposal if services originate from a municipality owned facility, otherwise6 the minister
in charge of water management can set these prices. As a private company is only allowed to buy a
minority share in water and wastewater companies, other (than public) ownership forms have no
conflict with this Act. The LXXXVII/1990 Act contains the main principles upon which water and
wastewater service pricing should be based.
43/1999 (XII.26) Decree of Ministry of Transport, Telecommunication and Water Management
(KHVM) on the calculation of water resource fee (vízkészletjárulék) oblige water users defined in
LVII/1995 Act to pay a fee for extraction of water. The amount of the fee can be obtained by
multiplying a basic fee (defined in another decree) with the volume of water and with 2 modifying
factors (for details see section 6.3.1.1). One factor changes with type of the water resource and the
features of the given area. The other represents the measurability of water use.
On one hand 47/1999 (XII.28) Decree of KHVM sets the highest tariffs of water and wastewater
services provided by state-owned facilities for households (Annex 1 of the Decree). On the other hand,
it defines tariffs for public service providers for water circulated because of safety reason through
pipes that connect different networks (Annex 2 of the Decree). This decree prescribes the quantity of
water to calculate flat rate consumption for residential and recreational areas without meter. Tariffs are
supervised annually; current ones can be found in 34/2000 (XII.21) Decree of Ministry of Transport
and Water Management (KöViM).
38/1995 (IV.5) Government Decree on drinking water provision and wastewater service defines the
public service obligations. This decree gives the right for the notary to order connection to utilities if
sanitation, environmental or water management regulation is offended. On the contrary in the case of
4 The Assembly decided on how and to what extent the municipality should accomplish optional tasks defined not
exhaustively in Par. 8(1) after taking into account the needs of inhabitants and the financial situation of the
municipality.
5 Modifications refer to 47/1999 (XII.28) Decree of KHVM and to other decrees that it repealed, like the 1/1995
(I.31), 27/1995 (XII.29) and 28/1998 (XII.23) Decrees of KHVM. All concerns tariffs to be paid for water and
wastewater services provided by state-owned facilities.
6 See 47/1999 (XII.28) Decree of KHVM and its amendments.
8
UNDP/GEF Danube Regional Project
non-payment water provision can be limited (or even ceased if water is used in production process) to
an extent where needs of human life, sanitation7 and disaster prevention are met.
According to the 72/1996 (V.22) Gov. Decree on exercising water authority rights, permission of
(municipality) notary is needed a) to make landing-stages in river basins and in the water territory of
public water works (közcélú vizílétesítmény vízterületén), and for households to establish and use with
less than 500 cubic meter annual capacity b) to establish individual wastewater disposal or c) to make
a well. Otherwise the competence is with the 12 Water Authorities.
In 2001 and 2002 several decrees were issued and the LVII/1995 Act on Water Management was
modified as part of the legal harmonisation process with the EU.
50/2001 (IV.23) Gov. Decree sets the conditions for use of wastewater sludge in the agriculture.
201/2001 (X.25) Gov. Decree on the quality requirements of drinking water transposes the requisites
of the 98/83/EC directive into the Hungarian regulation. This decree gives the schedule of the national
Program aiming to improve drinking water quality. The most urgent task is to lower the arsenic,
fluoride etc. concentration of drinking water. Only 58 per cent of the Hungarian population lives in a
settlement where the quality of drinking water satisfies the European standards.
203/2001 (X.26) Gov. Decree deals with the quality of surface waters and the conditions of emitting
wastewater into surface waters. (It introduced the so-called "p.e.8" (population equivalent)
measurement unit unknown before in the Hungarian legislation.) According to the decree, everyone
discharging more than 15 cubic meter of wastewater a day and wastewater containing dangerous
materials is subject to self-monitoring results should be transmitted to the competent authority.
Paragraph 21 updates threshold limits of the 3/1984. (II. 7.) provision of the National Water Authority
on wastewater fine. Wastewater fine is imposed (see more in 6.3.1.3) for non-compliance with
concentration and quantity in the effluent wastewater. The effluent standards measure 80 elements of
pollution and toxic substances (including heat). If emission limit values should be met till 31st
December 2010 at the latest for existing facilities with 3 exceptions9.
204/2001 (X.26) Gov. Decree on sewerage fine updates threshold limits of the 4/1984. (II. 7.)
provision of the National Water Authority on sewerage fine (see more in 6.3.1.3). The decree objects
to pay for discharging wastewater or fluid waste to the sewerage system with concentration above a set
of standards for 32 pollutants. The threshold limits for the same pollutant can vary according to the
local environmental sensitivity of different areas. The quantity of wastewater emitted should be
measured by the subjects of this decree and also needs to be approved by the authorities. Self-control
is obligatory if wastewater emission exceeds 80 cubic meters a day or when it comes from leather,
chemical industry or from oil and metal processing.
6/2002 (XI.5) Decree of the Ministry of Environment and Water Management (KvVM) about the
environmental standards and control of surface waters for drinking water abstraction and for fish
habitats. Paragraph 4 says that the competent environmental inspectorate will classify surface drinking
water resources till 1st January 2004 according to treatment methods10 depending on 40 water quality
7 At least 50 liter of water a day per capita should be available within 150 meters so that sanitary conditions are
fulfilled in the case of a building not higher than four floor.
8 An inhabitant is equal to 1 p.e. (population equivalent) which means an emission of 60g BOD5 per capita a
day. BOD5 indicates the biological oxygen demand: its amount to break down biochemically organic materials
in the water in 5 days.
9 Exceptions: a) for settlements with p.e. above 10 000, located in sensitive areas, the days of grace last till 31st
December 2008 for wastewater treatment facilities in those agglomerations, b) for settlements with p.e. below
15000 p.e. till 31st December 2015, and c) for emitters subject to the integrated environmental permitting
process 31st December 2007.
10 Treatment methods classes are a1) simple physical treatment and disinfection, a2) normal physical treatment,
chemical treatment and disinfection , a3) intensive physical and chemical treatment and disinfection.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
9
characteristics11. The minimal annual frequency of water quality control is set in the 3rd Annex of the
decree, nevertheless the competent authority can take into account measurements of the service
providers who have to transmit their results.
The frequency of water quality control measurements changes by the number of population
concerned, treatment methods and quality characteristics. Below 30,000 inhabitants the minimum
frequency of control is 2 per year with one exception where it is 3. Between 30,000 and 100,000
inhabitants the number of annual controls increases only in the first group of characteristics quality
(the easiest to measure), above 100,000 inhabitants the highest value is 12 for the aforementioned
quality class. It is questionable whether it is enough to meter twice the concentration of even the
dangerous chemical substances like chrome, lead etc.
21/2002 (IV.25) Decree of KöViM on the operating of waterworks sets the conditions on how to
operate drinking- and wastewater facilities such as the regular control of quality and the required
qualification of personnel.
25/2002 (II.27) Gov. Decree on the National program for implementing wastewater collection and
treatment (National Wastewater Program). It defines the time schedule to meet the obligation to
construct sewage systems with the adequate treatment for according to the area sensitivity and
p.e.value.
26/2002 (II.27) Gov. Decree on defining agglomerations in connection with the National Wastewater
Program "Sewage agglomerations" are the planning units of the National Wastewater Program. Above
2000p.e.., sewage agglomerations are designated by a national list. Settlements whose p.e. is less than
2000, can join together and form a sewage agglomeration12 if they fulfil the technical and economical
requirements set in annexes therefore the implementation of their sewage treatment can be included in
the National Wastewater Program.
27/2002 (II.27) Gov. Decree on record keeping and obligation of reporting in connection with
National Wastewater Program. Data transmission is required from a) municipality notaries to the
notary of the sewage agglomeration and b) operators of waterworks to the municipality notary and to
the notary of the sewage agglomeration and c) anyone investing in wastewater collection, treatment
and disposal to the notary of the sewage agglomeration. In the next step the notary of the sewage
agglomeration has to forward the data to the Regional Bureau of the State Budget (Területi
Államháztartási Hivatal) and then they will be aggregated at the National Water Authority.
Reporting requirements
Service providers and water users whose activity requires permission of the Regional Water
Authorities are both obliged to self-reporting based on the following pieces of regulation.
203/2002 (X.26) Gov. Decree on the quality of surface waters ordain that everyone discharging more
than 15 cubic meter of wastewater a day and wastewater containing dangerous materials is subject to
self-monitoring results should be transmitted to competent authority.
27/2002 (II.27) Gov. Decree on record keeping and obligation of reporting in connection with
National Wastewater Program. See above.
7/2002 (III.1) Decree of KöM on measure, control, data provision of used and wastewater effluent and
the special rules of water pollution fine. The decree defines the pieces of information that have to be
included in the annual summary report of the data describing the wastewater emission of those who
are subject to self-monitoring.
(See 6.2 for details on data collection and activity permitting)
11 Quality characteristics are grouped into 3 classes by sampling and measuring frequency.
12 The center of agglomeration is the settlement where the wastewater treatment installments or the final
wastewater disposal facility is situated
10
UNDP/GEF Danube Regional Project
Information reported by service providers and other statistical data on the Hungarian water sector are
available in aggregated form from the three following sources:
ˇ The Hungarian Central Statistical Office (KSH) collects and publishes in the general statistical
yearbooks basic data on drinking water and sewerage service provision for households and on the
public infrastructure for these services.
Data on household expenditures on water and sewerage charges relative to net income are also
available from household budget surveys, based on a sample of households (KSH publishes results
of the regular household budget surveys annually). Environmental data and related fine revenues
are published in the Environmental Statistical Data yearbook.
ˇ The most important source of statistical data is a yearbook of the water sector (Vízgazdálkodási
adatok) published by the National Water Authority (OVF). This yearbook is accessible in public
libraries. It contains detailed data on water production and consumption, but provides no
information on prices and balance sheets of the water companies. The basis of the yearbook is data
collected from the notaries of the sewage agglomeration through the Regional Bureaus of the State
Budget, as described above.
ˇ Data on the regulated prices (drinking water and sewerage) and other information on the individual
companies are available from the National Professional Association of Water and Sewerage
Companies' Yearbook (VCsOSzSz). In 2002 the association had 96 members (out of the 369
companies), however these companies produce and distribute 95% of drinking water and have
about 90% share in sewerage services [VCsOSzSz 2002].
Other information is available only on an irregular basis from publications and personal
communication with experts in the field.
1.1.2 Self service
Big industrial companies produce (industrial) water for their own. Their extraction of (ground)water
exceeds the 500 m3/annum quantity therefore needs permission of the competent Regional Water
Authority. The Authority observes the plans, gives the final permission of operation and collects the
water abstraction fee (see 6.3.1.1). Below the mentioned limit the municipal notary can permit any
water abstraction activity.
Section 2.3.1 and Table 2 presents data on the industrial users' production and Table 3 on
consumption, Table 11 gives a full picture of water cycle, Table 7 about Water users Public Drinking
Water Supply (PDWS) user.
For the sewage treatment capacity of the industry see Table 7.
The population uses its own, self-made shallow wells. Previously these wells provided drinking water,
but the contamination of shallow ground water made the construction of pipe network necessary. The
wells are recently used to gardening, because the quality of the water allows less and less to be used
for drinking and bathing. Meanwhile increasing water prices result in opening new (legal and illegal)
wells. The interconnection of the two systems public drinking water supply and self-supply - is
prohibited because of considerable health risks. Just to widen the picture, there are examples where
these old wells were used to load sewage into.
