Hungary: Court supports Pecs decision to terminate Suez water contract

(May 2011) A Hungarian arbitration court ruled in March 2010 that the city council of Pecs was legally entitled to terminate its water service contract with the multinational Suez Environnement, and take over the running of the service itself.

The arbitration ruling was made despite strong political pressure from French and other foreign governments. Ambassadors of 10 EU countries wrote a public letter claiming that the action by Pecs, amongst other things, was undermining the confidence of foreign investors in Hungary:
"President Nicolas Sarkozy of France complained to Gordon Bajnai, Hungary's prime minister, who in turn attracted fire from opposition politicians for "protecting the foreign capitalists and not the people" after he spoke up for Suez."

The multinational was trying to reverse a decision by Pecs city council in September 2009 to terminate the water contract with the joint Suez-municipal company Pecsi Vizmu (48% owned by Suez, 52% by the municipality), because of excessive profits and high prices. While waiting for the result of the court case the union maintained a neutral position, to protect its members’ position whatever the result.

The contract was originally awarded in 1993, without any competitive tendering, despite strong opposition by the union and others. The city tried to terminate the contract in 2004, but on that occasion Suez won a court case that it was entitled to massive compensation for lost future profits, which the city could not afford, and so the council was forced to continue the contract. Pécs did successfully remunicipalise its privatised waste collection company on similar grounds: i.e. that prices had increased and infrastructure development had became more difficult to finance.

Cities where private water contracts expire can remunicipalise the service more easily than Pecs, because companies cannot claim compensation. For example, some privatised water contracts in the Czech republic are due to expire in the next few years, which offers an opportunity to mobilise the arguments for a return to municipal services. The city of Paris itself remunicipalised the water service when the private contracts expired (Read more at > EPSU).

Key points

• Legal action and international political pressure by multinationals does not always succeed

• Privatisation can be reversed by political decisions

• Remunicipalisation can take place when contracts expire without fear of compensation

Sources:

Read more at > MTI March 19, 2010 Friday Arbitration court declares termination of Pécs Waterworks contract to be legal

Read more at > Reuters 6 October 2009

• Read more at The Economist November 7, 2009 Less welcome; foreign investors in Hungary

Read more at > Zsolt Boda and Gábor Scheiring Hungary: Water privatisation in the context of transition. Public Services Yearbook 2005/6