Total return of the Wastewater Collection and Treatment Project in Zalaegerszeg Agglomeration

1. TOTAL RETURN „Who foresees three days, he will get three more years. „ (a Japanese saying) Total return of the Wastewater Collection and Treatment Project in Zalaegerszeg Agglomeration Made by Csaba Rigó 2009 September 9th, 2009

2. HYPHOTHESES PROBLEM STATEMENT • HYPHOTHESES • The macro-environment of the project has changed, the project has to be examinebefore finishing the programme in consideration of the economies of scale. • Raising of Development Fund for future reconstruction should be based on reconstruction schedule! • Excess of residual source can cause headache and results higher tariffs. • Increasing tariffs influence consumption and outstanding debt. 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? Source: Zalavíz Co. Development Fund for reconstruction 2 September 9th, 2009

3. ANALYSIS (PESTEL)Key drivers of the changes of the macro-environment Political dimension Minority administration (reforms in tardiness) Change of the tax law (VAT law, local taxes) Planned restriction of the social supports Economic dimension Termination of the big users (companies of the food industry) High interest level Increase of the unemployment Decrease of the disposable incomes, decrease of the spending power (PPP) Sociocultural dimension 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 dimension Appearance of more developed technologies, alteration of the life cycle of the built-in materials and equipments Rise in costs of energy and chemicals Environmental dimension CONCLUSION 1. The macro-environment of the project has changed. Proposed alteration of the law about water management Changing in the fees for soil strain Legal dimension Changing of the local regulations about the public utility connections (rise in the fees of connecting-up) 3 September 9th, 2009

4. ANALYSIS The position of the project determined by CBA in economies of scale matrix The calculation method may differ in each town however! CONCLUSION 2. The original CBA says the project is just economies of scale. BUT! It might become easily deadlock or question mark. It has already included the extra running costs of the 1st stage and the 70 % of the depreciation. 4 September 9th, 2009

5. ANALYSIS The depreciation built in the pubic utility charges Proposed reconstruction plan Joint decree no. 14/2004 (VIII. 13.) of TNM-GKM-FMM-FVM-PM 39/A. § (9) Accountancy Model A („24 years duration”) Less reconstruction demand based on vendors’expertise and operator’s experience. 5 September 9th, 2009

6. ANALYSIS 3 accountancy models as the alternative of the project’s total return • CONCLUSION 3. • 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 onlybe based on reconstruction schedule! 1x In Model C („50 years”) reconstruction is ensurable with less residual source! Model B („35 years”) gives still excessive residual source! Model A („24 years”) results the excessive residual source! 2x 5x CONCLUSION 4. Model A is a financial approach rather than a sustainable solution. Model B and C is more sustainable in social respect. Calculated depreciation is near 348 million HUF/year on the long run in Model B. Calculated depreciation is near 514 million HUF/year on the long run in Model A. Calculated depreciation is 244 million HUF/year on the long run in Model C. 6 September 9th, 2009

7. ANALYSIS How does relate tariff and outstanding debt? Why is the total return in social respect important? But what is the situation in country of the agglomeration? Because consumption is shrinking. Consumption of Zalaegerszeg significantly influences the average consumption of the agglomeration. CONCLUSION 6. 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. The drinking water tariff is raising more intensive below 190 litre/day/capita consumption. CONCLUSION 6. Increasing tariffs influence consumption. It has been justified for 5 years. Beside the drinking water tariff, the wastewater tariff is implemented also in 2001. It did not cause a notable decline in consumption. 7 September 9th, 2009

8. ANALYSIS Development source built in tariff The position of the project to be expected CONCLUSION 7. The project might easily become deadlockor question mark. CONCLUSION 8. Both of Model A, B and C results in enough residualvalue. Depreciation built in tariff is more practicalthan local taxes. 8 September 9th, 2009

9. CONCLUSION 1-8. RECOMMENDATION BASED ON CONCLUSIONS Model B („35 years”) Calculated depreciation is near 348 million HUF/year on the long run in Model B.

10. THANK YOU! Thank you for your kind attention! 10 September 9th, 2009