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Government allays water hike fears

The government has tried to allay fears over a hike in water prices after the planned privatisation of state-owned water utility Vodárne a Kanalizácie (VaK), saying that the creation of an independent regulatory body will ensure ordinary citizens do not bear the brunt of strategic investors' costs after the privatisation.
The government confirmed its commitment to seeing the utility go into private hands in March 2002 with the sacking of Miroslav Čomaj, the head of the water management section at the Agriculture Ministry, for "insufficient progress" in the utility's transformation. The Agriculture Ministry also issued a call for "more resolute action" on VaK's privatisation.


A regulatory body will be set up for the water industry post privatisation. Companies, though, have said prices will reflect their investment costs.
photo: Ján Svrček

The government has tried to allay fears over a hike in water prices after the planned privatisation of state-owned water utility Vodárne a Kanalizácie (VaK), saying that the creation of an independent regulatory body will ensure ordinary citizens do not bear the brunt of strategic investors' costs after the privatisation.

The government confirmed its commitment to seeing the utility go into private hands in March 2002 with the sacking of Miroslav Čomaj, the head of the water management section at the Agriculture Ministry, for "insufficient progress" in the utility's transformation. The Agriculture Ministry also issued a call for "more resolute action" on VaK's privatisation.

According to government officials, the state can no longer keep prices at their current levels through subsidies. Analysts have said that water prices, at least for households, will have to be higher as private firms take over the running of VaK regional utilities. "Once the transformation process ends, citizens will no longer pay a fixed water price, which is currently set below its true market value," said Michal Benák, a partner with Bratislava-based mergers and acquisitions firm Navigator.

In 1999, the average price of water was 11.40 crowns per cubic metre. The price for households was eight crowns per cubic metre while companies had to pay 17.2 crowns per cubic metre to compensate for the lower prices set for households.

"VaK cannot act as a social guarantor, as it is currently, when water prices for citizens are undervalued and companies have to pay higher prices instead of citizens," said Anna Majkútová, spokesperson for the Ministry of Agriculture.

Investors who have shown interest in VaK have already said that finances will have to be poured into infrastructure and water treatment centres for Slovakia to meet European Union standards. "If the government wants to meet European Union levels, they have to allow investors like us to develop these utilities. These investments will obviously be reflected in water prices," said Antonín Pokorný, director of Lyonnaise Slovakia, a part of French firm Lyonnaise Des Eaux, one company that has publicly declared its interest in investing into VaK.

Based on the transformation document, 14 VaK regional utilities will be transformed into joint stock companies, a process that is expected to start in February 2001 and finish in March 2002. These will be owned by regional municipalities which would then decide whether the utilities themselves will manage their own privatisation or a strategic investor will carry out the sale process. However, not all companies showing initial interest seem likely to go on to full buy-outs.

Pokorný said that his company was not interested in buying into any of the utilities, but only renting them from municipalities for between 15 and 25 years. "We don't want to set a water price. It will be up to municipalities to do that. A part of our strategy is not to have a stake in these utilities. We will only set our profits and invest in development [of the utility]. If we decided to buy into any utilities we wouldn't be able to invest so much in development," Pokorný said.

He estimated that an investment of 150 billion crowns was necessary for water and sewage infrastructure. These investments, he explained, would vary in every region causing the water price from district to district to vary as well. "In the Bratislava region there are more people to share these investments into pipelines and water treatment centres than in central, and especially eastern Slovakia where these investments are crucial. For that reason the water price will be higher there [in regions outside Bratislava]," he said.

But according to Vladimír Tvaroška, an advisor to the Deputy Prime Minister for Economy Ivan Mikloš, any investments resulting in unaffordable water prices for locals will not be approved by the new regulatory body. "Investments will be made gradually, so that there won't be any big differences between regions in terms of water prices," he said.

Navigator's Benák added that the social and political aspect of the price hikes would be uppermost in the government's mind before privatisation and may result in at least some investments being made before a strategic investor comes in. "It will be in the government's interest to keep water prices across the country at an affordable level and the government may make some bigger investments into infrastructure before full privatisation to keep prices at this level," Benák said.

The regions themselves, though, remain unfazed by the latest developments, saying that because many villages have their own water supply systems there will be no costs incurred from locating and developing new water supply sources. "We won't have to find new water supply sources to get our water. This is our advantage in comparison with Bratislava, which is running out of water sources," said Elena Krausová, administrative head of the Námestovo district in north of Slovakia.

However, she added that while the costs for new supply sources may not be an issue for some regions after privatisation, she called for investments into infrastructure and connections from existing water sources to homes before utilities are transformed into joint stock companies to ensure that any price hikes made to cover these potential costs would be made to levels citizens could afford.

"We would welcome it if the government made some investments into infrastructure because many families don't have pipelines installed. If we have them, the water price will be affordable for people here," said Krausová.

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