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“Certain regulatory and efficiency issues of public utility companies in Budapest”
AUTH ORS
Csaba Lentner https://orcid.org/0000-0003-2241-782X
http://www.researcherid.com/rid/J-2382-2016
Vasa László https://orcid.org/0000-0002-3805-0244
Molnár Petronella https://orcid.org/0000-0002-5588-6318
ARTICLE INFO
Csaba Lentner, Vasa László and Molnár Petronella (2020). Certain regulatory
and efficiency issues of public utility companies in Budapest. Public and
Municipal Finance, 9(1), 14-24. doi:10.21511/pmf.09(1).2020.02
DOI http://dx.doi.org/10.21511/pmf.09(1).2020.02
RELEASED ON Friday, 07 August 2020
RECE IVED ON Friday, 12 June 2020
ACCEPTED ON Thursday, 16 July 2020
LICENSE
This work is licensed under a Creative Commons Attribution 4.0 International
License
JOURNAL "Public and Municipal Finance"
ISSN PRINT 2222-1867
ISSN ONLINE 2222-1875
PUBLISHER LLC “Consulting Publishing Company “Business Perspectives”
FOUNDER LLC “Consulting Publishing Company “Business Perspectives”
NUMBER OF REFERENCES
24
NUMBER OF FIGURES
1
NUMBER OF TABLES
4
© The author(s) 2020. This publication is an open access article.
businessperspectives.org
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Public and Municipal Finance, Volume 9, Issue 1, 2020
http://dx.doi.org/10.21511/pmf.09(1).2020.02
Abstract
Capital cities of the world are usually characterized by a concentration of the majority
of the population and most of the public administration and economic life. erefore,
the eciency and quality of public service delivery in their administrative territo-
ries make a dierence. e study examines public service companies in Budapest,
Hungary’s capital, with the focus on their sectors of activity to describe their system,
which may provide good foundations for a prospective international comparison.
is study explores sector-oriented reports of state- and municipally-owned public
utility companies providing services within the administrative territory of Budapest
and evaluates them in terms of total assets, nance, protability and eciency. e
study looked for an answer to the question of how the tighter state regulation and
control adopted aer 2010 aected their management, and what inuence the price
regulation of consumer public utility charges, imposed since 2013, had on companies’
activities.
Csaba Lentner (Hungary), Vasa László (Hungary), Molnár Petronella (Hungary)
Certain regulatory and
efficiency issues of public
utility companies in Budapest
Received on: 12 of June, 2020
Accepted on: 16 of July, 2020
Published on: 7 of August, 2020
INTRODUCTION
Since the late 19th century, public utility companies have played an
increasing role in Hungary. Public utility companies are responsible
for performing public duties and providing public services that have
a nancial dimension. Aer the Austro-Hungarian Compromise of
1867, a developed state railway network was constructed by obtaining
shares in privately-owned companies, and the inuencing role of the
state also increased in other areas of the market sector. As a result of
the nationalization processes carried out aer World War II, collec-
tive ownership became the norm throughout the Hungarian economy.
However, aer the adoption of a New Economic Mechanism in 1968,
market features also appeared – although only to a minimum extent –
at public utility companies, but the socialist planned economic sys-
tem – due to its basic philosophy – prevented the evolution of a gen-
uine market structure. Until the early 1990s, larger, nation-wide pub-
lic service systems were owned by the state; then privatization took
place and earning prot became the primary objective of new owners,
which had a negative impact on the nancial situation of the popula-
tion, as the households’ opportunities to generate income – owing to
continuous austerity measures and scal anomalies – were rather hec-
tic and limited in terms of real value, except for the last decade.
Aer the regime change, the leadership of the economic policy estab-
lished a system of local governments to carry out duties in accordance
with the ideology of the era. Local authorities were responsible for the
© Csaba Lentner, Vasa László, Molnár
Petronella, 2020
Csaba Lentner, Doctor of Public
Finance, Professor, National University
of Public Service, Budapest, Hungary.