Sewage collection is solved by individual facilities to a great extent. Only 10 per cent of the
population owns appropriate sewage storing technology without drainage, 21 per cent solved it
inefficiently. These not properly built individual facilities pollute the ground water because they leak
and increase its nutrient content. In some cases the water of these tanks are used for gardening as well.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
11
1.2 Management Units
1.2.1 Administrative Units
Act LXV/1990 on local governments, Act LXXXVII/1990 on tariff elaboration, Act XVI/1991 on
concession Act XXXIII/1991 on the handing over of state-owned assets into the property of local
governments and Act LVII on water management along with 1997/CXLIV Act on Companies set up
the framework of operation of waterworks and organisational system of water and wastewater
services.
The responsibility for administering (drinking- and wastewater) service within its territorial boundary
is delegated to the Assembly of the given local government. It decides on the institutional structure
(legal form) of the service that is consistent with Company Law.
The whole system of water- and wastewater service consists of management units (for a detailed
description see 5.1) that hold together several operating units (see 1.2.2 and chapter 4 together with
Table 24 and 4.1- 4.5) that reach final consumers with the help of transport and pipe networks ( 4.3 and
4.4).
Management units show a great variety of size and ownership structure as well. Service providers are
sharply divided, only 6 per cent of the firms (24) serves districts with more than 100 thousand
inhabitants, but at the same time these units serve 75 percent of the population. If there is sewage
service in the service area usually both services are provided by the same firm13. In chapter 5, Table 22
shows the distribution of management units by types and Table 23 illustrates their fragmented
structure with number of municipalities served by 1 company. The big providers are the state owned
regional providers, the waterworks of the main cities and the remaining parts of the county based
waterworks of the previous management system.
Service provision by an operating company can take several forms:
The owner is the operator: A company is owned exclusively or in majority by one or more local
governments The company absorbed the whole or a part of the public infrastructure into the company,
which means that the company is the owner of the infrastructure. Some interpretations of the legal
requirements concerning the public ownership of the public infrastructure would not allow this form,
thus this solution, though still exists, becomes less common. In case of state owned companies the
owner rights are exercised by the KvVM and the infrastructure is given to companies with trustee
contract.
Owner owns part of the operator: A company only operates the public infrastructure on the basis of
a contract with the owners (usually the local governments). The companies pay for renting the
infrastructure from the owners. Local governments are allowed to outsource the service without a
tender if they own at least majority share in the company. The company can be newly founded for this
purpose or can be a previously existing one as well. A private enterprise may take part in either the
foundation of the operating company, or buy a share of the operating enterprise when and if sold by
the local government.
The owner and the operator are different: A company only operating the public infrastructure on
the basis of a concession contract with the owners (usually the local governments). The companies pay
for renting the infrastructure from the owners. If companies compete in the tenders, state or local
government share in the companies are not required. This form in present practice is only an
exception.
A unit of the local government operates the public infrastructure (the owner is the local
government). These organisations are not formally enacted, but units within the general government.
This form is relatively frequent only among the smallest water companies. There is no publicly
available data collected on this organisational option since these units are rarely members of the
waterworks' association [MAKK 2000].
13 The only exception among the large waterworks is Budapest.
12
UNDP/GEF Danube Regional Project
The distribution of network ownership and operation patterns is discussed in Chapter 6.
1.2.2 Operating Units
Operating units are the basic elements of water service provision supplying usually one settlement
under the direction of a management unit that work in a smaller territory (pl. kistérség). The structure
of these facilities reflects the characteristics of management units such as their fragmented structure.
While Table 1 shows the great number of different drinking water facilities14, chapter 4 provides more
detailed information about them. Table 24 represents their distribution by type of ownership and
operator.
Table 1
Facilities of Drinking Water Provision
Drinking water facilities
1998
1999
2000
2001
Facility of water production
1836
1854
1852
1858
treatment
798
813
828
846
transporter15
886
884
884
896
distributor
3306
3338
3347 3356
Source: OVF, p.78
1.3 Service User
1.3.1 Classification of Water Users
In general, the following classes of water users can be distinguished:
households
others (public institutions, small business and industry).
public drinking water supply (PDWS) user
water user
1. Households
Household (residential) users can be put into the same category as the other users like public
institutions and small business and small industry. It is because their water consumption is similar just
like the quality of the emitted wastewater. However, the two classes differ as far as the pricing system
is concerned. See in detail in chapter 7.2.
2. Industry
Water companies also supply water for industrial users but in this segment their role is not dominant.
3. PDWS and Water User
The law defines two consumer statuses of the large water users: water user and PDWS user. The
difference between them is the source, which they obtain the water from.
ˇ More than half of the water used by industries is produced by the users themselves.
14 The number of facilities can be compared with the fact that there are about 3200 municipalities in Hungary.
15 Transport facilities take the water from the place of production or treatment to place of consumption. They do
not join directly either regional network of pipes or pipes that lead to consumers.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
13
"Water user" is who undertakes an activity that requires water use license, which are the
following:
- to build, reconstruct or eliminate water facilities,
- for water abstraction activity from any surface water body or
- from groundwater more than 500 cubic meter per annum.
ˇ A ,,public drinking water supply user (PDWS)" is one who uses more than 10,000 cubic meters
per annum of water from the public drinking water supply for its own business purposes.
A special, rather exceptional type of PDWS user is an entity, which buys water under drinking
water quality from the water companies.
These industrial customers usually pay a charge different than that of household consumers and in
certain cases pay an additional abstraction charge. (See more on this issue in part 3.1 and 6.3.1.1)
1.3.2 Classification of Sewage Service Users
Regarding sewerage, industrial users can be divided into categories similar to water use, that is
whether they
ˇ treat sewage themselves (see Table 7 about their wastewater production) or
ˇ use the services of water companies.
In this case factories with larger emission can install an initial treatment phase for filtering the
wastewater in order to reduce the possible extra fines. See Table 11 about wastewater given to
public waterworks for treatment and industrial wastewater without treatment.
1.4 Regulatory Units
1.4.1 Environmental Regulation
The Ministry of Environment and Water Management (KvVM) is the chief (environmental)
regulatory body of the water sector. Under his direction the National Water Authority (OVF) and the
12 Regional Water Authorities (organised by river basins) under OVF exercise authority rights over
the sector and share duties with the Chief Environmental Inspectorate (KTFF) and the 12 Regional
Environmental Inspectorates (TF) (organised by river basins). The Public Health Authority has also
significant role in regulation of drinking water quality. Its county units exercise health authority rights
in practice. For details on regulatory bodies, see Chapter 6.
1.4.2 Economic Regulation
After 1990 not only the ownership, but also regulatory responsibilities have also shifted from the
central to local governments. The most important of these is setting local drinking water and sewerage
prices from 1994 (including both determining actual prices and choosing the price scheme). The prices
of service of the five regional state-owned companies are still set by the Ministry of Environment and
Water Management. The Ministry also sets the wholesale prices of drinking water sold by the regional
companies to other water companies.
The prices of industrial and agricultural water provision are not regulated. They are determined
through the contracts between individual providers and users. Our previous study [MAKK 2000]
showed examples that fees for agricultural water use differ on a wide scale without real economic
reasons.
The legislation on price setting (for details see 1.1.1) is not specific enough, only states soft criteria for
cost recovery. It says that of the regulated prices, the highest has to cover costs of efficient service
providers and allow them to gain profit for the operation with taking into account deductions and
subsidies. The lowest does not have to provide profit.
14
UNDP/GEF Danube Regional Project
Considerable problems occur with setting individual depreciation rules and capital assessment on the
ground of the mentioned soft criteria. On one hand when the owner of public infrastructure is different
from the operator, the latter cannot account depreciation costs in their balance sheets. However the
owners (local governments) rarely accumulate the rent companies pay for using the infrastructure. On
the other hand, even if local governments account depreciation costs its current level is far below the
necessary level (see also 8.2.1).
The appraisal of the capital value of the infrastructure is not uniformed; in several cases the value of
the assets in the books had been reduced to zero earlier, that is amortisation cannot be accounted on
these assets.
The owner is responsible for the financial control (the local governments or, in the case of the 5 state
owned regional waterworks, the KvVM). However, the local governments lack the required economic
skills and have no capacity to exercise effective control. The Water Directorates have no right to
examine complex economic status of a given service provider.
The State Audit Office can conduct investigation ex post on economic activity of local governments.
Unfortunately these investigations have no real effect on the questioned processes.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
15
2 Product Quantity and Quality - Data
2.1 Water Production
Table 2
National Water Production, million cubic meter
1992 1995 1998 2001
Drinking
water
927 796 746 717
Industrial without electricity prod.
36
30
20
n.a
Agriculture
1707 1670 1358 1601
Other organisation's water production 5197 4475 4570 4250
incl. electricity prod.
Total
7867 6971 6694 6568
Source: Env. Stat. Data of Hungary(1999), (2001)
2.2 Water Consumption
Table 3
National Water Consumption, million cubic meter
1992 1995 1998 2001
Drinking
water
775 618 551 535
Industrial without electricity prod.
35 29 19 n.a
Agriculture
1078 867 616 649
Consumption of other organisation's
4986 4276 4443 4100
own production incl. Electricity prod
Total
6874 5790 5629 5284
Env. Stat. Data of Hungary(1999), (2001)
Table 4
Drinking Water Production, Consumption and Consumption of Households
1992 1995 1998 2001
Drinking water production
926.1 795.9 719.9 717.1
Leakage and technical losses
169.9 165.6 153.9 130
Drinking water consumption
775.2 618.1 549.8 534.8
Consumption of households
512 421.4
377.2
375.6
Consumption of households per total
66% 68.2%
68.6%
70.2%
drinking water consumption16
Sources of data: MAKK (2000), KHVM (1994), KHVM (1998), KHVM (2000), OVF (2002)
Note: Drinking water consumption does not equal drinking water production minus leakage! The difference
contains "transfers to and from other systems (for safety reasons)" and "internal use" of providers. The data on
1992 are incoherent, we show it to demonstrate the decrease of consumption.: Including water supplied to
households connected to the public water network and water supplied through public outlets. The share of the
latter decreased from 2.1% to 1.2% in the period considered.
16 Drinking water consumption includes water use of households and other (public institutions and companies
(public drinking water user)) users as well.
