Hungary’s utility sector, encompassing district heating, water services, waste management,
and public transport, has experienced notable shifts from municipal to privatized
ownership and back to community control between 2006 and 2022. The purpose of this
study is to assess the financial performance and crisis resilience of municipally
owned utility companies in Hungary between 2006 and 2022, with a particular focus
on the impact of state price regulation and the role of economic cycles. The regulation
was intended to ensure service affordability but imposed significant constraints on
financial flexibility and investment capacity. The study targeted a sample of Hungarian
local government companies, with two distinguished periods (2006–2013 and 2014–2022),
examining seven different financial indicators (formulas), e.g., EBITDA, ROA, etc.,
with variance analysis and correlation analyses. These revealed that while companies
operated effectively during periods of economic growth, the post-2020 polycrisis,
characterized by challenges such as the COVID-19 pandemic and rising energy prices,
exposed vulnerabilities, especially in the district heating sector. Financial indicators,
including EBITDA margin and liquidity ratios, showed mixed results, with profitability
improving in certain sectors but liquidity and return on assets (ROA) declining, indicating
stress on short-term solvency. The paper suggests that while price regulation maintained
affordability, it limited the capacity for swift adaptation during crises. To enhance
resilience, the study recommends incorporating more adaptive regulatory frameworks
and investing in renewable energy and operational efficiency. These changes would
help municipally owned utility companies better withstand economic fluctuations and
maintain service continuity, contributing to long-term financial and service stability.AcknowledgmentProject
no. TKP2021-NKTA-51 has been implemented with support from the Ministry of Culture
and Innovation of Hungary from the National Research, Development and Innovation Fund,
financed under the TKP2021-NKTA funding scheme.This study was done in Széll Kálmán
Public Finance Lab of Ludovika University of Public Service, Budapest.