Vasa László, Doctor of Economics,
Professor, Széchenyi István University,
Győr, Hungary. (Correspondent
author)
Molnár Petronella, Researcher, National
University of Public Service, Budapest,
Hungary.
is is an Open Access article,
distributed under the terms of the
Creative Commons Attribution 4.0
International license, which permits
unrestricted re-use, distribution, and
reproduction in any medium, provided
the original work is properly cited.
www.businessperspectives.org
LLC “P “Business Perspectives”
Hryhorii Skovoroda lane, 10,
Sumy, 40022, Ukraine
BUSINESS PERSPECTIVES
JEL Classification G32, H72, H83
Keywords evaluation, ownership, utilities, price regulation, going
concern, protability
Conict of interest statement:
Author(s) reported no conict of interest
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performance of public duties, and for this, the foundations were provided by, to an increasing extent,
public utility companies, privatized by then, with supply capacities within their administrative territo-
ries, and, to a decreasing extent, by public utility companies remained in their ownership. Aer 2010, an
extensive public nance reform was implemented, the main goal of which was to improve scal stabil-
ity and the quality of life of the population. As a result, the New Public Management and its economic
philosophy (Decentralization, Privatization, Management), “building up” in Anglo-Saxon countries
since the 1970s and taking root in Hungary aer the regime change, were replaced by the provision of
public utility services. is practice was aimed at the administrative regulation of public utility charges,
the centralization of assets and procedures involved in the provision of services, the re-acquisition of
public utility companies into national ownership, and through that, the delivery of public good in a
wider circle, instead of/beside prot, came to the fore. As a result of reforms, centralization towards
the central budget, re-nationalization and the delivery of public good in the widest possible circle, that
is, the new CNPG (Centralization, Nationalization, Public Good) philosophy, were applied to the ac-
tivities of the general government and its public utility companies to provide public services (Lentner,
2020). However, in this process, the successful development of the democratic state can be promoted
by an eective system of local self-government. e system of local self-government should be aimed
at eective performance of functions and the provision of quality services to citizens by the authorities
(Glushcenko & Kozhalina, 2019).
1. LITERATURE REVIEW
In Hungary, the Fundamental Law, being into
force since January 1, 2012, contains provisions
on the use of national assets and their efficient
management. In addition to the provisions of
the Fundamental Law, the structure of national
assets, provisions pertaining to asset manage-
ment contracts, and asset management are gov-
erned by the Act on National Assets (Act CXCVI
of 2011, hereinafter referred to as the NA Act)
(Hungarian legislation (Act CXCVI), 2011b).
The legislation points out that national assets
shall be used exclusively to carry out public du-
ties. The Fundamental Law also provides that
economic organizations of the state and local
governments shall perform their public duties
autonomously and lawfully, keeping expediency
and efficiency in view. The operation of state-
owned public utility companies is also governed
by the NA Act, while the business management
of municipally-owned business associations is
governed by Act CLXXXIX of 2011 on the local
governments of Hungary (hereinafter referred
to as the LG Act) (Hungarian legislation (Act
CLXXXIX), 2011).
Until 2011, the regulation of public utility com-
panies was less stringent, and as a result, a con-
siderable increase could be witnessed in the
number of such companies, which came to a
halt in 2011. Since 2011, tighter control has been
imposed upon public utility companies, which
contributes to implementing good governance
and more efficient management of public as-
sets. A more robust regulatory and control en-
vironment became necessary, since the reports
published by the State Audit Office had revealed
the shortcomings in the management of public
utility companies and their inadequate asset re-
cords. The Stability Act (Act CXCIV of 2011a)
contains provisions on the permit obligation
of borrowing by municipally-owned corpora-
tions, and the powers of the State Audit Office
have been extended over the business manage-
ment of public utility companies (Hungarian
legislation (Act CXCIV), 2011a). This is a sig-
nificant change in regulation, since local gov-
ernments, demonstrating lax fiscal discipline
and taking on excessive liabilities used to ex-
ercise a high objectionable proprietor’s audit
control over their public utility companies, and
the debt transfer transactions between local
governments and their public utility compa-
nies, lacking any substantial external control
opportunities on the corporate side until 2011,
faced a number of criticisms. Hungarian rules
and regulations, however, had to rectify several
shortcomings, since for a long time there was
no legislation on the internal control systems
of state-owned business associations, which
could have a positive impact on the efficiency
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of business management. On January 1, 2020,
Government Decree No. 339/2019. (XII.23.) en-
tered into force, which set out rules pertain-
ing to the internal control system of publicly-
owned business associations. The provisions
of the Government Decree shall be applied to
all publicly owned business associations from
July 1, 2020. Ensuring compliance is important
also in the case of state-owned business asso-
ciations (Boros, 2019), as adequate rules and
regulations promote effective business manage-
ment. Besides, the effectiveness of corporate op-
erations can be improved by continuous control
in the case of municipally-owned corporations
(Boros & Fogarassy, 2019), and the requirement
to establish internal control channels results
in a further increase in the standard of busi-
ness management. I. Makarenko, Bychenko, S.