16
UNDP/GEF Danube Regional Project
Table 5
The Rate of Flats Connected to the Public Water Supply System by
Settlement Type
1992 1995 1998 2000
Rate of flats connected to public
0.85 0.90 0.91 0.93
water supply
of this: Budapest
0.98
0.97
0.99
other towns
0.90 0.92 0.94
0.93
villages 0.73
0.82
0.87
0.87
: towns including Budapest
Sources of data: MAKK (2000): 1991-1997, 2000: TÁKISZ local governmental data base, 1998:
KHVM
Table 6
The Rate of Flats Connected to the Public Water Supply System by Number
of Inhabitants in Settlements
Rate of flats connected to public
1998 1999 2000 2001
water supply
No of inhabitants below 2000
0.85
0.852
0.869
0.881
2001-10000
0.878 0.866 0.893 0.89
10001-15000
0.888 0.885 0.908 0.908
15001-50000 90.5
0.92
0.931
0.934
50001-150000
0.986 0.964 0.979 0.962
Above
150000
0.983 0.982 0.983 0.984
Total 0.919
0.916
0.93
0.931
Source: OVF (2002)
2.3 Wastewater Production
Table 7
Wastewater Production without Waterworks, million cubic meter
Water users17 1998
1999
2000
2001
Wastewater from water users
170.8
162.5
142.2
131.1
Used, heat polluted water needing no treatment 4299.6
4096.1
4126.1
4332.8
Wastewater from other organisations
19.3
14.6
11
14.7
Total 4489.7
4273.2
4279.3
4478.6
Source: OVF (2002)
17 Water user means a company that uses water more than 5 cubic meters per hour or 80 cubic meters per day
for its business activity.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
17
2.4 Wastewater Effluent
Table 8
Treatment of Sewage Collected (public sewerage network only) and the
Capacity of the Sewage Treatment Facilities, million cubic meter per year
1992
1995 1998 2001
Total sewage collected
787.9
643.3
552.8
513.7
of this: from households
308.1
248.4
250.6
243.9
Sewage without treatment
346.0
245.3
203
Sewage with treatment
303.4
311.9
311.5
of this: primary treatment only
30.6
17.6
20.4
Primary and secondary treatment only
247.6
230.5
180.9
primary, secondary and tertiary treatment
25.2
63.8
110.2
Capacity
Primary treatment only
78.7
117.3
141.2
primary and secondary treatment only
488.6
471.0
427.6
primary, secondary and tertiary treatment
54.2
118.1
201.6
: other data for these years or either not available or seems inconsistent with the later years, probably
the definitions of the categories has been changed
Source: KHVM, OVF (2002)
Table 9
Number of Flats Connected to the Sewage System
1998 1999 2000 2001
No of flats thousand
3045
3116
3168
3247
Connected to the sewage system
1926
2002
2085
2173
in Budapest
745
750
754
762
in other towns
1022
1057
1097
1150
in villages
158
195
233
260
Not connected in serviced area
361
475
467
347
Source: OVF (2002)
18
UNDP/GEF Danube Regional Project
Table 10 The Rate of Flats Connected to the Public Sewage System by Number of
Inhabitants in Settlements
Rate of flats connected to public sewage system 1998
1999
2000
2001
No of inhabitants below 2000
0.065
0.098
0.10
0.131
2001-10000
0.174 0.203 0.238 0.263
10001-15000
0.358 0.399 0.441 0.48
15001-50000
0.504 0.522 0.552 0.558
50001-150000
0.413 0.753 0.766 0.774
Above
150000
0.871 0.874 0.88 0.888
Total
0.476 0.493 0.513 0.533
Source: OVF (2002)
The connection rate of Budapest is higher then the last category's average, it is above 90 per cent, but
the data is ambiguous.
Based on different sources we put together a coherent closed water use cycle.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
19
Table 11 Water Use Cycle, million cubic meter 2001
Drinking water
Consumption purpose from waterworks to
534.8
Households
375.6
other users
159.2
Industrial purpose from other water producers
46.7
Non drinking water use of industry
Industrial water production of water producers
4457.2
Industrial w. transferred from waterworks
12.4
Total consumption
5038.7
Wastewater
Used water of industry, requiring no treatment
4332.8
Wastewater of industry (requiring treatment)
145.8
Of which require treatment of the user
100.6
Of which transferred to waterworks
45.2
Wastewater collected by waterworks
513.7
of households
243.9
of other organisations
269.9
Total wastewater, industry and households*
614.3
Distribution of total wastewater
Without treatment from waterworks
203.1
Without treatment from industry
39.6
Total without treatment
242.7
Treated in waterworks
308.6
Treated in industrial plants
60.5
Total with treatment
369.1
Effluent of treated quantity
360.6
Utilised of treated quantity
8.5
*The sum doesn' t add up the two components, to avoid double counting industry's transfer to waterwork, that
shows up in box: waterworks collection from otherorganisations .** The utilisation of treated quantity means
usually agricultural use of sludge
20
UNDP/GEF Danube Regional Project
3 Economic Data
3.1 Prices at Various Points in the Production/Distribution System and
Different SUs
Table 12 shows the estimates of mean water and sewage charges for households in case of service
provided by member companies of the National Professional Association of Water and Sewerage
Companies (VcsOSzSz).
Table 12 Estimates of Water and Sewage Charges for Households, HUF per cubic meter
at 2002 prices
1999
2000
2001
Water Minimum charge
62
30
31
Maximum charge
295
303
292
Weighted mean
135
138
153
Sewage Minimum charge
38
27
24
Maximum charge
223
456
416
Weighted mean
109
113
123
Source: National Professional Association of Water and Sewerage Companies, the 2001 data: Koskovics 2002
Table 13 Water and Sewage Charges for Non-Household Consumers, in Case of
Service Provided by Member Companies of (VcsOSzSz), HUF per cubic meter
at current prices
1999 2000 2001
Water Minimum charge
57
66
59
Maximum
charge
2812 2770 2058
Weighted mean
133
132
173
Sewage Minimum charge
35
49
49
Maximum charge
1448
933
1146
Weighted mean
115
119
167
Source: National Professional Association of Water and Sewerage Companies, the 2001 data: Koskovics 2002
The comparison of average prices can reveal the phenomenon of cross-subsidisation (see also 8.2.4).
The financing of real cost of low household-tariffs by high charges for the others is more significant in
drinking water provision than in wastewater services.
Cross-subsidisation, through distorted price setting can be a local political issue, therefore maximum
charges can show extremities. The lower ratios of maximum prices to average prices (see Table 14)
for household users as compared with non-household users can support this idea18. Dispersion of
maximum charges of drinking water for non-household consumers were about tenfold greater than for
18 There was no possibility to count the average of variances instead of comparing only to the maximum and
minimum values.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
21
household users in 1999-2000, but in 2001 it fell to ,,only" six fold (see Table 14). As far as
wastewater charges are concerned the ratio of maximum charges relative to the weighted mean for the
two consumer groups is much lower and changed from six fold to double. There is little difference in
the dispersion of minimum charges.
The current system of cross-subsidisation cannot be maintained in the European Union, according to
the guidelines of the Water Framework Directive. If cross-subsidies are phased out, then household
tariffs will on average increase, while tariffs of other service users will on average decrease.
Table 14 Rate of Minimum and Maximum Charges Relative to the Weighted Mean by
Consumer Groups
Household user
Non-household user
1999 2000 2001 1999 2000 2001
Water
minimum
0.46 0.22 0.20 0.43 0.5 0.34
Water
maximum
2.19 2.19 1.91 21.1 20.9 11.9
Wastewater
minimum
0.35 0.24 0.20 0.3 0.41 0.29
Wastewater
maximum
2.06 4.05 3.38 12.6 7.84 6.86
The above quoted data is aggregated from MU level. There can also be price differences in an
agglomeration between the central settlement and its outlying areas as well. On one hand this reflects
natural differences of scale and density factors that result in lower per capita investment and operation
costs in central settlements. On the other hand, as the distribution of household income shows strong
correlation with the population size of the settlements, the willingness to connect is lower in the
smaller villages of outlying communities and this results in greater average costs for those households
that are connected.
The break-up of existing companies in 1990 led to various agreements among co-operating
municipalities. Equity or short term economic interests were the most influential motivators. Moreover
without general rules of cost-sharing price differences exist not only between service providers but
inside one management unit as well.
Data on charges for industrial users are available only for those connected to the public drinking water
and sewage network. When a water company sells industrial (non-drinking) water, the price is not
regulated. It is a deal between the supplier and the customer. Data on these prices are not available, but
the quantity of water supplied this way is very small.
3.2 Sales
Table 15 Revenue of MWWUs from Drinking Water Fees, million HUF, at 2002 prices
Source of revenue
1998
1999
2000
2001
Households
47698 48338 52926 52462
Other
organisations 21457 22243 22250 22968
Source: OVF (2002)
22
UNDP/GEF Danube Regional Project
Table 16 Revenue of MWWUs from Sewage Service, million HUF at 2002 prices
Source of revenue
1998
1999
2000
2001
Households
23235 25018 26833 27735
Other
organisations 19054 20386 20522 21028
Source: OVF (2002)
The state gives support to improve water and wastewater service provision and level their inequalities
of cost, see Table 30 in 6.3.3 about the degree of grants and subsidies.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
23
4 Infrastructure - Plant and Equipment
This chapter gives a picture about the number of operating units (with bold letters that refer to Table
1). These facilities exercise the operations of drinking water production, distribution, treatment and
that of wastewater as well.
All data is from year 2001, their source is OVF (2002).
4.1 Production
Table 17 Water Production
Number of plants
1858
Capacity (1000m3/day) 4986.3
Source: OVF (2002)
4.2 Processing of Drinking Water
Table 18 Processing of Drinking Water
Number of plants
846
Water purification capacity (1000m3/day) 2313.7
Source: OVF (2002)
24
UNDP/GEF Danube Regional Project
4.3 Distribution
Table 19 Distribution
Number of water transport networks
896
Number of distribution networks
3356
Length of networks in km (A+B)
83010
A, Transport
7296
Drinking water transport networks, transport pipes
per cent
Under 2 kms
31.6%
2 to 5 kms
38%
5 to 10 kms
15.4%
10 to 20 kms
7.8%
Above 20 kms
7.2%
B, Distribution
75714
B.1 Connection
19662
B.2 Main
56052
Of which drinking water networks, main pipes
Per cent
Under 10 kms
61.8%
10 to 20 kms
20.9%
20 to 50 kms
11.9%
50 to 100 kms
3.5%
Above 100 kms
1.9%
OVF (2002)
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
25
4.4 Sewage Collection
Table 20 Sewage Collection
Number of collection networks
997
Total length of sewage network km (A+B)
35104
A, Length of collection network km
32916
A.1 Connection pipes
8965
A.2 Main pipes
23951
Sewerage systems, main pipes
per cent
Under 5 kms
23.5
5 to 10 kms
24.9
10 to 20 kms
25.2
20 to 50 kms
18
Above 50 kms
8.4
B, Length of transport network
2188
Sewage transport systems, transport pipes
per cent
Under 5 kms
80.3
5 to 10 kms
12.6
10 to 20 kms
3.9
20 to 30 kms
1.6
Above 30 kms
1.6
OVF (2002)
4.5 Processing of Wastewater
Table 21 Processing of Wastewater
Number of treatment plants
539
of which sludge treatment
499
Treatment plant capacity by treatment level mill m3/year
Mechanical
141
Mechanical + biological
428
Mechanical + biological +chemical
202
OVF (2002)
It can be stated from the tables above that the water distribution system is frittered, as the share of 5
km long pipes is dominant. It can be also assumed that most of the water and sewage systems each
serve only one settlement.
26
UNDP/GEF Danube Regional Project
5 Management Units
5.1 Types of Management Units
The Act XXXIII/1991 on the handing over of state-owned assets into the property of local
governments determined the distribution of ownership of MWWU assets in 1991. The separable
operating units that matched the territory of a given municipality became the property of the
municipality. The indivisible systems remained state property. The laws on transformation did not
limit the right of the new owners to break up the system (as was done, for example, in the case of East
Germany).
Management units are on the top of water- and wastewater system, as they direct the operating units
(see 1.2.2 and chapter 4) that serve final consumers with the help of transport and pipe networks (see
4.3 and 4.4).
Table 22 Number of Units by Types of Service
Types of service
1998
1999
2000
2001
Only drinking water provision
144
137
134
130
Only wastewater service
37
38
51
53
Drinking water and wastewater
service 178 187 190 194
Total
359 362 375 377
Source: OVF (2002)
Table 23 illustrates the structure of the system. About 69 per cent of companies provide water and
sewage service in only 1 settlement. However only 6 per cent of the firms (24) serves 75 per cent of
the population.
