City to extend water contract without tender

To be eligible for billions of crowns in EU funds, the Prague City Hall must update its water systems management contract with Veolia Water Česká republika so the contract follows “best international practice” rules.

But according to Deputy Mayor Rudolf Blažek, Veolia will only make the needed changes on one condition: the city must extend Veolia’s contract by 15 years, from 2013 to 2028.

Blažek and others at City Hall, including city councilor responsible for water systems management Miloš Gregar, say the city’s strategic goal is the Kč 10 billion (€ 344 million) reconstruction of the central wastewater treatment plant (ÚČOV) on Prague’s Císařský Island; but to make that happen, they are counting on co-financing from a Kč 2.9 billion EU Cohesion Fund grant.

Gregar said the current contract between Veolia-owned Pražské vodovody a kanalizace, the company that manages the city’s water system, and Pražská vodohospodářská společnost, the 100 percent city-owned company that owns the water system infrastructure, doesn’t conform to best practices and needs revision. The modified contract would define the water pricing policy, Veolia’s role in future infrastructure investments, and how to progress in modernizing ÚČOV, Gregar said.

But there is no mention of updating pricing or defining investment roles in the city’s official public statement of intention (Záměr) published on the City Hall’s Web site. The only conditions clearly spelled out are that “the rental period is extended” until Dec. 31, 2028 and that the purpose of the rental is “securing further rental of the renter PVK.”

Marian Hošek, Prague assemblyman, said, “The conditions are very important. If they get a longer rental period for nothing, it’s obviously very disadvantageous for the city.” He added that the wording of the original contract in 2003 stipulated that any prolongation of the rental agreement would take place under normal conditions, “but this is something else.”

City assemblyman and financial oversight committee member Jiří Witzany said it was akin to tunneling to give Veolia a 15-year extension without holding a public tender for the next period of the contract, and detrimental to Prague residents.

Reliable sources who requested anonymity said city councilors are now rushing the contract extension through simply because early next year legal changes would require a new public tender to be held with the results approved by a three-fifths majority of the city assembly. Parliament is now in its second reading of a new concessions law and an amendment to 2004’s public procurement law.

Blažek and Gregar both deny any connection between the rush to extend the Veolia contract and the coming legislation. They point out, however, that according to a contract for a future contract between the city and Veolia, the prolongation was already planned. But what the men don’t say is that they and Veolia signed the contract on April 29, 2004 — two days before it became impossible to close such contracts following the country’s EU accession May 1.

It’s widely assumed that when Veolia and the city originally made the deal, they also made an unwritten agreement that Veolia’s contract would be extended, Hošek said.

He explained that Veolia paid an incredibly high amount, Kč 6 billion, for PVK in the company’s 2003 privatization, twice as much as other bidders’ offers, further raising suspicions about unspoken and unwritten agreements between the water company and some public officials.

“Definitely, it’s not normal,” said Pavel Linzer, director of development at Austrian-owned utility company Energie AG Bohemia. “The deal is probably legal, but it’s a question of what is fair and transparent,” he said, adding that it will be interesting to see what the European Commission thinks of this nontendered contract when it’s time to pay out the cohesion fund money.

By granting the concession for Prague’s water management for 2014—28 and not holding a tender to sell it, the city stands to lose “millions of crowns,” according to Witzany.

“The resulting loss will be paid by Prague residents through higher water bills,” he said. At press time, city officials were discussing a raise in the price of water in Prague.

Veolia did not respond to repeated requests for comment last week.

By: Sean B. Carney, 28. 11. 2005