Makarenko, and Qasimova (2018) examined the
corporate social responsibility of public utility
companies and found that the implementation
of public administrative reforms, increasing the
transparency of state-owned companies, deter-
mined the reasonability of developing a social
responsibility mechanism.
The operation and business management of
public utility companies, however, were great-
ly influenced by the administrative price regu-
lation, introduced in 2013 (“utility cost reduc-
tions”). As a result of the regulation, prices for
supplies of electricity, natural gas and district
heating to household customers were reduced
in the first round, followed by prices for sup-
plies of water, waste management and chim-
ney sweeping public services. “Utility cost re-
ductions” manifested themselves in cutting
fees chargeable to consumers by 20-25 per cent,
which also affected the net revenues of corpora-
tions. On the one hand, net revenues have had
a “breaking” effect, and, on the other hand, an
effect that compelled more reasonable business
management. Public transport, one of the most
important public service activities, was not con-
cerned by the administrative price regulation,
therefore, its analysis is not in the focus of this
study. In the European context, after utility cost
reductions, Hungarian families pay the least for
the supply of gas and electricity. As a result of
the administrative price regulation, the num-
ber of arrears of customers decreased, as did
the amounts of outstanding debts. Following
the decline in consumer prices of energy sup-
ply, Hungarian households saved approximately
HUF 85,000 annually, while reductions in water
and sewerage supply, waste management, chim-
ney sweeping and PB gas charges mean approx-
imately HUF 100,000 (EUR 300-350) on an an-
nual basis (Lentner, 2015).
Utility cost reductions have had a positive im-
pact on the population’s income; however, to
offset missed revenues, utility service providers
must keep cost-effective business management
even more to compensate for efficiency and li-
quidity perspectives resulting from lost reve-
nues. The current study exposes this subject.
Public utility companies manage public assets,
therefore their cost-eective and protable opera-
tion is particularly important. Aer the 2008 crisis,
public utility companies were also threatened by
excessive indebtedness and factors impeding their
ecient operation and operational risks (Hegedűs
& Zéman, 2016). In addition to the crisis, the
operation of public utility companies was greatly
aected by the state reform launched aer 2010
and the administrative price regulation introduced
within that framework in 2013. In recent years,
the implementation of the accounting principle
of going concern has come to the fore in the op-
eration of all businesses (Zéman & Lentner, 2018).
International studies have examined the contents
of auditor’s reports, the implementation of the ac-
counting principle of going concern during the cri-
sis (Carson, Fargher, Geiger, Lennox, Raghunandan,
& Willekens, 2013; Marshall, Raghunandan, &
Riccardi, 2014; Read & Yezegel, 2018). In the case
of public utility companies (as well), the implemen-
tation of the fundamental principle is expected at
all times, as they nance the performance of their
public duties from public assets. It is essential to ob-
serve how the criteria of responsible corporate gov-
ernance are applied during the operation of these
corporations. e examination of the future oper-
ability of public utility companies is of key impor-
tance because the termination of their activities can
have an adverse impact on the society as a whole,
and can cause a decline in the standard of living
and quality of life of the population. Operability is
inuenced by the fact that these corporations are
aected by not only market conditions, but, to a
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greater extent, by economic policy measures, the
changes in the political environment and legisla-
tion, and, in recent months (early 2020), the spread
of massive health issues, “demanding” the continu-
ous provision of public services even more harshly,
and uninterrupted public services are expected as
a subjective, citizen’s right, even despite work stop-
pages at many manufacturing and service provid-
ing market enterprises and the quarantining and
lockdown of the workforce.