Table 23 Number of Municipalities Served by 1 Operator, 2000
No. of municipalities served Drinking water
Wastewater
Both
by 1 operator
Number of operators
1
158 159 190
2 10
111
56
123
11 50
40
14
40
> 50
16
0
16
Total 325
229
369
Source: VCsOSzSz (2000)
Waterworks usually operate in the legal form of a joint stock company (Rt.) or limited liability
company (Kft), but in real terms, given the not entirely unambiguous legal constraint that the
basic infrastructure is required to remain the property of local governments Table 24 shows the
division of these elementary facilities by ownership type.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
27
Table 24 Division of Drinking Water Facilities by Type of Ownership and Operation
1998 1999 2000 2001
Total number of network elements
6826
6889
6911
6956
of them by ownership type (per cent)
State-owned
10 9,2 9,2 9,2
Municipality owned
76.1
77
76,6
74,7
Other
13.9 13,8 14,2 16,1
Total
100 100 100 100
By operation type (per cent)
State
8.5 8.3 8.1 8.1
Municipality
60.4
61.4
61
60.8
Companies with concession contract
10.6
10.3
10.8
10.9
Companies with operating contract
20.5
20
20.1
20.2
Total
100 100 100 100
Source: OVF (2002)
Ownership of the networks, based on rough evaluation of the drinking- and wastewater infrastructure
data, is estimated as follows: 20 per cent of the networks are the property of companies that have
private partners. 20 per cent of the networks are exclusively the property of the central government.
The remaining 60 per cent of the network is wholly owned by local governments (Mezei 2003 ref.).
One conclusion from the above data is that private entities have a more important role in operation
than in ownership.
5.2 Trends in Formation or Consolidation of MUs
The assignment of ownership of networks to local governments and of indivisible systems to regional
waterworks created incentives to some communities to withdraw from the regional/conty waterworks.
The communities with the lowest average cost found it advantageous to set up for themselves and in
this way management units were created. This led to quick localisation and to reduction in the size of
the regional/county companies.
One of the most serious problems comes from the fragmentation of water and sewerage companies:
the low extent of spreading the costs over territories with different unit costs. Smaller companies were
created in settlements or in micro-regions with more favourable natural or other characteristics19 (i.e.
lower costs of water production and / or sewerage treatment requirements) than the surrounding
19 For example a region with substantial tourism in the summer season (e.g. Lake Balaton) is unfavourable for
the settlements in the same region, since the maintenance of the additional infrastructure used only in summer
should be paid by the permanent consumers of the region (if no extra charges are set for the summer users). This
prompted Kaposvár, a town in the region of Lake Balaton to found a new, smaller company. (Makk 2000)
28
UNDP/GEF Danube Regional Project
territories. This way the new, smaller companies can ensure lower tariffs, while the tariffs for the rest
go up20 [MAKK, 2000].
The organisation and ownership of the system and operating companies changes constantly (see Table
22). Smaller municipalities frequently give up independent operation of their infrastructure and
contract with the dominant service provider of the area. Meanwhile there are some examples of
smaller local governments operating their recently finished network in order to gain more control over
the prices and hiring.
There was a wave of introducing private capital in waterworks between 1994 and 1997. It took the
form usually of gaining concession contract for operation and this was connected to the possibility to
reach up to 49% ownership in the given company.
French and German water companies were its most prominent participants. Their stakes are
widespread among the largest MWWUs. In 1994 Générale des Eaux gained a 49% share in Szeged
Vízm Kft, in 1995 Lyonnaise des Eaux got 48% in Pécs Vízm Rt; in both cases new companies
have been founded for operation (Horváth, 1995). (Szeged and Pécs are the fourth and fifth largest
cities in Hungary). In 1997 Lyonnaise des Eaux and the RWE Aqua GmbH bought a 25%+1 share in
the water company of Budapest (Fvárosi Vízmvek Rt), however the contract provided the French
owners a 49% role in the management of the company. At the same time Générale des Eaux and
Berliner Wasser Betriebe bought a 25%+1 share in the sewerage company of Budapest: Fvárosi
Csatornázási Mvek Rt. Berliner Wasser Betriebe obtained also a 48% share in the water company of
Hódmezvásárhely (the 21st largest town in Hungary) (Víz- és Csatornamvek Országos Szakmai
Szövetsége, Évkönyv `98).
From 1994 Lyonnaise des Eaux has a 35% share in the Kaposvári Vízmvek Kft, a company with a
concession contract for operating the waterworks of Kaposvár (Horváth, 1995; Papp, 2000). The only
other example of the concession contract form can be found at Szolnok (Papp, 2000). (Szolnok and
Kaposvár are the 11th and 13th largest cities in Hungary).
Large minority private owners (up to 49 per cent) have not invested much capital in new networks or
facilities, however these firms could get decisive influence this way with a comparatively small
investment [BKÁE 2002]. They only took part in modernising and improving the operation, like
billing and customer service, but not the expansion of the wastewater collection networks and
improvement of drinking water quality. Although the justification of these investments are
unquestionable, it can be questioned whether these were the most important issues what a low-income
population should finance if their ability is limited. As the cost of modernised surplus operations
appeared, the (partly) privately owned providers introduced higher prices. [Mezei 2003].
5.3 Special Obligations
The waterworks have to provide service to all consumer units that are tied to its network. In case of
non-payment, the service could be restricted, but a minimum level of it has to be maintained. (see
38/1995 (IV.5) Government. Decree on drinking water provision and wastewater service in 1.1.1) Not
only disconnection, but connection to utilities can be ordered if sanitation, environmental or water
management regulation is offended (refers to 38/1995 Gov.decree).
In order to maintain the required standards of drinking water quality the network needs a minimum
quantity of flow without regard of actual supply and demand levels on both ends. This is because the
system capacities are higher than the actual demand, but technically it is not viable to put them out of
order. Independent waterworks of formerly united networks could be targets of this kind of water
acquisitions. The quantities and the prices of these necessary basic water flows were regulated in
47/1999 (XII.28) Decree of KHVM.
20 If one tries to measure economies of scale without controlling for natural characteristics, diseconomies of
scale will be detected; the unit costs of smaller companies are lower.
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National Profile for Tariff and Charges in Water and Wastewater Management Hungary
29
5.4 Financial Condition
5.4.1 Current Account Balances
There were considerable differences of balances between water and wastewater service providers of
the capital and the rest of the country. These differences, based on a 1998 study (Oko Rt, 1999) are the
result of special privatisation conditions for the two firms in the capital.
According to the study, which covered the biggest 90, firms (who provided 96 per cent of the total
quantity of water) the aggregated losses of the 35 MUs from drinking water service equals the
aggregate gains of the other 55 firms. 35 firms suffered operating losses from drinking water
provision and 37 suffered losses on sewage service. 12 companies used their gains to pay dividend for
2,181 billion HUF, of this 89 per cent went to the owners of the wastewater company of Budapest.
Total after tax income of the other 78 companies amounted to 1 billion HUF.
Table 25 shows that water service is unprofitable for the water company of Budapest (because of the
management fee paid due to the contract of privatisation) and for the state-owned service providers as
well. It can be explained with the transformation trends in management units: settlements with the
lowest average cost left the utilities in order to provide services at a lower cost or make higher net
revenues. Therefore not only did the size of the regional companies decrease, but settlements that can
be supplied only with higher cost stayed inside these companies.
Table 25 Operating Results of Water Service Providers by Type of Ownership (million
HUF), 1998
Losses of municipality-owned companies (without Waterworks
-514
of Budapest)
Gains of municipality-owned companies
+689
Losses of waterworks of Budapest
-1.670
Losses of regional (state-owned) companies
-246
Gains of regional (state-owned) companies
+38
Total operating results of water service provision
-1.703
In Million HUF, current prices. Source: ÖKO (1999).
Wastewater service providers achieved operating gains regardless of type of ownership (see Table 26)
Aggregated operating gains for sewerage service without Budapest is a half billion HUF (approx. two
million USD), which is equal to 1.5 per cent of the service-specific wastewater revenues collected.
Table 26 Operating Results of Wastewater Service Providers by Type of Ownership
(million HUF), 1998
Losses of municipality-owned companies (without Wastewater
-603
Company of Budapest)
Gains of municipality-owned companies
+1.035
Gains of wastewater company of Budapest
+4.613
Losses of regional (state-owned) companies
-37
Gains of regional (state-owned) companies
+86
Total operating results of wastewater service provision
+5.094
In Million HUF, current prices. Source: ÖKO (1999)
30
UNDP/GEF Danube Regional Project
Table 27 shows that aggregate losses and gains in either the water or the wastewater sector offset each
other if the service providers of Budapest are not included.
Table 27 Operating Results of Water and Wastewater Companies without Budapest
(million HUF), 1998
Water
Wastewater
Losses of municipality-owned companies
-514
-603
Gains of municipality-owned companies
+689
+1.035
Total of municipality-owned companies
+175
+432
Losses of regional (state-owned) companies
-246
-37
Gains of regional (state-owned) companies
+38
+86
Total of regional (state-owned) companies
-208
+39
Total operating results of services
-33
+471
In Million HUF, current prices. Source: ÖKO (1999)
5.4.2 Capital Account Balances
The transformation of the water sector to municipal ownership and smaller operating units resulted in
a wide variety of infrastructure representation in the books of the operating firms and the local
governments. Although it should not affect the accumulation measures (i.e. accumulation of capital for
future investments), it does. Also the discipline of accumulation for future needs differs between the
firms and the municipalities. Municipalities are eager not to accumulate funds for long-term
maintenance of the operation in order to keep tariffs at low levels.
Those sums that companies can amortise can be accounted as costs or "write off" in each period is
not enough to cover the real maintenance and restoration costs of the infrastructure. This is due to
several factors:
- the assets' real values are not recorded, because their proper valuation is delayed or biased
(expected length of operation, gross/net values, valuation differences), in 1996 the state owned
companies were revalued, but it wasn't obligatory for the other ones.
- the general amortisation rules (rates) are not suited to this service's infrastructure, although the
operators don't exhaust these measures either,
- the application of proper discount rate would result in increases of tariffs.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
31
6 National Regulatory Units
6.1 Main Regulatory Units
The Ministry of Environment and Water Management (KvVM) is the chief (environmental)
regulatory body of the water sector, it determines pollution fines/charges, manages funds subsidising
the operation of companies and investments in the water sector. It is also the owner of the five regional
water companies.
The Ministry was founded in April 1988 with union of the National Office of Environmental
Protection and Nature Conservation (Országos Környezet- és Természetvédelmi Hivatal) and the
National Office of Water Management (Országos Vízügyi Hivatal). From 1990, the Ministry of
Transport, Telecommunication and Water Management (KHVM) was in charge of water management
till the end of May 2002 when this range of duties were attached again to the Ministry of Environment
and Water Management21.
National Water Authority (NWA) and the 12 Regional Water Authorities (organised by river
basins) under NWA
Water authorities deal with river management, defence against floods and inland waters, have
regulatory function as well. They give permission for activities such as water production and
distribution, sewerage services and also building of related infrastructure (both in the case of water and
sewerage companies and in the case of industrial water production for own use). NWA exercises first-
degree jurisdiction and second degree in case of appeal against a judgement of a Regional Water
Authority.
