Proceedings

too small, the revenues and, as a consequence, the subsidy may be over- or
underestimated.
Further on, an extremely important, but seldom analyzed implicit cost, imposed to
subsidized companies, is the obligation of the beneficiary company to reach certain
performance standards, which means to continue the investment process and finance it
from own resources.
The performance indicators imposed to the company can be reached if the forecasts
included in the cost benefit analysis were realistic. These are influenced both by the
level of the discount rate and by the precision of the tariffs fixed for the services
rendered. In this context, water operators must also consider two antagonistic
principles, detailed in the next paragraph: the polluter pays principle and the
affordability principle. A high level of the tariff, according to the polluter pays
principle, will apparently increase the forecasted profitability of the company, i.e. its
net revenues, whereas the direct consequence will be the decrease of the subsidy
granted. In fact, it is possible that the predicted income, given by the amount invoiced,
is reduced by a high level of accounts receivable which remain unsettled. In the eyes
of the financer, the incapacity of the company to collect its receivables is considered a
sign of bad financial management.
In order to respect its future investment commitments, a good solution could be the
acceptance of private companies in the water and wastewater sector, in order to grant
the access to more financing sources.
1.3 Financing the operations
For the operations of companies in the water and wastewater sector, significant
balance sheet and income statement positions are the following:
� in the balance sheet, the most important current assets are the accounts
receivable, as the activity of such companies doesn’t need important
inventory; the most significant current obligations recorded regard the energy
suppliers and the personnel;
� in the income statement, the most important revenues are given by the services
rendered, while the most significant expenses come from the energy
consumption and the personnel costs – paid usually with constant (fixed)
monthly wages.
Based on these circumstances, we shall mainly discuss further on the premises and
conditions governing the collection of the accounts receivable, depending on the
number of customers (or the amount of billed services) and the level of the tariff.
Considering the monopoly position and the certain and constant demand for water and
sewage services, the number of customers is high and constant. The possible
difficulties to overcome do not regard the number of the customers, but their structure
on income levels.
The water demand is mainly determined by two elements:
� the number of households, the areas to be irrigated and the number of
industrial entities to be supplied by one water company and
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