The Hungarian Water Utility Sector

Water utility services are focusing on two main basic activities in Hungary: the provision of piped drinking water and wastewater treatment services.

The infrastructure of the water utility services in Hungary

The provision of drinking water services covers the whole chain from water extraction to the delivery of water to the customer, including the provision of water in the case of fire emergencies. All Hungarian municipalities are connected to the drinking water system and 95% of households have connection to the network. The annual water consumption is about 440 million m3 and 75% of this is related to domestic use. The average daily water consumption per person is 90-100 litres.

“Population connected to the public water utility network in some of the countries of the region” Source: KPMG - A magyar víziközmű ágazat bemutatása (2015)

 

In Hungary drinking water is healthy and can be consumed without any constraints in most settlements. In those areas, where there are some restrictions in force, there are EU founded projects - aiming at technological improvements – in order to upgrade the quality of water in these regions. On a national average the availability of water reserves are adequate, the security of supply with regards to the availability of water sources is guaranteed.

Sewage disposal and sewage treatment activities include the collection of sewage from its source of origin, disposal, purification, the further transportation of treated sewage to the reception area and the disposal of sewage sludge. In addition to the production-operation processes, communication with the customer, billing, water quality control and troubleshooting are also part of the activities of the water utility services. The coverage of the sewerage system was at a lower level in the previous years in comparison to the drinking water system but by 2013, 75% of households were connected to the network. The new or modernized treatment plants decrease significantly their footprint on the environment, but in the case of smaller treatment plants in villages with smaller installed capacities, lower scale of operation efficiency and lower rate of utilization have higher unit costs of operation.

“Percentage of population having access to at least secondary (biological) wastewater treatment in selected countries (%)” Source: KPMG - A magyar víziközmű ágazat bemutatása (2015)

Specific responsibilities within the water utility sector - ownership

The water utility companies that are responsible for the provision of drinking water, wastewater disposal and treatment services can be owned by local municipalities or the state exclusively. It is also the responsibility of the local governments or in certain cases the state itself - specifically defined in a legislation - to provide for the customers with these services.

The asset owner (the municipality and the state) sign a contract of service provision with the service provider (utility company). The type of contract can be of three different types: an “asset management contract”, “concession” or a “rent-operation scheme”. These can have different legal provisions and obligations depending on the type of contract. The “concession” contract provides the widest range of rights and the largest responsibility to the operator. The smallest responsibility and narrowest scope of actions are provided to the utility company by the “rent-operation” type of contract.

The regulator

The service providers during the validity of contract of operation can carry out their water utility services only in the possession of the operating licence that is issued by the Hungarian Energy and Public Utility Regulatory Authority (MEKH).

Tariffs and Fees

With the Water Utility Act entering into force in 2011, the local municipalities (local governments) lost their price setting authority. MEKH is providing the Minister responsible for the supervision of the sector with the suggested tariffs. The minister taking into consideration these tariffs will define in a decree the official tariffs for each water utility provider / water utility system or the type of water utility provision activity.

As a heritage of the previously decentralised tariff setting system, the number of different tariffs used by the utility companies is in the scale of 10.000 with significant differences in their rates at the moment.

The integration process in the water utility sector (2012-2016)

The transformation of the water utility sector’s market structure begun with the Water Utility Act entering into force in 2011 and the transformation process is expected to be finalised by the end of 2016. The regulation is aiming to continuously increase the minimal value for the number of customers - using the services of the given utility company - expressed by a complex index the so called “user equivalent” in order to stimulate the integration process of the water utility sector.

Water supply services in Hungary as of January 2016

As a consequence of the integration process, the number of water utility companies decreased from about 400 companies in 2011 to 41 by January 2016. In five of the corporations the major shareholder is the Hungarian state, while in two companies the capital city has a majority ownership and in the 34 remaining companies, local municipalities have a majority ownership. The vast majority of the utility companies are exclusively in national property but in four corporations foreign service providers also have a minority ownership. The sector provides job opportunities for about 20.000 employees.

Wastewater treatment services in Hungary as of January 2016