Chief Environmental Inspectorate (Környezet- és Természetvédelmi Ffelügyelség) and the 12
Regional Environmental Inspectorates (Természetvédelmi felügyelségek)
The Chief Inspectorate is a national office under the supervision of the Minister of Environment and
Water Management. The Regional Environmental Inspectorates have similar role to the Regional
Water Authorities concerning the process of jurisdiction, the duty of collecting data. Moreover, they
perform tasks of monitoring, measuring, collecting, processing and registering data on loading and
state of the environment, in order to be able to operate the National Environmental Information
Network.
Ministry of the Interior
The Ministry subsidises local governments through general grants and subsidies specific to services
including investments in the local water and sewerage infrastructure. In detail see 7.2.3.2 Grants.
In most of the cases, local governments can decide upon water and wastewater activities (except for
the regional companies)
Ministry of Health and Social Affairs
The Ministry regulates the quality of supplied drinking water and provide authority control of services
through its county based offices.
21 The Ministry was called Ministry of Environment (KVM) for a short time between 1988 and 1990. After it
became Ministry of Environment and Development of Territory (KTM), but in 1998 it changed name again to of
Ministry of Environment (KöM).
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UNDP/GEF Danube Regional Project
6.2 National Planning and Permitting
The 25/2002 (II.27) Government decree initiated the National Program of Municipal Sewage
collection and treatment. It set a time schedule for sewage agglomerations (see 26/2002 (II.27) Gov.
Decree in Chapter 1.1.1) to fulfil the requirements based on EU approximation plans and water and
wastewater directives. (For details on relevant pieces of legislation, see 1.1)
6.2.1 Data Collection
Authorities collect data on one hand due to legal obligations by measuring emissions, on the other
hand they obtain data from companies subject to self-monitoring. See reporting requirements in 1.1.1
for institution collecting data.
21/2002 (IV.25.) Decree of KöViM on operating waterworks says that only appropriate laboratories
can exercise control, examine samples of wastewater and wastewater sludge. The decree authorises
the Chief Environmental Inspectorate to set conditions for the approval of suitability.
203/2001 (X.26) Gov. Decree on rules on the protection of the quality of surface waters sets the
obligation of self-monitoring for those discharging more than 15 cubic meter of wastewater a day and
wastewater containing dangerous materials results should be transmitted to the competent
environmental inspectorate.
204/2001 (X.26) Gov. Decree on sewerage fine rules that the quantity of wastewater emitted should be
measured by the subjects of this decree and needs to be approved by the authorities. Self-control is not
sufficient if wastewater emission exceeds 80 cubic meters a day or when it comes from leather,
chemical industry or from oil and metal processing.
6/2002 (XI.5) Decree of Ministry of Environment and Water Management (KvVM) about the
environmental standards and control of surface waters for drinking water abstraction and for fish
habitats.
6.2.2 Activity Permitting
From technical point of view, the National Water Authority (NWA) and the 12 Regional Water
Authorities (organised by river basins) under NWA assert the right of authorising: water production
and distribution, sewerage services and building water and sewerage infrastructure. (Both in the case
of water and sewerage companies and in the case of industrial water production for own use).
The Chief Environmental Inspectorate, via its twelve Regional Environmental Inspectorates
(organised by river basins) control those subject to self-monitoring (see 203/2001 (X.26) Gov. Decree)
and imposes (then collects) pollution fines related to wastewater.
Recently the organisational and functional merger of water and environmental inspectorates is under
way.
The municipal notaries give permission to small-scale water use (below 500 cubic meters annual
consumption), according to the 72/1996 (V.22) Gov. Decree on exercising water authority rights (see
1.1.1).
6.3 Economic Regulations or Limitations
The Ministry of Environment and Water Management is the chief regulatory body of the water sector.
The Ministry owns the five regional water companies and it manages funds subsidising the operation
of companies and investments in the water sector. It administers environmental regulation of the water
sector, determining pollution fines/charges and manages and disburses funds subsidising sewerage
investments.
The Ministry of the Interior runs the most important funds that subsidise investments and development
activities of local governments (see short description of grants in 6.3.3.2).
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National Profile for Tariff and Charges in Water and Wastewater Management Hungary
33
6.3.1 Taxation
6.3.1.1 Water Abstraction Fee
In Hungary a water abstraction or resource fee has been paid for past three decades. However
agricultural water use has been included only since the early 90's. All "water users" and "PDWS user"
(see 1.3 for the classification of users) shall pay water abstraction fees to the appropriate Water Fund.
These Funds are under the exclusive control of the Ministry of Environment and Water Management
(KvVM) (43/1999. (XII. 26.) Min. Decree). In 1999, the separated Water Fund (along with the
Environmental protection Fund) was drawn under the central budget. This means that its funds were
not earmarked, compared with the situation when it was a separated state fund. The CXVI/2003 Law
defined that the revenues of water abstraction fee support the Environmental Protection and Water
Fund Appropriation.
The water abstraction fee is collected by the regional water authorities and passed to the central budget
from 1st January 2001, but will then be earmarked as a subsidy in the target estimates of the given
chapter of the budget according to Act CXXXIII/ 2000 on the budget of the Republic of Hungary.
The water abstraction fee was 5.7 billion HUF in 1997, 5.9 billion HUF in 1998, and 5.7 billion HUF
in 2000. [MAKK 2000]. 2003 9.07 billion HUF. estimated. There is no official data available on the
debts or the collection efficiency22.
The abstraction fee to be paid by the water user is calculated by multiplying a base fee rate with
factors which reflect the type of water resource used, the purpose of use, the method of determining
the volume of water used and the water management situation of the given region. The base fee rate is
set annually in the central budget legislation, the factors are set for longer term in separate KvVM
decree. The volume accounted for the abstraction fee is minimum 80 per cent of the volume set in the
waterpermit. (Except for certain cases in which the abstraction fee is not to be paid. Such cases
include: authorities' order of water use restriction, fire extinguishing, when the used volume is under
500 m3/annum if the permitted water volume is not at disposal for natural reasons, and for Public
Drinking Water Supply (PDWS) users if public health regulations require drinking water quality for
the particular use).
Table 28 The Base Fee Rate for Water Users in 1993-2000, HUF 2002 per cubic meter
1993 1994 1995 1996 1997 1998 1999 2000 2003
Water
user
1.4 2.0 1.6 1.6 1.6 1.6 1.7 1.8 2.3
PDWS
user
4.3 6.1 4.8 4.9 4.7 4.9 5.3 5.5 5.1
Source: Makk (2000)
The actual water abstraction fee (WAF) to be paid depends on several factors besides the base fee rate
(as above mentioned), and is to be calculated as follows:
WAF = V*B*M*G
where
- V is the volume used or planned to use in m3
- B is the base fee
- M is a measurement parameter; the value is 1 if the water volume is measured, 2 in other
cases (until 2000 the latter value was 1.2)
22 Sums are in HUF 2002
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UNDP/GEF Danube Regional Project
- factor G depends on the type of the water use and the water body, and the water management
situation of the given region. Its value can vary from 0.001 to 10. The former is the
multiplication factor for surface water used by hydro power plants; the latter is for medicinal
water for non-defined usage. The values are given in order to restrain sensitive water sources
to meet inappropriate demand (e.g. using carstic water at an animal farm).
6.3.1.2 VAT
The VAT rate increased from 0 to 6 per cent in 1993, then to 10 per cent in the same year, then to 12
per cent in 1995. Even the recent rate (15%) is still lower than the general 25 per cent on most of the
goods and services.
6.3.1.3 Pollution Fines
Wastewater fine
This is a pollution fine that has to be paid if the wastewater emission of a water user exceeds threshold
limit defined in the permission or if it contains not permitted or prohibited material. The wastewater
fine is based on the 203/2001 (X.26) Gov. decree on the quality of the surface water (see 1.1.1) The
effluent standards measure 80 elements of pollution and toxic substances (including heat).
70 per cent of the wastewater fine revenues go to the "Environmental Protection Fund Appropriation"
(EPFA), which is managed, by the Ministry of Environment and Water Management. The other 30 per
cent flows to the municipality from the territory of which the fine was collected. The fines are imposed
and collected by the regional environmental inspectorates as opposed to the environmental load fee,
which is collected by the tax authority.
Wastewater fine can be calculated on the bases of the a) weight and b) excessive concentration of the
polluting material in wastewater.
Sewerage fine
The non-compliance of wastewater producers with the operation requirements of the public
waterworks is penalised by the 204/2001 (X.26) Gov. decree: the sewerage fine.
The sewerage fine charges for discharging to the sewerage system concentrations above a set of
standards for 32 pollutants. This fine is collected by the local governments and transferred to the local
sewerage company. This fine was introduced to motivate polluters to install pre-treatment facilities,
but local governments have a discretionary right to disregard this fine.
The threshold limits for the same pollutant can vary according to the local environmental sensitivity of
different areas.
The authorities distinguish between regular and one time (accidental) pollution.
The total revenue from all environmental fines imposed in 2000 amounted to a bit less than 1.9 billion
HUF; of this the share of water pollution was 55.27 per cent. Compared to the total revenues of the
sewage services market, it means that service providers had to pay about 2.3 per cent of their revenue,
as fine which, in itself, is not enough incentive to reduce effluent discharges.
This 1 billion HUF of wastewater and sewerage fine does not spread evenly along the rivers, it reflects
the capital-focused industrial activity in the country. 69 per cent of this kind of fines had to be paid in
the territory of the Environmental Inspectorate of the Central Danube valley.
The pollution fines remained in force after the water load fee had been introduced on 1 January 2004.
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National Profile for Tariff and Charges in Water and Wastewater Management Hungary
35
6.3.1.4 Summary of the Partly Released Environmental Load Fee Legislation
The Law on Environmental Load Fee (89/2003) is based on the (53/1995) Environmental Protection
Framework Law. It imposes burden of payment to those licensed users of the environment that
discharge or emit substances into the environment and the loaded quantities are measurable. The Load
fee has three types differentiated by the receptor: air, surface water (temporary water-flow as well) and
soil.
6.3.1.4.1 Water Load Fee
The Water Users have to pay the fee based on their license data or measurement. The user that
discharges into surface water via the public sewerage has to pay the fee to the public waterworks
above its current fee.
The base of the fee is the annually discharged amount of specified materials in kilograms. The final
volume of the fee is counted by considering the type and weight of each discharged material, the
sensibility of the area and the sludge disposal multiplier. The formula: Water Load Fee (HUF/year)=
(Mi [kg/year] x Pi [HUF/kg]) x T x I23 for each discharged material type. The sensibility multiplier
doubles the value between the average territory and Lake Balaton. The other protected areas' fee
results in no change due to the "T" factor. Sludge disposal multiplier penalises temporary and single-
sludge-deposit disposal, and reduces the burden of agricultural, recultivation and compost activities.
The water load fee payment burden can be reclaimed by 50%, in case of public sewerage system
investments if the investment reduces the discharged quantity. An investment is eligible for reclaim
only if it takes place during the development period, but for not more than 5 years. The rate of reclaim
has no connection with the rate of decrease of the given discharged material. According to analysis
carried out at MAKK (2003) the structure of the reclaim system will provide an incentive for
MWWUs to delay the completion of their wastewater investments in order to take full advantage of
the reclaim potential. The regulation gives possibility to lower the calculated tax with cost of
purchased quality monitoring equipment as well.
The incentive structure is further complicated by the gradual introduction of the water load fee; the fee
starts from 30% of the defined level in 2004 and reaches its full value in 2008.
