Debrecen, Hungary, twice considered and rejected water privatisation proposals. The council:

• Decided to farm out water and sewerage to Generale des Eaux, in June 1994;
• In August 1994, they rejected the GdE plan, in favour of a proposal from Eurawasser (LdE/thyssen);
• In August 1995, after an election, they rejected LdE, and decided to keep water public.
• The municipal company has used a bank loan, guaranteed by the EIB, to fund the necessary investment, more cheaply than the multinationals proposed.

In 1992 the former state-owned water and sewerage operations in Debrecen were transferred to the newly established local municipality. The operations included public baths, which were heavily subsidised, and the municipality proposed to create two separate undertakings - the baths, and a water and sewerage company. A works council was also created at this stage. The trade union offered to cooperate in the separation, and asked for protection for the jobs, pay and conditions, and social facilities of those being transferred into the new baths operation.

In July 1993 the municipality decided to split the companies, and the mayor told the unions that the municipality would do its best to respond to its demands.

By the end of 1993 the conservatives were in power in Hungary, nationally and in the municipality of Debrecen, and the political climate was hostile to trade unions. In November 1993 the municipality decided that water and sewerage would be contracted out as a concession. However, the politicians suspected that the management of the water company did not support the move, and appointed a 'commissar' to try and exert political control.

The municipality first improved the finances of the water service by increasing the price of water by I HUF - a large increase - and then, in early 1994, it invited tenders. The trade union and the works council wrote to the council with 17 demands concerning the transition arrangements for privatisation.

The municipality allowed works council reps to sit in on the meetings which considered the tenders. (This was an attempt to divide the works council from the union, but it failed, as the union and the works council maintained very good relations.). There were detailed discussions with the companies who submitted tenders, which included generale des eaux (GdE) and Eurawasser - a joint subsidiary between Lyonnaise des Eaux (LdE) and Thyssen.

In June 1994 the municpality decided to award the concession to Generale des Eaux. However, Eurawasser then set about lobbying to change the decision, arguing that the decision was improperly taken, and that in any case Eurawasser's tender provided for much more investment - 6-8 billion forints (HUF), compared with GdE's proposal to spend 3 billion HUF (GdE responded by claiming that Eurawasser's proposals were unnecessarily costly). Eurawasser's behaviour was described by some people as "arrogant" and "colonialist", and worse: "…The dispute has not lacked a whiff of corruption: it is rumoured that a top city bureaucrat changed sides in mid-debate after being offered a job by Eurawasser" (Heti Vilaggazdasag, 20/08/94,)

The efforts worked. In August 1994 an extraordinary meeting of the municpality decided that its former vote did not have the legally necessary majority. A new vote was taken, and this time LdE/Eurawasser won. The trade union protested at the vote, and said that it did not support either tender.

When the decision to privatise water was first made, in 1993, the trade union and works council asked in writing for a review of alternatives to privatisation, and the general manager ordered a study to be carried out. (When the commissar heard of this, he threatened to dismiss the manager). In addition, in March 1994 the trade union headquarters sent an economic expert who presented the financial issues and provided a new set of arguments for opposing the privatisation.

From the start, therefore, the alternatives were drawn up in cooperation with the water company management.

The decision in favour of Eurawasser took place in August 1994, but a elections were due in December that year, both nationally and locally. The trade union followed a three-pronged strategy:

• Firstly, to negotiate with Eurawasser over the transition arrangements, to gain time. Eurawasser had tried to claim that working conditions would improve under a multinational, but its bid was based on reducing the workforce by 50% in 10 years. These negotiations resulted in written undertakings from Eurawasser about pay and conditions.
• Secondly, to build alliances with politicians against the concession. The union tried to build alliances with anybody and everybody to stop the concession, and lobbied politicians to persuade them that the concession was wrong in principle. This was not always easy, as the politicians were often refusing to talk to each other.
• Thirdly, to continue to work closely with management, especially in preparing the economic case for financing a public sector alternative, which was the crucial argument in convincing people that there was an alternative to the multinationals for financing investments. Without this joint pressure from management and unions, privatisation would not have been rejected.

The elections in Decmber 1994 resulted in a change of government, both nationally and locally. The new governing parties were united in a wish to find a public sector alternative to privatisation.

In Debrecen, expert advice was given that the decision to award the concession to Eurawasser could be reconsidered - the trade union and management urged successfully that it should be, arguing that the councillors had ultimate responsibility for what was done. In May 1995 the municipality debated the issue. The result was uncertain right up until the final vote, which decided by a majority of 1 to cancel the award of the concession. One argument was that the Eurawasser tender failed to meet the requirements of the specifications; another was that the cost was too much for people to afford.

At the same time the municipality decided to create a separate municipally-owned water company, and this was set up in July 1995. Despite offers by Eurawasser to cut their price, the water and sewerage was now firmly in the hands of the municipal company.