Figure 1 illustrates what factors may be indicators
of inoperability and when the implementation of
the accounting principle of going concern can be
questioned.
is empirical study examines the impact of ex-
tensive public nance reforms on the operability
of public utility companies concerned by the utili-
ty cost reductions in Budapest. From the perspec-
tive of this research, it is noted that it focused on
state- and municipally-owned public utility com-
panies. Public utility companies have undergone
several changes over the years.
Companies engaged in electricity and natural
gas supply are state-owned ones. (Companies ex-
amined included Budapesti Elektromos Művek
Nyrt, and Főgáz Kft.) Nemzeti Közművek Zrt.
has a 100 per cent stake in the natural gas sup-
plier. From the perspective of the current ex-
amination, there is another company, in which
Nemzeti Közművek Zrt. has a 100 per cent stake;
it is an electric public utility company with a
registered office in Szeged, therefore it was not
examined. A water public utility company and
a district heating company examined are mu-
nicipally owned. (Companies examined includ-
ed Fővárosi Vízművek Zrt. and Főtáv Zrt.) The
company engaged in waste management exam-
ined (FKF Nonprofit Zrt.) is municipally owned,
but it was registered in 2016 as a company in
which Magyar Nemzeti Vagyonkezelő Zrt. had
a 100 per cent stake. Since the operation of this
Source: Developed based on Lentner (2015, p. 766).
Figure 1. Indicators of operaonal dicules
•Significant deterioration of indicators evaluating the asset,
financial and income situation
•Liquidity issues related to the performance of public duties
•Fixed assets are also financed from short-term liabilities
•Main lenders, suppliers forsake
•Permanently loss-making operations, negative equity
•Low equity ratio
•Losing key, functional leaders
•Lack of important financial resources to perform public duties
•Weakening credit and capital market channels
•Changes in the leverage, solvency and consumer habits of the
circle of customers
•Shortage of professionals required to perform public duties
•Non-compliance with legislation and CRD
•On-going court or regulatory proceedings, as a result of which the
economic operator fails to meet its obligations
•Economic policy mesures with adverse effects, health
catastrophes, impacts of the world economy on the operation of
the corporation
Financial
indicators
Operational
indicators
Other kinds
of indicators
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state-owned company did not encompass the
whole of the examined period, it was not ana-
lyzed. Van der Waldt, Fourie, Jordaan, and
Chitiga-Mabugu (2018) reveal that the provision
of four basic services, i.e. waste management,
water and wastewater management and electric
supply, is jeopardized if local governments lack
technical knowledge.
2. METHODS
e subject matter of the analysis is the business
management of public utility companies that op-
erate in Budapest, have their registered oce in
Budapest and are engaged in dierent sectors
(district heating, natural gas, electricity, water
and sewerage sectors). is study involved public
utility companies in the operation of which the
administrative price regulation had a crucial role.
is study sought the answer to the question of
how a more stringent regulation and control sys-
tem and the administrative price regulation inu-
enced the business management of public utility
companies, and how the principle of going con-
cern was implemented at the corporations exam-
ined. at is, the study was aimed at justifying, in
terms of accounting, how the public utility ser-
vice providers engaged in the sectors concerned
could oset the “breaking” of net revenues, an
inevitable consequence of the utility cost reduc-
tions, by the more robust regulatory and control
system applicable to them, and, as an illustration
of that, how their eciency indicators changed.
e study was based on publicly available reports
of ve state- or municipally-owned public utili-
ty companies; also, indicators illustrating their
business management were constructed. e in-
dicators refer to the wealth, the asset, nancial,
eciency and income situation of the business
associations. Electric and gas supply companies
examined are state-owned, while companies en-
gaged in the district heating, water or waste sec-
tors are municipally owned. e criteria for se-
lecting public utility companies to be included
in the research were their continuous operation
in Budapest, their registered oce in the capital,
and the sample in Budapest itself, that is, the size
of companies and sectors, and that of the circle of
customers that they serve, which provides a basis
for drawing wide-ranging conclusions.
