sustainability of the wastewater collection and treatment project in zalaegerszeg agglomeration
DESCRIPTION
THESIS DEFEND. „W ho foresees three days, he will get three more years. „ (a Japanese saying). Sustainability of the Wastewater Collection and Treatment Project in Zalaegerszeg Agglomeration Made by Csaba Rigó Corvinus School of Management 2009 Supervisor: Dr. Sándor Kerekes. - PowerPoint PPT PresentationTRANSCRIPT
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,
Strategy Process, Applying strategy, Understanding Financial
Statements, Corporate Finance, Marketing Communication
Problem statement, hyphotheses (1 slide)
Strategic options, evaluation (1 slide) and recommendation
Presentation of the project and target setting (2 slide)
2 min.
1 min.
9 min.
2 min.
Analysis with built inconclusions (7 slide)
THESIS DEFEND, Csaba Rigó, 2009
14 minutes and 11 slides
33
PRESENTATION OF THE PROJECT
1. Zalaegerszeg downtown
2. WWTP and sludge system
3. Sewerage pipelinesNorth-East sewage systemSouth part sewage systemNorth-West sewage system(All is FIDIC Red Book)
4. Design of the sewage system
5. FIDIC engineering
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
New facilities sewage system (FIDIC Yellow Book)
Extending and improving WWTP and sludge handling (FIDIC YB)
3 construction and 2 agreements about services Summary of the project details
Start Date: 14th December 2004
Completion Date in current CD: 30th May 2010
Population (settlements): 85 983 prs (42 settlements)
Biological cleaning capacity of the WWTP: 170 000 PE 230 000 PE
Avg. connection rate in the agglomeration: 57% 85%
Budget (gross): 48 877 968 EUR
EU funding subsidy (gross): (75%) 36 658 476 EUR
Hungarian government (gross): (15%) 7 331 695 EUR
Beneficiaries (gross): (10%) 4 887 797 EUR
Contracted amount (gross): 45 930 032 EUR
Paid amount /31st May 2009/ (gross): 88% -> 40 418 428 EUR
Approved Cost Savings (gross): 1 747 446 EUR
Price contingency (gross): 1 074 010 EUR
Total savings (gross): 2 823 456 EUR
VAT 8 800 000 EURhttp://www.kazeg.hu
The investment is in process!
44
Vision:
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
Sociocultural dimension
CONCLUSION 1. Over-bureaucratized decision mechanism.
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.
Joint decree no. 14/2004 (VIII. 13.) of TNM-GKM-FMM-FVM-PM 39/A. § (9)
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
0
50
100
150
200
250
300
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Years
Lit
re/d
ay/c
apit
a
Zalaegerszeg (litre/day/capita) Agglomeration Average
10
Why is the total return in social respect important?
Because consumption is shrinking. Consumption of Zalaegerszeg significantly influences the average consumption of the agglomeration.
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009
ANALYSIS
Drinking water consumption and tariff in Zalaegerszeg
283254
230209 205 204 196 189 188 186 193 189 186 189 179 166 161 158 150 136
14 18 29 39 46 54 62 73 85 98 104 113 125 133161
203 208233
269
341
0
50
100
150
200
250
300
350
400
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Consumption (litre/day/capita) Drinking water tariff (HUF/m3)
CONCLUSION 6.Increasing tariffs influence consumption.It has been justified for 5 years.
Correlation between water consumption and tariff in Zalaegerszeg
050
100
150200250300
350400
0 50 100 150 200 250 300
Consumption (litre/day/capita)
Dri
nkin
g w
ater
tar
iff
(HU
F/m
3)
The drinking water tariff is raising more intensivebelow 190 litre/day/capita consumption.
A typical example for consumption and tariff in Egervár
10 16 29 39 46 61 86 107 125 149 159
484 521 558626
721792
880
9821044
144 137 139 118 116 107 97 101 112 114 117 101118 108 109 104 106 103 104 103
0
200
400
600
800
1 000
1 200
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Drinking & wastewater tariff (HUF/m3) Consumption (litre/day/person)
Beside the drinking water tariff, the wastewater tariff is implemented also in 2001. It did not cause a notable decline in consumption.
But what is the situation in country of the agglomeration? How does relate tariff and outstanding debt?
Drinking water tariff and outstanding debt in Zalaegerszeg
14 18 29 39 46 54 62 73 8598 104 113
125 133161
203 208233
269
341
0 0 0 0 0 0 0 0 0 0
3,2
2,2
2,7
1,7
2,22
2,42,6
3,8
0
50
100
150
200
250
300
350
400
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
0
0,5
1
1,5
2
2,5
3
3,5
4
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
Communication General Local PR B
Proposed strategy:
1414
THANK YOU!
Thank you for your kind attention!
June 24th, 2009 THESIS DEFEND, Csaba Rigó, 2009