Cost efficiency

By Pawel Chudzinski Ph.D.

CEO, Aquanet S.A. (Poznan Water)

The water supply sector in Poland reflects the country’s administrative structure and history. Prior to the constitutional transformation in 1989, water companies were organised centrally, as per other sectors of the economy. Only few water companies existed outside the central function.

Following the political change, one objective of the new government was to rearrange the competencies throughout the administration. Municipalities were assigned the responsibility of water supply management, which has since led to widespread fragmentation of water companies.

The impact of decentralisation

From an original number of more than dozen organisations, the number of water companies in Poland has increased to nearly two thousand, corresponding approximately to the number of municipalities. This fragmentation has widespread implications:

  • As management for the responsibilities of development and implementation of investment plans and water charges was assigned from the regulator to individual municipalities, inconsistency arose; whilst investment plans may be adopted in the long term, Polish legislation does not allow for a similar adoption of tariffs for the same timeframe, only permitting tariffs to be set for a period of one year. A ‘jarring’ of this nature can lead to both organisational and financial difficulties;
  • More positively, more accurate investment plans of water companies can be developed, tailored to meet the needs and expectations of local communities and creating better understanding between a company and its customers;
  • The ownership of water companies is confused by fragmentation of the market. More than 90% of the water companies are now owned by municipalities; the privatisation of some enterprises and water services, commenced in the 1990s, has not been continued, possibly because of the lack of social acceptance for privatisation of such enterprises and wide-ranging European Union financial assistance, aimed at solving the investment problems within water supply companies;
  • Management of water companies is also impacted. The number of professionals within the water industry is limited and the majority of skills tend to be located within only the largest enterprises.
Variation of service standards

Recent studies show that, although cost efficiency varies greatly amongst Polish water companies, the largest organisations achieve the strongest asset management statistics. The majority of these larger companies demonstrate poorer outcomes in employment rates, whilst simultaneously obtaining more positive results in terms of unit costs. Naturally, the larger the company the greater the levels of operational efficiency in comparison to other, smaller, businesses and this is reflected in energy rates and reaction times. On this basis, Polish water companies are currently situated along the mid-level of excellence in Europe.

Integrating for the future

After a period of intensive investment in property in order to meet the requirements of European Union regulations, the current trend amongst Polish water companies is focused on improving infrastructure and management processes. It can be assumed that this ought to yield results in a few years.

Participation in the Europe-wide benchmarking tests allows for the observation of trends which seek to improve levels of corporate governance. Nevertheless, Polish companies have for many years been separated from technical advance as well as management solutions and, with this in mind, their achievements to date should be noted.

In order to speed up improvement in the quality of cost management, it will be crucial at a government level to consider separation of the roles of the tariff and investment regulator from the ownership role; this, however, will only be possible following completion of a period of adaptation required in order to meet the demands of European Union regulation.

Biography – Ph D Paweł Chudziński

Position: CEO at Aquanet S.A. Graduated on Poznań University of Technology, field of study: Power engineering systems and equipment. Doctor of economics specialized in management at Poznań University of Economics.  In years 1990- 1998  councillor of Poznań City Council including position of a chairman of Municipal Economy Committee and a vice-chairman of Poznań City Council. In years 1985-1995 employee of “H. Cegielski Poznań S.A.” taking position of deputy director of Restructuration Office. Since 1995 working at Aquanet where in 1998 became a member of the Executive Board and then CEO from 1999. Creator of a benchmarking costs management methods at waterworks companies. Author of many publications in branch magazines like „Wodociągi i Kanalizacja” and „Kierunek Wod-Kan”. Chairman of the Warta Region Water Management Council. Former member of the Fasing-Katowice Supervisory Board and a chairman of the H. Cegielski Poznań S.A. Supervisory Board and former president of Polish Waterworks Chamber of Commerce. Awarded by Educational Entrepreneurship Foundation as a coauthor of the book “Municipal Economy Privatization- why yes, why no”. Author of the doctoral dissertation: “The use of Benchmarking in the cost management in waterworks companies”.