3. RESULTS
3.1. The implementation
of the principle of going concern
at public utility companies
in Budapest
Table 1 shows liquidity indicators of the studied
corporations in relation to 2011, 2015 and 2018.
e reason for choosing these years for study is
that the process of local governments’ debt con-
solidation began in 2011 and nished until 2014
(Lentner, 2014), and most public nance reforms
were realized in this period. erefore, one can
get an idea of the 2015 study of how the econom-
ic environment of corporations providing public
services in the territory of the municipality of
Budapest changed as a result of a tightening regu-
latory environment, and also the impact of the ad-
ministrative price regulation introduced in 2013
could be felt in the year 2015. e year 2018 is the
last period completed with a report at the time of
this writing. e time frame of the analysis spans
almost ten years, which is the adequately long pe-
riod for concluding.
Table 1. Changes in the nancial situaon
of corporaons examined in 2011, 2015 and
2018 (data are in numerical values)
Source: Own edition.
Indicator Current rao Acid test rao
Sect or/ Yea rs
examined 2011 2015 2018 2011 2015 2018
Distric t heang
service provider 1.324 2.750 1.027 1.294 2.640 1.0 02
Natural gas
supplier 0.960 1.803 0.749 0.929 1.725 0.681
Electric service
provider 0.993 0.976 8.071 0.967 0.928 7.7 1 8
Water ulies 1.207 1.24 8 1.656 1.166 1.111 1. 552
Waste
management
service provider
1.767 2.6 84 1.853 1.598 2.262 1.61 9
When assessing the nancial situation of enter-
prises, their liquidity indicators should be exam-
ined. e value of a liquidity indicator is accept-
able if it exceeds 1.3, and it can be considered par-
ticularly good in terms of solvency if its value is
around 1,8. e acid test ratio disregards the least
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liquid current assets (value for inventories)1, and
the value of the indicator thereby obtained is ac-
ceptable if it is above 1 (Zéman & Béhm, 2016).
e rst thing one can notice about the data of
Table 1 is that the solvency of corporations en-
gaged in district heating services, natural gas
supply and waste management services was the
most favorable in 2015, the values of the indi-
cators were the highest in this year during the
period examined. In the case of an electric ser-
vice provider and water utility companies, con-
tinuous improvement in the values of indicators
can be observed, and while the indicators of the
electric service provider had increased signi-
cantly by 2018, only a moderate increase at the
water utility company was observed. Given the
limit value (that is, the liquidity indicator of a
business association can be regarded as out-
standing if it exceeds the value of 1.8), only the
waste management service provider can boast of
an outstanding nancial position. In the case of
the electric service provider, even the outstand-
ing results of 2018 do not necessarily indicate a
favorable business management situation, as the
high value of the liquidity indicator may lead to a
fall in protability in the long term. As this anal-
ysis focused on the trend of liquidity, no in-depth
examinations were carried out in this eld. It is
noted that the fact that the state prescribes a 20-
25 per cent reduction of consumer prices did not
automatically result in a drop of the same vol-
ume in revenues, because of, on the one hand, the
moderation and mobilization of debts regarded
as bad ones earlier, a stronger solvent consumer’s
demand, and on the other hand, direct and indi-
rect “compensating” subsidies – distorting mar-
1 As for the statistical indicators used in the analysis, this study was aimed at relevance and mapping the main directions of changes,
therefore, for example, the simplest approaches of the many ways of calculating liquidity were adopted. Consequently, the categories of
frozen inventories and bad debts were not considered when determining current assets included in the numerator.
ket conditions – provided by the state in certain
cases; these items have not been examined in this
st udy.
Table 2 shows how the indicators illustrating the cap-
ital structure of corporations examined changed.