The central tax office collects the charge. There is no straightforward earmarking of the collected fund
in the state budget.
6.3.1.4.2 Soil Load Fee
This type of load fee has to be paid by those dischargers that do not connect to the available public
sewerage network and have license to sewage discharge based on municipal water management
authorisation or of the water law.
The fee is calculated considering a predetermined unit price, the volume, the sensibility of the area and
the risk posed by the different compounded materials. The formula: Soil Load Fee = E [HUF/m3] x A
[m3] x T x V24. The volume of "A" is based on the purchased drinking water quantity. It can be
reduced by the quantity of water used to gardening. Local authorities have the right to reduce the level
of the charge or disregard it on social bases. Users of small scale or individual sewage disposal
facilities are exempt of paying the fee if their facility fits to the required technical parameters. Risk
and sensibility multipliers treat differently the activities authorised by municipality or water
directorate. The measurability gives the difference. Locally authorised activities (pe.: households
sewage disposal) have no possibility of measuring components, only in case of activities authorised by
23 where Mi the "i"th materials net discharged amount, Pi the "i"th material's unit price, T - Territory
Sensibility multiplier, I - multiplier of sludge disposal. T and I values are defined by the law's annexes
24 where E is the unit price, A the discharged amount, T - Territory Sensibility multiplier, V risk (caused)
multiplier. T and V values are defined by the law's annexes
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UNDP/GEF Danube Regional Project
the water and environmental directorate can the components' load be traced back and charged each. In
case of sensibility the local activities have lower risk factors at each sensibility category. The
difference grows from 10% to 60% in line with the level of sensibility.
The soil fee charge can be reduced with the charge paid after the amount of sewage that was
withdrawn from the discharger's sewage (septic) tank and verified with bills, issued by an authorised
sewage (municipal wastewater) collector agent.
In case of both fee type the discharger that runs waste reuse activity (including energy generation) can
reduce its payment burden after the reused quantity.
The charge is collected by the central tax office in case of activities under the authority of the regional
water directorates. In case of licenses to sewage discharge based on municipal water management
authorisation the municipality collects the charges. These local revenues have to be add to the local
environmental protection fund, the use of these revenues are restricted to investments to quantity and
quality improvement of soil and subsurface water bodies.
No detailed estimation of revenues from the above mentioned fees has been published. The 2004
central budget expects 14 billion HUF (70 million USD) from the three type of load fee, without the
revenues of the municipalities.
6.3.2 Pricing (tariffs)
There are 2 kinds of pricing systems on water services in Hungary: a volume proportional and a two-
component, with a set fixed part and a commodity charge for the water actually used or wastewater
actually discharged (volume proportional).
The one component pricing system is disadvantageous for the service provider or for the small users as
costs are not recovered in the case of a consumer who uses small amount of water or not regularly,
they have to be paid by the other consumers.
The proportion of fixed costs (independent of the water consumption) is high in the water sector,
amounting to 65-85 per cent [Szabó 2001]. They occur in connection with the amortisation of
facilities, maintenance, book keeping and reading of water meters.
The one component pricing system has however certain advantages, such as its acceptance among the
consumers and easy application. The two-component system lacks the former characteristic, but it is
more equitable, because everyone pays for availability of the service. In this case the variable
component is usually (ceteris paribus) lower than the volumetric system.
However, even in the case of a two-component tariff structure, the portion of the fixed element of the
charge within total charges paid is estimated to be far below the proportion of fixed costs in water
production and distribution.
In Hungary of the largest MWWUs 71 companies used a constant volumetric water charge, 25
companies used a two-component water charge and 82 companies used a constant volumetric sewage
charge, and 11 companies used a two-component sewage charge [VCsOSzSz 2002]. The Ministry of
Environment and Water Management sets the prices for the regional providers as one component
volumetric ones.
6.3.3 Grants and Subsidies
6.3.3.1 Subsidies
The huge cost differences among MWWUs and extremely high costs in some locations have made
interaction of the central budget inevitable. Subsidising the operation of the companies is the
responsibility of the Ministry of Environment and Water Management. In each year threshold limits
for water and sewerage unit costs are determined, and settlements with higher costs receive the
difference as a subsidy from the Ministry. The charges paid by the household consumers in the
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National Profile for Tariff and Charges in Water and Wastewater Management Hungary
37
subsidised settlements are equal to the threshold level of costs in Table 29. Tariffs of non-household
users are not subsidized.
38
UNDP/GEF Danube Regional Project
Table 29 Subsidy for Water and Sewage Services, HUF 2002 per cubic meter
1997
2000
2002
Drinking water
206
241
240
The sewerage service
151
168
194
The two services together
357
370
434
Source: BKAE (2002)
If water and sewerage services both are provided at the settlement, the acknowledged costs of the two
services have to reach the combined threshold limit to qualify for the subsidy. This form of
subsidisation is addressed to local governments, not to companies. Table 30 shows the evolution of the
sum spent on this purpose by the Central Government. Between 1992 and 2002 the subsidy more than
tripled in nominal value, but fell back in real terms. This solution means only a slight compensation
for W&WW companies and municipalities, (6 per cent of the household sales revenue, even though
more than one third of the settlements of Hungary receive this kind of subsidy but they are usually
smaller villages) and not for the majority of the local governments that own water facilities where
costs are spread within the area of the company, but they supply some settlements with extremely high
unit costs.
Table 30 Total of Subsidy on Household Water and Wastewater Tariffs, billion HUF
2002
Year
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Total subsidy
1.5
1.5 1.5 2 2.5 3 3.4 3.8 4.1 4.5 4.9
In 2002 price
6.5 5.3 4.5 4.6 4.7 4.8 4.7 4.8 4.7 4.7 4.9
Source: BKAE (2002)
In practice in each year the Ministry first decides on the aggregate amount of transfers, and then
determines threshold values with regard to the sum and the actual claims of local governments.
6.3.3.2 Grants
Local governments can receive grants below 1 billion HUF of "special purpose" (if they meet legal
requirements for investment purposes) without fulfilling any other professional, technical or economic
criteria. Grants require 40-60 per cent own financial resource of the cost of the project, which can even
be other state support like Environmental Fund (Környezetvédelmi Alap Célfeladat) or Water Fund
(Vízügyi Célelirányzat). Above 1 billion HUF only allocation is available that has to be approved by
the parliament in order to assure transparency of public funds. With the coming accession to European
Union new rules are introduced from 2002. A more effective constraint criteria are set for local
governments, they have to dispose at least 15 per cent of project value. The legislation encourages
association of local governments with 10 per cent increase of the amount of the grant. Knowing the
Hungarian situation, it can be useful to rebalance the current fragmented structure.
ˇ Grants from the Ministry of the Interior. Local governments can apply for state funding if they
meet criteria of Act LXXXIX/ 1992 (amended by LXXXII/2001) on system of grants of special
purpose (céltámogatás) and allocations (címzett támogatás) for local governments. Grants of
special purpose can be obtained for investments of special interest, to carry out basic functions of
local governments, e.g. sewage system, drinking water provision, education or culture. The list of
special purposes can change every year. "Allocation" serves for important investments left out of
subsidies of special purpose. Grants for sewage investment can only be obtained if the local
government can prove that 60% of the inhabitants will be connected to the sewage system 1 year
after the start of running, otherwise the grant has to be paid back. From the same point of view,
cities where the rate of connection is below 50/km and villages below 30/km of sewer, cannot
apply. A recent study (Oko, 2000) argues that the grant system worked inefficiently. The cost
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National Profile for Tariff and Charges in Water and Wastewater Management Hungary
39
standards were substantially higher than the ex-post analysis of constructions showed. The other
problem is the location; the grant system was ineffective in the sense that it did not finance the
plans that had the highest wastewater collection effect. It financed too many small settlement
projects.
ˇ The Water Fund (VICE) was established by the 11/1999 (III.11) Decree of KHVM. It can
support for example installing facilities to improve water quality, building and developing public
waterworks. In 2001, the amount that can be spent to the previous purposes from the Fund
increased from 40 to 50 per cent, but in 2002 went down to 40 per cent.
ˇ The Environmental protection Fund (KAC), according to 28/2001 (XII. 23) Decree of KöM on the
use, register and control of KAC, gives also grants for the protection of surface waters by title of
aims of environment protection programs. At least 65,5 per cent of the money of KAC have to be
spent on these programs (that contains program to protect other elements of the environment).
KAC also provides preferential loans to support environmental investments.
6.4 Environmental Regulations and Restrictions
6.4.1 Quality of Drinking Water
201/2001 (X.25) Gov. Decree on the quality requirements (see also 1.1.1) of drinking water defines
deadlines for the national Program of improving drinking water quality. Priority lists were set up with
tasks to complete. The first-priority list contains quality improvements to achieve till 25th December
2006 in settlements where arsean (0.03 mg/l), boron (1 mg/l), fluoride (1.5 mg/l) and nitrite (0.5 mg/l)
concentration exceed the threshold limit. According to the second-priority list, drinking water has to
be improved in settlements where concentration is more than 0.01-0.03 mg/l for arsean and 0.5 mg/l
for ammonium. For the other parameters the deadline is 2015.
In Hungary, meeting these European standards will cost 111.3 billion HUF (of investments) according
to estimation of experts (at prices of 2001, Koskovics 2002), as great number of inhabitants is
involved. 877 settlements and 2.75 million people are concerned with task needing to complete till
2009, but in the whole program 4.42 million people (about 44 per cent of the population). The most
critical situation is in South-Eastern region of the country: the population touched by the deadline of
2009 amount to 97.9 per cent in Csongrád county, 89.7 per cent in Hajdú-Bihar county and 79.6 per
cent in Békés county.
6.4.2 Effluent Quality
Problems occur with effluent quality because the proportion of properly treated wastewater is low.
Table 8 shows treatment of sewage collected in public sewerage network by type of purification and
the capacity of the facilities. Table 11 represents the whole water cycle, but gives data about the
characteristics of industrial sewerage.
The National Wastewater Program earmarks 972.4 billion HUF (of grants) for municipal sewage
collection and treatment between 2001 and 2015. From 1993 till 2001 in agglomerations above 2000
p.e. 221.6 (with agglomerations below 2000p.e., 310) billion HUF was spent on collection works and
68.6 (93.1) billion HUF on wastewater and sludge treating and disposal facilities, in total 290.2
(403.1) billion HUF.
40
UNDP/GEF Danube Regional Project
7 Service Users
7.1 MU Customer Types
The official statistical data differentiates between households, other users (public institutions, small
business and industry), and industrial (self-supplying "water user" and "PDWS users") users. This
chapter deals only with the household (residential) consumption; see 1.3.1 to find out about the other
users. The other customer types can be described by the following tables: Table 7 Table 11 what can
be found in the text, the population is the group that have special features to discuss in detail.
7.2 Population Served
The level of drinking water provision is available countrywide although it differs heavily by water
quality and settlement type (see Table 5.)
Wastewater service provision can be described by the classification and the relevant data of the
National Sewage Program (see Annex I) there are 682 (660 normal 22 sensitive25) agglomerations that
exceed the 2000 population equivalent (p.e.) limit of the 91/271/EEC Directive (transposed in the
Hungarian legislation with 203/2001 (X.26) Gov. Decree). Among them 284 have no sewerage
collection system and only in 373 can be found a treatment facility.
