1 THESIS DEFEND, Csaba Rigó, 2009 Sustainability of the Wastewater Collection and Treatment Project in Zalaegerszeg Agglomeration Made by Csaba Rigó Corvinus School of Management 2009 Supervisor: Dr. Sándor Kerekes THESIS DEFEND „Who foresees three days, he will get three more years. „ (a Japanese saying) June 24th, 2009
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1 THESIS DEFEND, Csaba Rigó, 2009 Sustainability of the Wastewater Collection and Treatment Project in Zalaegerszeg Agglomeration Made by Csaba Rigó Corvinus.
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1THESIS DEFEND, Csaba Rigó, 2009
Sustainability of the Wastewater Collection and Treatment Project in Zalaegerszeg Agglomeration
Made by Csaba RigóCorvinus School of Management
2009
Supervisor: Dr. Sándor Kerekes
THESIS DEFEND
„Who foresees three days, he will get three more years. „(a Japanese saying)
June 24th, 2009
2June 24th, 2009
OVERVIEW The structure of the presentation
Applied CSM knowledge: Corporate Social Responsibility,
TARGET SETTINGMission, vision, the way to the target, strategy
Target:
Mission:
„We implement a sustainable wastewater treatment system based on targets due 2010.”
„We work for a better environment for people.”
Protect Lake Balaton and Zala River (reduce load of phosphorus and nitrogen).
Extend the regional sewerage pipelines.
Improve operation safety and extend the biological capacity of the WWTP.
Provide new sludge treatment line.
1. Be the No. 1 or 2 in successful implementation of Hungarian Cohesion Fund projects.
2. Maximize the investment budget, maximize the support from EU, minimize own resource!
3. Public procurement is about quality and high technical content.
4. „Financial sustainability”: load up Development Fund for the future additional investments.
5. Communication is about investment benefit.
Original strategy:
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
55
PROBLEM STATEMENT
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
More exciting questions:
- What's up with the investment economies of scale?
- How the total return can be ensured in the future?
- What is the optimal amount of the Development Fund?
- Do increasing tariffs influence consumption?
- Local PR or central communication?
Average cost structure of wastewater tariff
22%
27%
51%
Operational expenses
Tax burden
Development source
Development Fund for reconstruction
HYPHOTHESES
1. The macro-environment of the project has changed, the project has to be examine before finishing the programme in consideration of the economies of scale.
2. Raising of Development Fund for future reconstruction should be based on reconstruction schedule!
3. Excess of residual source can cause headache and results higher tariffs.
4. Increasing tariffs influence consumption and outstanding debt.
5. Local taxes can not be a choice of the depreciation included in tariffs.
6. Well-managed local PR is more useful than general (central) communication.
HYPHOTHESES
66
ANALYSISKey drivers of the changes of the macro-environment
Political dimension
Economic dimension
Minority administration (reforms in tardiness) have the institutional background hesitated Proposed change of the tax law (VAT law, local taxes) Planned restriction of the social supports
Termination of the big users (companies of the food industry) High interest levelIncrease of the unemploymentDecrease of the disposable incomes, decrease of the spending power (PPP)
Decrease in the population, alteration in the lifestyle, decrease of working activity Alteration of the consumption habits, decreasing drinking water consumption Rise in the expenses of the public utility in the household consumption Recession in the building operations in the surrounding districts of Zalaegerszeg and in the country
Technological dimensionAppearance of more developed technologies, alteration of the life cycle of the built-in materials and equipmentsRise in costs of energy and chemicals
Environmental dimensionProposed alteration of the law about water management Changing in the fees for soil strain
Legal dimensionChanging of the local regulations about the public utility connections (rise in the fees of connecting-up)
CONCLUSION 2.The macro-environment of the project has
changed.
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
77
ANALYSIS The position of the project determined by CBA in economies of scale matrix
CONCLUSION 3.The original CBAsays the project isjust economies ofscale. BUT!It might becomeeasily deadlock orquestion mark.
Average wastewater discharge per capita
115
79 8165
89 96 97
0
2040
60
80
100120
140
Budapest Debrecen Győr Miskolc Zalaegerszeg Pécs Szeged
litre
/day
/per
son
Average wastewater treatment unit cost
188 198
308
187
312
224253
050
100150
200250300350
Budapest Debrecen Győr Miskolc Zalaegerszeg Pécs Szeged
HU
F/m
3
The calculation method maydiffer in each town however!
It has already includedthe extra running costsof the 1st stage and the70 % of the
depreciation.