It is important that the equity ratio should be above
50 per cent, because in this case, the value of a com-
pany’s equity exceeds the value of its liabilities. In
the case of the water utility company, the assets
situation demonstrated a marked deterioration
in 2015 and 2018. Such a drop in the equity ratio
may lead to the impossibility of eective business
management. e indicators of companies provid-
ing district heating, natural gas, electric and waste
management services show a stable capital basis.
Short-term liabilities account for the majority of
liabilities of companies, except for the value of the
water utility company in 2015 and 2018, since in
this period the value of the company’s long-term
liabilities increased, and there was a growth in
investment and development loans. In 2015, the
companies providing district heating, natural gas,
electric and waste management services had low
levels of debt, as well as adequate solvency; how-
ever, by 2018, the liabilities to assets (L/A) ratio of
all four companies increased. Aer examining the
equity ratio and the liabilities to assets (L/A) ratio,
the overall conclusion is that apart from the water
utility company, the asset situation of public util-
ity companies was stable in the period examined.
In addition to examining the nancial and asset
situation of corporations, their protability and ef-
ciency positions were also assessed (Table 3).
Table 2. Changes in the asset situaon of corporaons examined in 2011, 2015 and 2018 (data are in
numerical values)
Source: Own edition.
Indicator Equity rao Liabilies to assets (L/A) rao
Sector/Years examined 2011 2015 2018 2011 2015 2018
Distric t heang ser vice provider 63.94 60.77 50.91 25.4 0 13.53 23.99
Natural gas supplier 63.90 71.83 67. 5 0 20.56 9.55 1 7.8 1
Electric service provider 63.50 68.38 70.66 36.50 27.0 8 29.34
Water ulies 73.64 10.11 1 3.31 6.68 86.65 83.58
Waste management service provider 58.67 63.14 52.76 22.44 9.47 18.54
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When examining playability and corporate e-
ciency, the study focused on the companies’ Return
on Assets (ROA), Return on Sales and Aer-Tax
Return on Sales indicators. In their assessment,
the indicators are expected to be positive, and their
growth suggests stable protability. is criterion
was not satised by the waste management service
provider in 2018, and the values of the indicators
were negative as a result of loss-making business
management. Except the natural gas supplier, the
values of the protability indicator (ROA) and the
eciency indicators (Return on Sales, Aer-Tax
Return on Sales) dropped at all examined corpo-
rations in 2018 compared to the previous period.
In addition to changes in protability and corpo-
rate eciency, the changes in gures inuencing
them should be noted, that is, the changes in prot
(loss) aer tax and the net revenues of sales com-
pared to the previous year examined (compared
to the year 2011 in the year 2015 and to the year
2015 in the year 2018, see Table 4). For instance,
the prot (loss) aer tax decreased by 63.613 per
cent, while revenues dropped by 23.786 per cent at
the district heating company in 2015 compared to
the 2011 data. By 2018, a 17.986 per cent rise can be
seen compared to 2015.
While business management of corporations
generally improved in 2015 based on liquidi-
ty, financial and profitability indicators, their
profit (loss) after tax value and net revenues
significantly dropped. The largest decline can
be seen in the profit (loss) of the waste manage-
ment company in the current year when the val-
ue turned into the negative range in 2018. From
the perspective of efficiency, the water utility
company and the waste management company
delivered the weakest performance in the peri-
od examined. Since the declining tendency of
profit (loss) after tax and profitability indicators
sooner or later also produce effects that weaken
liquidity, it is expedient to improve payability
in critical sectors. Overall, the entire circle of
public utility companies can be characterized
by a drop in their profit (loss) after tax due to
a reduction in their net revenues typically (and
mostly) by around 25 per cent as a result of the
administrative price regulation. However, their
liquidity, capitalization and profitability indica-
tors did not demonstrate such a decline, which
suggests more efficient management of their
resources and more stringent control of their
business management processes. Public utili-
ty companies are capable of maintaining their
Table 3. Changes in the protability and eciency of corporaons examined in 2011, 2015 and 2018
(data are in numerical values)
Source: Own edition.