There are 826 (661 normal 165 sensitive) sewage agglomerations below the 2000 p.e.limit, among
them 756 having no sewage collection network and only 67 have a treatment facility. In these areas the
National Sewage Program indicates individual "state of the art" supplement solutions. The number of
less than 2000 p.e. agglomerations without sewage system seems to be enormous, however their
wastewater emission represents only 4.17 per cent of the total 14 352 702 p.e.of Hungary. 58.1 per
cent of the settlements are involved in wastewater collection26 and 38.5 per cent in wastewater
treatment27.
Local and regional companies produce and distribute drinking water for the vast majority of
households and supply sewerage services for those connected to the existing network. The
accessibility of the sewerage service is different between the larger and smaller municipalities. It is
widespread phenomena that households do not connect to the sewerage system because of the
financial burden it puts on their budget (see Table 35).
The composition of the service and the level of average costs usually differentiate residential users.
The average cost of service differs in the central settlement and its outlying areas. On one hand this
reflects natural differences of scale and density factors that result in lower per capita investment and
operation costs in central settlements. On the other hand, as the distribution of household income
shows strong correlation with the population size of the settlements, the willingness to connect is
lower in the smaller villages of outlying communities and this results in greater average costs for those
households that are connected.
Over 97% of household water consumption is metered. However, in the case of a substantial share of
consumers (data not available) consumption is metered by blocks of flats, not by households. The bill
is paid by the community of the blocks, and within the community the costs are divided by the number
of families, or the number of persons, but do not reflect the actual water use of the individual
household. In this case the households has no direct incentives to control or reduce their water
25 Sentive means that a territory or waters have to be defended against nutrients because of eutrofization or the
necessity to maintain the possibility of water provision.
26 57.8 per cent if sewage agglomerations below 2000 p.e. are not taken into account
27 38.2 per cent if sewage agglomerations below 2000 p.e. are not taken into account
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
41
consumption. Nevertheless, this practice seems to survive for several reasons. First, there are
technological difficulties that may make impossible to install meters in each of the flats (distinct pipes
going to the kitchen and the bathroom, etc.). Second, neither the suppliers nor the consumers would
stand the costs of installing hundreds of thousands of new meters. Third, even if the problem of
installing the meters were solved, experts estimate, that the current costs of checking the consumption
by households and sending hundreds of thousands more bills in every two months would offset the
saving of slightly decreasing consumption at an aggregate level. Fourth, suppliers are disinterested in
this solution, since beyond the additional costs of billing, they were faced to rising average costs of
water supply, as well, because of the lessening rate of exploitation of the existing capacities.
Settlements, where recreational activity is dominant, face a special problem. Because of the seasonal
fluctuation, of the number of the population, wastewater services have to be tailor-made. However
implementing sewage collection and treatment facilities for these holiday resorts is not included
among the objectives of the National Wastewater Program. People in these areas do not accept the
two-component pricing system. They find it unequal to pay a fix charge when they do not use the
service. However it can be just, because the construction and maintenance cost of a network has to be
covered.
Table 31 Per Capita Water Consumption of the Population Between 1994-2001, cubic
meter/year
1994 1995 1996 1997 1998 1999 2000 2001
Quantity
43.4 41.3 38.4 36.9 36.8 36.6 38.4 37.3
Source: KSH Env. Statistics
The growth of the drinking water and sewerage rate caused serious drop in the water consumption (see
Table 31). However it hides great differences, because in the capital the consumption reached 65.7
cubic meters per year, while in small settlements only 18.25. This caused a decrease in the exploitation
of the existing sewage works. By defining the capacity of new works, the local governments are rarely
taking into account the possibility of gradual expansion, so the new works are also hydraulically not
exploited.
Altogether less than 80% per cent of the population with connection possibility joined the pipe
network (see Table 10). Wastewater service provider can increase efficiency of their operation if they
convince people to connect to the existing network. The source of efficiency gain is presented in the
second row of Table 32.
Table 32 Proportion of Flats Connected and Not Connected to Sewage System
Compared to the Sum of Flat in Territory Provided with Wastewater Service
1998 1999 2000 2001
Flats connected
0.63 0.64 0.65 0.66
Flats not connected
0.12 0.15 0.15 0.11
Source: OVF (2002)
The low proportion of connection decreases further the exploitation of the sewage disposition and
treatment system. The low exploitation results in high specific costs and high rates, which forms a
vicious circle. To get out of this situation, the conditions of grants for sewage investment became
stricter and now depend on the connection rate to the network (for details see 6.3.3).
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UNDP/GEF Danube Regional Project
7.3 Financial Conditions
Table 33 shows expenditures on water and wastewater compared to net income of the different deciles
of the population28.
Table 33 Estimated Average Household Expenditures on Drinking Water as a
Percentage of Net (after tax) Income by Income Quintiles
Deciles 1st decile 1st
2nd
3rd
4th
5th
10th
Average
quintile
quintile
quintile
quintile
quintile
decile
1997
2.05% 1.91% 1.72% 1.62% 1.54% 1.49% 1.47% 1.42%
2001
2.9% 2.5% 2.2% 2.1% 1.9% 1.3% 1.1% 1.8%
Source: KSH (2002), KSH (1998)
Table 34 Cost Burden of Public Water Service as % of the Average Net Household
Income by Region (2001).
Region Central
Central
Western Southern Northen. NorthenA Southern
Hungary Dunantul Dunantul Dunantul Hungary lfold
Alfold
Average W&WW fee /
year
HUF
30270 27405 28943 26469 23151 22391 21609
Annual cost per household 2.0% 1.8% 2.0% 2.0% 1.8% 1.6% 1.5%
/ Average Net Income
Source: KSH (2002)
According to Table 35 the rate of public water service expenditures relative to low income of the
households exceed 3 per cent ratio, which is said to be acceptable by international studies.
Table 35 Rate of Public Water Service Expenditures Relative to Income
% of Average income
% of Low income (66%)
Expenditures at average fee and average
2.2 3.4
consumption level
Expenditures at high fee and high
4.2 6.4
consumption level
Source: BKÁE (2002)
28 The 1st quintile is the poorest one
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
43
8 Policy Issues
8.1 Economic Perspective
8.1.1 Efficiency
The decrease of consumption in the whole water sector - household and industry as well - over the last
decade is due to price increases, economic decline and technology changes. The operation of the
networks shows inefficiency, as the served quantities are very low, comparing to the capacity of the
facilities. The efficiency situation is even worse than the sole effect of economic changes would
indicate as future system capacity requirements were already overestimated at the last National Water
Management Materplan in the 80's.
The sewage service has to cope with the scale problem as well: the utilisation of treatment (especially
hydraulic) capacities is low, in consequence of the low level of drinking water consumption, however
the pollution concentration of waste water is increasing The connection rate of households has
improved due to government actions, but still there are possibilities in this field. Under-utilisation of
the existing capacities also drives unit costs up and decreases the willingness of households to make
additional connections to the system. Regarding sewage treatment, additional asymmetries were
generated in the 90s (when e.g. treatment plants have been built for a middle size town and the
surrounding villages, while the network of pipes covers only a part of the town), as an adverse effect
of the grant system.
8.1.2 Equity
The transformation of the institutional frame of waterworks service has resulted in large differences in
tariffs for both services, occasionally even in one service district. This situation is based in part on
scale differences of service providers and natural circumstances, but the different quality of
management, and local political consideration as well. It is highly problematic that the price of a basic
service can vary in the same area even twofold just because of ownership differences. This is an equity
question, but this problem roots in the weak and unequal regulation measures.
To a limited degree, the Central Budget provides payments to compensate inequalities between high
and low cost areas. In this way the state spreads above-limit-costs over a larger number of population,
that local governments cannot achieve. This system, however, raises another question of equity, since
above limit costs often originate from the fact that local actors lack the incentive of negotiation and to
reach agreement in small-regional distribution problems, or simply there is a bad management, and as
a result, taxpayers in general cover extra costs.
The non-use of (even) the newly built networks also generates equity problems. The present practice
penalises the ones who co-operate, use the (new or upgraded) service and do not cause extra
environmental harm.
8.1.3 Sustainability Stability of Operation
From its political perspective there is no clear cut (and widely accepted) view on how the cost burden
of the whole network restoration, upgrade and expansion will be distributed among users and the state
budget. The driving force of recent development policy is the criteria of the EU accession, embodied
in the National Wastewater Program, and the will to intake the accompanied EU funds. Meanwhile the
financial requirements of these funds that will bind future users together with the enforcement of
Water Framework Directive's cost recovery principle limits the possibilities of future considerations.
But the prospected effect of these requirements on service costs has not been widely recognized yet.
This situation gives weak ground for discussions about the role of private capital in the service.
Recently private capital participation is allowed up to 49% in municipality owned service providers,
but this arrangement avoids answering some basic questions. The limit on private ownership is
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UNDP/GEF Danube Regional Project
intended to protect the position of municipalities to control the services they are responsible for. At the
same time, more threat to the service originates from the public owners lack of market regulation skills
and the weak, unclear financial position the municipal sector has. Lack of skills keeps municipalities
back to protect users' interest through regulation without exercising ownership rights and being
involved in the operation and financial matters of a service itself. Weak financial position makes the
municipalities unable to accomplish long term financial policies that result in dependency of the
government initiated and financed programs (and in more or less natural misallocation of investment
sources). Both leads to strong demand for capital involvement, but the lack of own resources pave the
way toward bad and disadvantageous conditions of any type of capital provision. This is what really
hurts users interest.
8.2 Policy Fields
8.2.1 Economic Regulation
Local governments have widespread licenses in service provision, but at the same time they
incorporate conflicting interests that reduces their ability for efficient regulation.
Letting short-term interests prevail can lead to serious problems, just like in the case of un-accounted
amortisation costs, or the shift of infrastructure rent to operation expenses.
Setting cost covering prices would increase charges - which have grown already to a relatively high
level compared to household income (even in an international comparison) - to secure sound future
operation of the services, can become a serious local political issue. It can be very unpopular and the
political costs for local leaders can also be high.
Their ownership role conflicts with their obligation to protect consumer's interests. Moreover, local
governments have insufficient knowledge to effectively regulate local monopolies neither on cost
control nor on price issues.
The system of subsidy worsens the problem, because local governments can obtain subsidy to
household prices above an annually defined threshold limit that reduces the incentives to organise the
operation in a more efficient way.
Central Government institutions have small terrain to influence local governmental decision on long-
term operation issues. Although a new act is under evaluation that initialises a regulation office with
extended licenses to investigate and issue general rules about the experienced mis-functions, the main
problem of local service provision is the ever-changing financial conditions of central budget
mechanism. It is very difficult if not impossible to make long-term financial plans - municipalities
have no substantial own source that paves the way to the questionable shortsighted decisions.
8.2.2 Cost Recovery/Economic Sustainability
Fees more or less cover the costs of present operation, but not the restoration or upgrade of the
existing infrastructure.
Since amortisation is equivalent to future costs (assuming that past investment costs are equal to future
replacement investments), this element can be most easily disregarded when charges are expected to
match costs, although delayed or missing repairs can endanger future service quality. Moreover, the
current level of accounted amortisation cost is far below the necessary level, because political
considerations prevent local governments and the state as well from taking it into account.