Business plan

By July 1995, the baths operation had been separated, and the water company was created as a separate entity, with a proper evaluation of assets. The management developed a business plan which ensured that all costs were covered, including depreciation, without generating unnecessary profits. The price of water had already been increased because of the fall in demand after 1990, because of a fall in household consumption and industrial closures.

Income from water and sewerage services is usually fairly stable and can be calclulated on long-term basis. There are three important elements for structuring the finances properly:

• depreciation -built into end-user charges
• persuade consumers of the need to provide for the future by supporting further charges for investments
• speed up the investment process by using bank loans.

Investment of 2 - 2.5 billion HUF was needed to solve a number of problems, including:

• Extension of the sewerage network
• Improvement of the wastewater system
• Introduction of biological cleaning

The business plan was drawn up which involved using the company's own resources to finance some of the investment, but seeking external funds, including bank loans, for the rest.

A number of sources of external finance were used, including:

• the EU Phare programme (490 000 ECUs)
• state subsidies;
• funds from EBRD; and, most importantly
• a loan from an Hungarian commercial bank.

The management discussed the possibility of loans with a number of banks. Hungarian banks were happy to lend money because water is a stable business which provides good security for bank loans. The company also knew that Hungary was financing the building of motorways like this, using commercial bank loans supported by guarantees from the EU's European Investment Bank.

In 1996 Kereskedelmi es Hitelbank Rt (K&H - The Trade and Credit Bank) signed an agreement to provide a loan of 839 HUF, which was guaranteed by the EIB. The bank offerred to lend 1,000 million HUF, but the water company only wanted to use what was necessary. The loan was reported as follows:

Kereskedelmi es Hitelbank Rt (K&H), one of Hungary's largest commercial banks, signed a 839 million forint credit line with the waterworks company of Debrecen city to finance developments, K&H said in a statement. The municipality of Debrecen, situated some 220 kms east of Budapest, decided in mid-1995 that the city's waterworks company will finance the two billion forints infrastructural developments by bank loan in addition to own sources. 'The long-term lending, refinanced by the European Investment Bank (EIB), makes possible some 5,000 properties, lacking sewage, to link to the current network and the necessary expansion of sewage treatment and increasing the safety of the water supply,' the bank's statement said. The loan will be provided in two instalments. A 387 million forint package will be lent in 1996 and 1997, while the remaining 452 million between 1998 and 2000, it said. The long-term loans, which have favourable conditions that K&H did not release, have to be repaid by the end of 2003 and 2005 with a two and three years of grace period, respectively. The investments are to be completed by the year 2000 by Debrecen's waterworks company." (Reuters 22 May 96)

The loan conditions include an agreed formula for calculating the prices charged to consumers, which determines tariff increases up to 2010. It is also a crucial part of the agreement that the finance stays under the control of the company, not the local authority.

There are a number of key arguments for investing through a local company.

• Local competence

Firstly, a matter of local and national pride. The technical expertise in the Debrecen company was as good as in any other company, and it was competitent to do the necessary work. This was reinforced by the changed political climate after the elections of December 1994 - the Minister of Finance attended the ceremony of signing the loan contract.

• Local employment

Secondly, it is better for the local economy, for the water company to carry out as much of the work as possible by its own labour. This has the advantages of maintaining local employment. The company can also purchase supplies locally, at considerable savings - for example, plastic pipes were purchased at 30% less than the multinationals would have paid, with no transportation costs as the pipes were produced locally.

• Cost effective purchasing

Thirdly, it is more cost effective. The Debrecen company could compare itself with the city of Szeged, which had privatised its water, and (1) Debrecen did not have to pay for multinational profits (2) Debrecen did not have to pay for French-manufactured equipment, such as meters.

• Investment for need, not for profit

Fourthly, investment needs at Debrecen were determined on the basis of an assessment of technical needs. The municpal company discussed these rneeds in great detail - whereas the multinational proposals were for much larger sums of money, but with very little technical justification. Eurawasser's proposals would have meant investing 3 billion HUF, and making exteremely high profits over 25 years. This has been borne out in practice - 23 kilometers of pipework had been finished byApril 1997, at a cost of 320m HUF - 60% less than Eurawasser would have spent on the same work.

For trade unionists, there are a number of key lessons to be learnt from Debrecen

• The alliance with managemnent was crucial for developing the economic and financial case, and for running the campaign.
• The trade union saw that there was nothing to be lost by taking risks and putting pressure on management for a public solution
• Political parties of both left and right were convinced, for a range of reasons eg the nationalists emphasised national values
• The political decision would not have been the same without the trade union and management pressure
• The key issue was showing it could be done without foreign capital

The decision to keep water in public control at Debrecen, rather than privatisation, are tangible:

• 300 more people are employed, because the privatised concessions planned to cut jobs by 50%
• prices are 75% lower than the prices offered by the private concessions
• the system has been developed more extensively than was offered by the private concessions.