Indicator Return on assets Return on sales Aer-tax return on sales
Sector/Years examined 2011 2015 2018 2011 2015 2018 2011 2015 2018
Distric t heang ser vice provider 2.9% 1.0% 1.0% 5.0 % 4.9% 1.1% 2.8% 1.1% 1.4%
Natural gas supplier 12.6% 3.6% 5.9% 22.4% 12.4% 18.4% 18.4% 5.9% 11.9%
Electric service provider 8.9% 6.2% 6.0% 9.6% 13.5% 11.1% 7.6 % 7. 5% 6.8%
Water ulies 1.4% 0.7% 0.4% 4.1% 3.9% 1.9% 5.0% 2.0% 1.4%
Waste management service provider 4.0% 0.6% –0.4% 6.4% 5.1% 0.8% 3.7 % 0.6% –0.6%
Table 4. Changes in prot (loss) aer tax and net revenues of corporaons examined in 2011, 2015
and 2018 (data are in percentages)
Source: Own edition.
Indicator
Changes in prot (loss) aer tax,
change in percentages compared to
the previous year examined
Changes in net revenues, change
in percentages compared to the previous
year examined
Sector/Years examined 2011 2015 2018 2011 2015 2018
Distric t heang ser vice provider ––63.613 17.98 6 ––23 .786 7. 180
Natural gas supplier ––74.642 91.178 ––22.1 84 –7. 424
Electric service provider ––23.230 5.802 ––22.324 15.451
Water ulies ––42.563 –33.252 – 43.871 –7.6 57
Waste management service provider ––86.208 –178. 512 ––10. 53 0 –6.373
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business management, implementing the prin-
ciple of going concern. At the same time, lower
consumer prices, aimed at reducing the utility
cost, also prevail and are better suited to the
spending power of the population. Public utili-
ty companies are able to provide public services
more efficiently than before across an economic
and, more importantly, a social dimension, as
a result of public finance reforms and, as a part
of them, the introduction of the administrative
price regulation. However, there are further po-
tential opportunities for a positive shift, and it
is even expedient to further improve the stand-
ard of their business management.
3.2. Special legal order caused
by the epidemic affecting
the operation of business
associations
The capacities of public utility companies to
provide public services are greatly affected by
the “spill-overs” from the national economic
policy space, its events and the world economy.
Escalating health and epidemiological problems
can be defined as a new type of risks. Despite
the adverse economic impact of the pandem-
ic (stoppage of production in the market sec-
tor, temporarily distancing the workforce from
workplaces), expanding since early 2020, the
uninterrupted provision of public services in
terms of the operation of the state and society
is expected,. The continued operations of com-
panies providing public services in the territory
of Budapest, the epidemiological situation, and
the authorities’ response to it add extra weight
to the importance of implementing the account-
ing principle of going concern, as an account-
ing-management requirement to maintain con-
tinued operations.
e Hungarian government declared a state of
emergency in the entire territory of Hungary
on March 11, 2020, to oset the consequences
of the human epidemic causing mass illness
and threatening the safety of property, and to
protect the health and life of Hungarian citi-
zens (Legislation of the European Union, 2020).
e pandemic has signicantly shaken both
the world economy and the business manage-
ment of companies. Business associations have
faced suddenly occurring liquidity problems,
which may lead to an operational paralysis in
the long term. erefore, the government has
implemented several economic policy measures
for the sake of corporations struggling with -
nancial diculties (Government Resolution No.
