Regional state-owned companies in a
decentralized context
Model I – Centralized Model with Public Servcie Provision
Case of North Transdanubian Regional Waterworks
Andrea Tönkő
MRI
February 1, 2012
Metropolitan Research Institute
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General Governance Framework
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Before transition, this model was dominating
Today, 25% of water service provision in Hungary is
provided through this model
All the main functions (policy making, regulation,
asset ownership, corporate oversight, service
provision) are the responsibility of the central
government
How could this model resist the decentralization
process? (technological factors, professional
interests, etc.)
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Company Features
NTRW, one of the five big regional
waterworks
 Water production related to coal mining
activity in the region: interrelated water
network, exceptional water production
method (mining conditions)
 Owners: Hungarian State (91,7%) and
municipality of Tatabánya (8,3%)
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Initial statements to be tested
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The main objectives of regional companies is safe
operation, efficiency considerations are secondary
State owned companies operate at higher costs, with
more employees
Political influence is high (in setting the prices,
investment decisions, company management, etc.)
Low transparency, the professional leadership is able
to maintain the bureaucratic slacks in the system
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Specific factors influencing
service outcomes - Incentives
There are some financial-institutional incentives that
induce sub-optimal service outputs:
 Lack of comprehensive central strategy on sewage
investments – over-investments, inefficient use of
EU funds
 Price setting mechanism (deficit grant, maximum
price)
 No real ownership attitude in the system (no
professional control, no price control) BUT strong
mission-oriented attitude and high professional
prestige
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Casual relations between
incentives and outcomes
Incentives
Safe operation is primary objective
Impact on outcomes
High service quality, less financial efficiency
Profit maximization
Better performance
Consumer-oriented operation
High consumer satisfaction level
Employed-friendly HR policy
higher employment level
bigger commitment towards the company
Environmental considerations are very
important (high environmental awareness)
Incentives for extending service area (big
existing capacities )
Political influence on prices
insurance of environmental sustainability
Conflicting incentives on sewage strategy
Over-investments, inefficient use of EU funds
Lack of “ownership incentive”
potentially higher bureaucratic slacks
better performance
Full cost recovery is not ensured
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Accountability Relations
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Casual relations between
accountability and outcomes
Accountability Relations
Impact on outcomes
Lack of professional and technical  Lower transparency
oversight of utility company, CEO
with very wide competencies
Trust in professional staff
 Flexible management tools,
professional, safe operation
Good communication with partners  Less conflicts, smooth operation
(local authorities, consumers)
Local authorities have minimal  Lower transparency
monitoring
or
oversight
competencies
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Casual relations between „rule of
law” and outcomes
Rule of Law
Impact on outcomes
private interests in a state company
 contradictions, uncertainty in
operation, higher cost levels
bureaucratic conflicts inside the state  higher production costs, less
transparency
lack of enforcement of wasting  suboptimal use of resources
central and EU funds
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Main Conclusions for Model I.
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Significant path-dependency in the system
Regional companies in Hungary are operating in such
institutional environment that they need to follow the logic of
profit maximization to some extent.
Permanent pressure both from the owner (State) and local
governments
Communication with local authorities is an area full of conflicts
and problems and changing depending on the actual level of
tasks and responsibilities
Transparency is probably the most critical aspect of the
operation of the regional companies. Neither the big size of the
company, nor the state ownership enhances financial
transparency.
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