Resources 32
Management of joint venture water companies

In most cases in central Europe the multinational has effective control of the management board of the joint venture water company company, whatever the balance of shareholding.

Hungary and the Czech republic have different company laws, but in both countries the key body which controls a company is the management board. The supervisory board provided for in Hungary, and the audit board in the Czech republic, are both bodies which meet rarely and have limited powers of supervision, as their name implies.

In three out of four of the Hungarian companies, and five out of six of the Czech companies, the multinational has effective control of the management board.

In two of the Hungarian cases, this control is specified in the concession contracts, despite the fact that the municpalities own the majority of the shares. In Pecs, the contract specifies that Lyonnaise des Eaux has exclusive, 100% control of the management of the company (although it has only 49% of the shares). In Budapest, the contract states that the Lyonnaise des Eaux/RWE joint venture is responsible for the operation of the company, and it has a permanent majority - 4 out of 7 seats - on the board of management (although it has only 25% of the shares).

In the case of Szeged, the company has reportedly remained unregistered (as at April 1997), and so has no properly constituted management board at all. This leaves all the power in the hands of the general manager, who is an appointee and employee of Generale des Eaux.

The exception in Hungary is in Kaposvar, where Lyonnaise des Eaux own 35% of the water company, with the rest of the shares being owned by local private investors. Lyonnaise does not control the management of the company – its senior executive in Hungary describes it as "a minority investor without decisive influence", and said that the company would be more profitable if Lyonnaise get control. This is also the only case where there are no shares owned by the municipality.

In the Czech republic, the case of Plzen is straightforward, as the whole board is appointed by Generale des Eaux, which owns 98.3%. In Karlovy Vary Lyonnaise has a 3/2 majority on the board, even though the shareholdings of the multinational and the municipalities are roughly equal at just under 50%. In Brno, where the municipality has 51% of the shares, it has 3 seats on the board compared with two for Lyonnaise. The sixth member of the board – and its chairman – is the company’s general manager. In Ostrava the representation is equal at 3-3.

In North Bohemia, the multinational is in a minority in relation to local investors. Hyder (formerly Welsh Water) owns 35.6% of SCVK, 45% is owned by private investors, and 19% by the municipalities. The management board of SCVK includes two nominees of Hyder, three of other private investors, two general mangers ex officio – and none from the municipality. It was explained that the municipalities’ 19% stake is just short of the shareholding required to get an automatic seat on the board. The formal position of the multinational is less than was implied in the beginning, when its shareholding was also said to "include an agreement for Welsh Water to join SCVK in operation and management of the Bohemia concession" (FT Bus Rep April 1995). However, the local investors are reported to accept the advice of Hyder on professional matters.

The one company where the multinational has failed to secure equality or dominance is in South Bohemia, where Anglian have only two seats out of seven, while the municipalities possess four. This will certainly change, as Anglian are reported to be pulling out from South Bohemia.

The general manager, or chief executive, is the most important management position in all these companies. Usually, the general manager is appointed by the board, which means the appointment reflects the dominant power on the board – which, in nearly all cases, is the multinational. In some cases the multinational exerts extra influence on the appointment.

(extract from " Water Concessions: ownership, control and regulation" May 1997)