City council bows to demands from Veolia water
Czech business weekly | 16.1.2006 | rubrika: News | strana: 5 | autor: BY SEAN B. CARNEY

UTILITIES

The Prague City Council approved controversial amendments Jan. 10 to contracts for the management of Prague's water supply, paving the way for Veolia Voda Česká republika to close an additional 15-year contract with the city and bring in hundreds of millions of crowns in extra profits.
The amendments apply to contracts between three parties: the city, its subsidiary Pražská vodohospodářská společnost, which owns the water systems infrastructure, and Pražské vodovody a kanalizace (PVK), the Veolia-owned company that manages the operations of the water system.
Miloš Gregar, the city councilor responsible for water works, says that the amendments put the contracts in line with "best international practices," thereby enabling the city to secure roughly Kč 3 billion (Euro 104 million) in EU Cohesion Funds for the renovation of Prague's central wastewater treatment plant. The changes extended Veolia's contract at no extra cost to the company and without a tender (see "City to extend water contract without tender," CBW, Nov. 28 - Dec 4, 2005). The same day the City Council approved the amendments, Veolia, a subsidiary of French utility company Veolia Environment, issued a press release stating that "PVK is prepared to financially participate in the overhaul of Prague's [wastewater treatment plant] in an amount of approximately Kč 3 billion."
That participation will eventually lead to an additional profit of Kč 270 million for Veolia. It will also necessarily mean increases in the price of water.

Calculating profit

PVK's profit margin, officially referred to as "acceptable profit," has been fixed for the last two years at 9 percent of all costs and expenses that are referred to as "justified costs." For every crown the expenses increase, PVK gets an additional nine hellers in profits.
This agreement encourages PVK to increase expenses, which in turn generates increased profits for its sole shareholder, Veolia. Its participation in the overhaul of the wastewater plant will be one such expense. In the end, consumers pay for the deal with a higher price for water. Just this month the regulated price of water was increased by roughly 5 percent, with the approval of City Hall.
CBW has a letter from Gregar to another city official in which Gregar states that the only way the city could get the EU money was by accepting Veolia's demand that the contract be extended.
In the letter Gregar said: "PVK [agrees] to the amendment of course only under the condition that it simultaneously leads to an extension of the rental [of the water systems] through 2028."
CBW tried to get city officials and Veolia representatives to say whether the 15-year extension for Veolia is related to the "best international practices" amendment and if the extension is required to gain the EU funding, but nobody would comment.
Lubomír Habrnál, chairman of City Hall's Committee for Infrastructure, refused to speak about the situation. "I'm not interested in giving you any information about this," he said. When asked why he wouldn't speak about these public issues, he said, "I have personal reasons."
Gregar didn't return CBW's phone calls.

Lost revenues

Jiří Witzany, a city assemblyman and a member of the City's budget oversight committee said, "There could be additional billions of crowns coming to the city from a private investor if the next 15-year water concession contract were tendered and paid for."
Veolia bought the Prague water management company in 2002, paying Kč 6 billion for the company and a management contract valid only until 2013. The company isn't paying anything for the next 15-year period. If the contract extension were tendered, Witzany said, the capital expenditure of Kč 3 billion to overhaul the treatment plant could be a condition of the tender and not included in the expense calculation for reasonable profit.
With the amendment approved, companies involved in the deal are expected to close the revised contracts within a few weeks.
Veolia didn't return repeated calls for comment.

Foto popis| Veolia's term was extended with no tender
Foto autor| Jakub Stadler