Tariff freeze hurts profits at Hamburg Wasser

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Despite its optimisation efforts, Hamburg Wasser saw a decline in both revenues and profitability last year. It is still refusing to raise tariffs, and is further than ever from signing a deal with a private strategic partner.

Hamburg Wasser, Germany’s third largest combined water and wastewater company, had a tough time last year, as high levels of rainfall, lower drinking water sales, higher interest payments and increased energy costs saw its revenues and profits dip from the previous year’s levels. Nevertheless, the company is adamant that it will not raise water and wastewater prices in 2008, and expects to implement only a moderate price hike in 2009.

“In contrast to companies with private ownership, our aim is to charge reasonable prices as far as possible,” Michael Beckereit, one of the company’s managing directors, told GWI. “We made a reasonable profit of nearly €75 million in 2007. If you take into account the €27 million paid in concession payments to the city for wayleave rights, the total was above €100 million. Our aim is to keep this relatively constant.”

The company maintains that price stability is only possible through increases inefficiency. Low water losses of just 4% show that investments funded by water tariffs which are already among the highest in the world do pay off, but at the same time, sweating the assets for 3-5 years would be unlikely to have any impact on non-revenue water levels, according to Beckereit.

He is adamant that “for the moment we say a clear no” to bringing a private strategic partner into the water company. In 2004, a plebiscite voted against the sale of Hamburg Wasser, and this was followed in 2007 by a law ruling that the city of Hamburg must hold a majority stake in its water utility.

The curse of eternal optimisation

Germany’s communal water companies have been compensating for falling revenues by driving efficiencies. They cannot continue to optimise for ever

The table below shows selected data for communally owned water and wastewater companies with a private or near-private corporate structure – a constellation that is still relatively rare in Germany. While water prices are set by the combined water and wastewater company, wastewater charges are the sovereign responsibility of municipalities.

The downward trend in revenues last year was largely due to lower water sales as a result of increased rainfall. The companies refuse to raise water prices, however, preferring to compensate for falling revenues by improving efficiency, engaging in regional cooperation measures, and by adding new connections. Gelsenwasser, for example, recently acquired a 25% stake in Stadtwerke Stendal, and is pursuing plans for closer cooperation with its owners, Stadtwerke Bochum and Dortmunder Stadtwerke.

The fall in water prices at Berliner Wasserbetriebe was due to a change in its water tariff system in mid-2007, which introduced a standing charge alongside a volume price. The standing charge component should allow a higher share of fixed costs to be secured if annual water sales volumes continue to fall. Wastewater tariffs, meanwhile, are increasing due to the rising cost of wastewater treatment. Water losses in eastern Germany (ex-Berlin) tend to be higher than in the west, partly a legacy of lack of investment in infrastructure prior to the reunification in 1990. The figures at BWB and Hamburg Wasser stand at 2% and 4%, respectively, while in the eastern cities of Leipzig and Halle, the figures are 15.4% and 10.7%, respectively. While the Germans are proud of their exceptionally low NRW figures, the economic viability of maintaining such rates is something which does not seem to have been addressed.