1109/2020, 2020). Such interventions are imme-
diate measures taken to mitigate the eects of
the COVID-19 pandemic on the national econ-
omy, including an exemption from social con-
tribution tax in specic sectors (such as cater-
ing, sport and entertainment, leisure activities,
television program production, etc.) and the in-
troduction of a payment moratorium (Ministry
of Justice of Hungary, 2020, March 23). (At the
time of this writing, the payment moratorium
did not include arrears on public utility bills –
see Ministry of Justice of Hungary (2020, March
24)). ese measures have also had an impact
on the operation of public utility companies,
and the government has established profession-
al support for the performance of functions by
state-owned and non-state-owned companies
that are vital for the operation of the state in a
state of emergency (Legislation of the European
Union, 2020, March 20). According to a com-
munication from the Ministry of Defence, on
March 19, 2020, Hungarian Defence Force man-
agement groups started to work at 71 enterprises
(and their number increased to 84 on March 25,
2020) (Hungarian legislation (Act CLXXXIX),
2011), that is, their task was to promote the safe
and uninterrupted operation of vital Hungarian
business associations. is measure aected sev-
eral state- and municipally-owned corporations
as well. ese corporations, performing public
duties, where the management groups of the
Hungarian Defence Forces have appeared, in-
clude corporations engaged in water and sewer
services, waste management services, electricity
and natural gas supply, passenger transport and
media services. Against this background, one
can conclude that the observance of the account-
ing principle of going concern, and, in terms of
its consequences, continued operations at pub-
lic utility companies (including the corporations
operating in Budapest and being the focus of this
study) can be promoted by the legal instruments
of the state, which are identied as a new type of
instrument to maintain continuous operations.
22
Public and Municipal Finance, Volume 9, Issue 1, 2020
http://dx.doi.org/10.21511/pmf.09(1).2020.02
CONCLUSION
is research focused on business operations of public utility companies in 2011, 2015 and 2018. e
examined corporations operated in dierent sectors. Consequently, information was obtained on the
business management, asset, nancial and income situation of a district heating company, a natural gas
supplier, an energy supplier, a water utility company and a waste management service provider from
their reports. e signicance of the study is that serious social problems may occur if a public utility
company ceases its operations or the provision of public services becomes interrupted (unpredictable,
and of a declining quality), which should be avoided in a welfare society built on democratic relations.
us, the analysis of changes aecting the operations of public utility companies has a social usefulness
dimension.
When creating the scope of the examination, the study considered, due to the characteristic features of
Budapest, signicant supply capacities and the dominant nature of the circle of customers, as well as the
fact that the services of these sectors have been concerned by the administrative price regulation since
2013. e analysis reveals that by 2015 – because of the administrative price regulation – there was a
fall in the prot (loss) and net revenues of all corporations. However, despite this decline, changes in
eciency indicators built on the basis of these reports did not suggest such an obvious negative shi as
compared to the corporate performance indicators (prot or loss aer tax, revenues), even some areas
showed improvement by 2018 thanks to more disciplined and controlled business management. Overall,
despite a drop in net revenues and prot (loss) aer tax, public utility companies have preserved their
operability alongside the implementation of the accounting principle of going concern. e previous
(2016) concept of the State Audit Oce has been justied by this research, since it was veried that there
was a shi towards a more disciplined business management and control system, which could largely
oset the fall in net revenues, caused by the administrative price regulation, in the eld of eciency. It is
concluded that continuous business management, keeping the reductions of cost in view, could not have
been implemented simultaneously without extensive public nance reforms. at is, more stringent
statutory regulations and greater proprietor’s control have contributed to the more eective business
management of public utility companies. Given the nancial, operational and other emergency indi-
cators included in the study, it is concluded that public utility services are special service activities that
are expected to be maintained (or on a specic level) even in the most critical situations by the general
government units.
AUTHOR CONTRIBUTIONS
Conceptualization: Csaba Lentner.
Data curation: Vasa László, Csaba Lentner.
Formal analysis: Vasa László, Molnár Petronella.
Funding acquisition: Csaba Lentner.
Investigation: Vasa László, Molnár Petronella.
Methodology: Vasa László, Molnár Petronella.
Project administration: Molnár Petronella.
Resources: Vasa László.
Soware: Molnár Petronella.
Supervision: Vasa László, Molnár Petronella.
Validation: Vasa László, Csaba Lentner, Molnár Petronella.
Visualization: Vasa László, Csaba Lentner, Molnár Petronella.
Writing – original dra: Csaba Lentner, Molnár Petronella.
Writing – review & editing: Csaba Lentner, Molnár Petronella.
23
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