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
88
ANALYSIS The depreciation built in the pubic utility charges Proposed reconstruction plan
Reconstruction plan (50 years)
-
100 000 000
200 000 000
300 000 000
400 000 000
500 000 000
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
2053
2056
Years
HU
F
Less reconstruction demand based on vendors’ expertise andoperator’s experience.
Government decree no. 249/2000 (XII. 24.) Depreciation rate (%)
Constructions in WWTP 2
Buildings (instead of 3% in consideration of the lifetime)
2
Mechanics and electric equipments 14,5
Control engineering and IT 33
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
Decision brought from beside a table.
Accountancy Model A
(„24 years duration”)
99
ANALYSIS 3 accountancy models as the alternative of the project’s total return
0
2 000 000 000
4 000 000 000
6 000 000 000
8 000 000 000
10 000 000 000
12 000 000 000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
2031
2032
Years
HU
F
Model A („24 years”) results the excessive residual source!
Calculated depreciation is near 514 million HUF/year on the long run in Model A.
0
2 000 000 000
4 000 000 000
6 000 000 000
8 000 000 000
10 000 000 000
12 000 000 000
Years
HU
F
Model B („35 years”) gives still excessive residual source!
Calculated depreciation is near 348 million HUF/year on the long run in Model B.
0
2 000 000 000
4 000 000 000
6 000 000 000
8 000 000 000
10 000 000 000
12 000 000 000
14 000 000 000
Years
HU
F
In Model C („50 years”) reconstruction is ensurable with less residual source!
Calculated depreciation is 244 million HUF/year on the long run in Model C.
CONCLUSION 4.- There is residual source in both of Model A, B and C.- Model A or B results excessive residual source, that raises tariffs more.- Raising of Development Fund should only be based on reconstruction schedule!
One time extra rising of Model C
0%
5%
10%
15%
20%
25%
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
2038
2041
2044
2047
2050
2053
2056
Years
% o
f p
revi
ous
year
b
ase
Two times extra rising of Model B
0%
5%
10%
15%
20%
25%
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
2036
2038
2040
2042
Years
% o
f p
revi
ous
year
bas
e
Five times extra rising of Model A
0%5%
10%15%
20%25%
Years
% o
f pre
viou
s ye
ar
base
CONCLUSION 5.Model C is more sustainable in social respect. Model A and B is a financial approach rather than a sustainable solution.
1x
2x
5x
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
10
Drinking water consumption in Zalaegerszeg and its agglomeration
Drinking water tariff (HUF/m3) Outstanding debt (% of revenue)
CONCLUSION 7.Increase of tariffs is one of the reasons has influenced outstanding debt for 5 years.BUT! Outstanding debt is bear by liquidation of food industry firms also.
1111
ANALYSIS
CONCLUSION 8.The project mighteasily become deadlock orquestion mark.
It depends on thesize of investmentand wastewater volume.
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
Development source built in tariff in Zalaegerszeg and its agglomeration
460 480 500 500
726828
0
200
400
600
800
1000
2004 2005 2006 2007 2008 2009
Years
mill
ion
HU
FCONCLUSION 9.Both of Model A, B and C results in enough residual value.Depreciation built in tariff is more practical than local taxes.
The position of the project to be expectedDevelopment source built in tariff
1212
ANALYSIS Well-managed local PR or general central communication?
CONCLUSION 10. „To be more concrete!”
Well-managed local PR is more useful than general central. The communication should be about: economies of scale density of sewer connections operational issues (predicted tariffs) quality of drinking water (www.zalaviz.hu) „sustainable consumption” motives of raising of tariff (www.kazeg.hu) assessment of affordability
LOVELY BUT THAT IS ALL!The general communication popularizethe EU support does not have much sense.
http://www.nfu.hu//videoanyagok (information viewed on April 24th, 2009)
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
1313
RECOMMENDATION BASED ON CONCLUSIONSStrategic changeover is needed!
1. Be the No. 1 or 2 in successful implementation of Hungarian Cohesion Fund projects.
2. Optimize the investment budget, maximize the support from EU, to minimize own resource!
3. Public procurement is about quality and price competition.
4. „Social sustainability”: load up Development Fund is required for future reconstruction, no more!
5. Communication is about „sustainable consumption”.
CORRECTION
CONCLUSION 1-10.
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
Options Grade
Investment budget Minimize Maximize Optimize C
Public procurementQuality and price
competitionQuality and
high technical contentC
Total return of project With respect to society With respect to finance A