There is no uniform appraisal of the capital value for infrastructure, but neither is the responsibility
clarified on the administrative level, which has to accumulate the necessary fund to the long-term
maintenance of infrastructure. The owner status is only one side of the problem as the municipalities
lack the own financial sources that are proportional with the required tasks.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
45
The problem could only be solved by a clear, sector-specific regulation of capital assessment and
amortisation rules. New rules need to be elaborated to make incentives for the local governments to
have a long-term approach. Therefore subsidy systems have to be modified in a way to enforce more
efficient management. Local governments should receive state funds only if their pricing system can
assure resources for the future operation and they can prove that rent or accounted amortisation cost
was spent on maintenance or new investment of waterworks. Furthermore, gradual operating
efficiency improvements can also be required (if they are feasible) just as it happens for some other
regulated services, e.g. electricity distribution.
It is in relation with economic sustainability and equity as well, the interests of future generations have
to be regarded, meanwhile step-by-step introduced cost recovery schemes can provide redistribution
between the present and a wealthier generation.
8.2.3 Tariff Structure
Many of the users have not yet accepted the two-component tariff structure. The price of the constant
element that represents the cost of the possibility to be connected to the service is debated, especially
in case of temporary/seasonal use.
The distribution effect of shifting to this tariff structure is beneficial for the users of bigger quantities,
because the burden of capital and fixed costs should be covered user by user on an equal basis not on
the basis of consumption. The higher cost this structure imposes on small quantity, low income user
groups will very likely fall back on the provider, or the central budget, through non payment, that is
why only few actors are keen on the issue. There are, nonetheless, examples of two-part tariffs in
Hungary, but mostly at more effluent locations.
As a result of the debts of consumers, even if the charges per unit of consumption matched the costs
per unit, actual revenues from charges would not fully recover the costs. In Hungary these debts were
estimated to be above 10 per cent of the overall revenues regarding the member companies of
VCsOSzSz at the end of 1998 [Papp, 2000]. Therefore rising the charges would not only increase the
rate of non-payment, but at the same time debts will motivate companies to raise charges further, in
order to increase overall revenues and cover their current costs, and this process can start a "vicious
circle". The firms' bargaining power is weak as legal and technical constraints make it impossible to
completely stop providing drinking water for households.
Lastly, the application of two-component tariff systems should be introduced if politically and
economically viable rules can be applied for distribution of capital costs among users.
8.2.4 Cross Subsidy
Though overall revenues from charges almost match current costs, this does not apply for household
charge. Generally, the price paid by households for drinking water is lower than that paid by other
users (see 3.1). Cross-subsidisation in favour of households can be explained by political
considerations of local governments, but service providers may also be interested in this solution,
since debts of households is more difficult to collect. Cross-subsidisation is considered acceptable
from a social aspect, but it is counter-productive in the sense that it increases the costs of the firms.
8.2.5 Benefits Commensurate with Costs
A sustainable water and wastewater service will benefit future generations (by its economic and
environmental effects) rather than the recent one, meanwhile costs relative to economic production
are higher for the recent users. A gradual approach would be the solution, but the EU accession
process drives it to the opposite extreme.
The quick satisfaction of sector specific (especially wastewater) standards gives less opportunity to
"complex" considerations that have beneficial by-products. Development programs especially in the
countryside, where land and workforce are relatively cheaper than technology should examine not
only the efficiency perspective of the water sector, but of the small local economies' perspective as
well. The different technology solutions have different distribution effects on the population of a given
area, through the natural resource and workload they use. The National Wastewater Program defines
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UNDP/GEF Danube Regional Project
the necessary conditions of the decision between building a local network and a connection to a bigger
one. The measure is based only on the investment and operation cost comparison, and neglects the
involvement of externalities and the consequences of considerations behind the sustainability
principles.
8.2.6 Administrative Units
The split of the regional or multi-settlement networks was based on the cost components of the
existing networks, but development and investments to restore the systems will show economies of
scale again.
The big number of MUs causes extra cost at least in the co-ordination of water basin wide operation.
This structure increases the possibility of overuse of the natural water resource base of the given area
due to less transparent basin wide operation. This risk can be lowered only through stricter regulation
and control; otherwise the cost will be paid by the whole society.
One possibility for reaching economies of scale again, in theory, is forced centralisation (by restrictive
economic means), but this strategy may be rather counter-productive as local governments will accept
it only with strong contra feelings because of their past experience. (The system of self-governance
has worked for merely 13 years.) It is proven on other fields of local service that they defend their
independent institutions in a way that may hurt their own economic interests. A graduate, co-operative
process of revealing the common interests of local governments in regional operation is needed. It
should be supported by the system of grants, like the recent legislation earmarked more money for
associations of local governments. Furthermore, cooperation through long-term contracts, as opposed
to mergers of legal entities, may be an attractive option for local decision makers. A good example for
this is waste management: especially smaller local governments are happy to contract "outside"
companies for this service, without retaining their own landfills or even collection systems, in
exchange for economic gains and improved service quality.
8.3 Policy Recommendations and Evaluation
In this chapter we draw some policy recommendations that reflect the problems listed above. Single
policy recommendation rarely reaches the desired goal, rather results can be expected from a group of
jointly issued measures. We try to follow this concept. The headings below refer to themes of the
previous policy field discussions in Chapter 8.2.
8.3.1 Economic Regulation
Experience: misallocation of financial sources of sewerage investments
Recommendations:
Clear long-term central budget conditions of the service provision
Tighter supervision by regulators pe.: State Audit Office
Strategy Description
Comment/Concerns
Clear long term central budget conditions of the
It enhances long term local planning and co-operation
service provision
instead of "now or never" type grant applications.
The state's role in this service is not yet a relaxed public
opinion; the question can (and should) generate political
debate.
It touches a lot of unsolved agenda so the process can
be easily stalled.
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
47
It reduces the chances of politicians rent seeking
possibilities.
Tighter supervision by regulators pe.: State Audit
It does not necessarily mean new organizational
Office
elements, rather sources to increase the ability of quick
supervision of the processes.
Meanwhile the control / supervision of characteristic
service provision types with additional control licenses
to central regulator would be beneficial.
8.3.2 Economic Regulation/Cost Recovery/Economic Sustainability
Experience:
Lacking financial strategies to obtain own sources for investments in the medium and long run.
Recommendations:
Regulatory frame in order to push owners to start accumulate funds for future investments.
Provide information to owner municipalities about possibilities of financial markets to better represent
the interest of present and future generations.
Earmarked increase of tariff for restoration, replacement.
Strategy Description
Comment/Concerns
Regulatory frame in order to push owners to These elements are useful, but they must be issued in a
start accumulate funds for future joint package. Single elements can result in loss of
investments.
accumulated capital, misuse, or public opposition
against additional tariff increase.
Provide information of owner municipalities Municipal assemblies are not the best organisations to
about possibilities of financial markets to bring unprecedented financial decisions, the
better represent the interest of present and decentralisation of this function without clear
responsibilities and credibility inside the municipal
future generations.
administration the efficient management of these funds
cannot be solved.
Earmarked increase of tariff for restoration. This measure can increase transparency, with a wider
public negotiation of goals, which may not be in the
interest of the management, or the owners, although
that's what the Water Framework Directive initiates.
8.3.3 Tariff Structure/Cross Subsidy
Experience:
Unexploited efficiency gains in the current operation, blocked by social considerations that the gains
may compensate.
Recommendations:
Reconsider the conditions of current subsidy scheme of villages with extra high tariff.
Two-part tariff with low and high fixed block.
Conditions to be benefited from subsidies
Comment/Concerns
on social bases. Strategy Description
Reconsider the conditions of current subsidy scheme
The compensation in its present form does not push
of villages with extra high tariff.
municipalities toward co-operation or strategies for
increased efficiency
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The central budget intervention could be (partly)
constrained to those areas, where the integration of
these sub networks to a wider network would cause
unproportional increase in tariffs of the whole, in other
cases the possibility of local negotiations can be
expected.
Two-part tariff with low and high fixed block.
In strict economic perspective differentiation in the
burden share of fixed cost is not efficient, but in case of
low consumption, worse off users, lower tariff may
result in higher revenue stream for the service provider.
On a wider perspective see the sustainability
considerations in 8.3.5.
Conditions to be benefited from subsidies on social
Public acceptation results more stable operation,
bases.
meanwhile it has to decide whether the municipality or
the provider have to bear the cost of preferential tariff
decreases. If only the municipality takes the burden it
can inspire service provider to be less keen on bill
collection.
8.3.4 Benefits Commensurate with Costs/Sustainability/Administrative Units
Experience:
There are user groups that would be worse off by applying any type of economic reform proposal that
points toward more stable and sustainable operation of the waterworks. With its local political
consequences it may block any reform effort. To provide low income consumers with off-network
solutions results in lower public cost then if they quit the service in random ways.
Recommendations:
Create guidelines with official backing on proportional allocation of costs between different consumer
groups. These guidelines should provide information on how to match policy goals (express local
values) with suitable rules of financing the operation, in order
ˇ to facilitate self-reorganisation of the network for efficiency gains, or
ˇ to create alternative ways to exit existing technical solutions of the networks on their edges.
Strategy Description
Comment/Concerns
Facilitate self-reorganisation of the network for
Communities can distribute common burden to citizens
efficiency gains
several ways, local rules and non-economic elements
may override the described traps.
Create alternative ways to exit existing technical
This can take the form of: applying new small scale
solutions of the networks on their edges
ecology driven solutions for small settlements,
adjusting land-use patterns for safer resource use and
harness ecological services of abundant local access to
land (pe: Target oriented use of new financing
possibilities of EU)
8.3.5 Sustainability Principles
Experience:
Present networks were designed and built in a different state of the society and different perspective on
environmental resources use (sustainability) than now. This situation is accompanied with technology
development as well. These changes pose question how to adapt network structures to these new
conditions and requirements. Solutions that involve joint means not just of the water sector can give
Gabor Ungvari; Zsuzsanna Mohai /MAKK
National Profile for Tariff and Charges in Water and Wastewater Management Hungary
49
better outcome. It has effect on what direction to develop the networks and for different user groups it
may result in accumulating capital for different purposes on different time scales.
Recommendations:
Bottom-up virtual re-planning of water system of the serviced area.
Estimate potential sustainable water supply of sub (river, stream...) basins of the service area
Tariff changes for efficiency gains have to be issued together in package with local initiatives that
targeted more sustainable environmental resource use of the district.
Strategy Description
Comment/Concerns
Estimate potential sustainable water supply of sub
Ecologists use the term potential vegetation that refers
(river, stream...) basins of the service area
to the "natural" land cover of a given territory. In this
sense the potential exploitable water resource of a sub
basin is countable by its present and a targeted future
status based on the area's environmental resources (land
use pattern and ecological quality). This volume is
considered as a threshold to decide on.
Bottom-up virtual re-planning of water system of the
The disposable water resources of a given sub-network
serviced area.
area and the adaptation capabilities of users defines
whether a separate system or a connected network
could give suitable solutions.
Tariff changes for efficiency gains have to be issued
Smaller consumption and extensive land-use gives the
together in package with local initiatives that
opportunity to the community to benefit from cheaper
targeted more sustainable environmental resource use
waterworks solutions that are based on the area's
of the district.
ecological services. (It usually provides other positive
extern effect to local economies as well.)
Even in case of over-demand, if there are consumers
which want to use W&WW services over the region's
sustainable (per capita) capacity thresholds, they could
be the burden taker of the more expensive additional
system. It gives rational and proportional differentiation
(pe.: in fix tariff components) that recently has no
means to measure.
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Gabor Ungvari; Zsuzsanna Mohai /MAKK
Document Outline