29 municipal and state owned units, limited companies and some private entities were analysed using the financial statement data for 2002-2009. The study covered water supply, roads, streets, ports, airports, railways and energy networks. The report annexes even wider empirical material.
According to the research, the cash-based returns has been very stable during the studied period (2002-2009). The volatility of the cash flows has been almost risk-free compared to investments in Finnish stock markets.
The best sectors were energy with its average annual cash-based return of 13% for the invested total capital and ports with about 10% average annual return.
The study also looked into the returns of state-owned companies. VR, the national state-owned rail operator yielded to 5% average annual cash-based return on invested capital. Accordingly Finavia, the state's airport owner returned annually 4% on average, and the state-owned road contractor Destia about 7%.
The form of ownership has a clear effect on returns. The ownership models covered traditional municipal entities, municipality and state owned companies as well as fully private units. Traditional public entities had the best cash-based returns to their owners. Municipal ports exceeded with about 4%-units the returns provided by municipal limited liability companies for the period of analysis. Difference of same magnitude was identified with waterworks.
The differences can be explained largely by different accounting practices. With limited liability companies, the accounting standards are dictated strictly by different laws and generally accepted accounting principles whereas the accounting of municipal units and enterprises follow a more liberal practice. The latter entities are mostly exempted from taxes and have more freedom to return profits to their owners. In the long run, however, these liberal practices may lead to "over-milking" of the utilities, hence resulting a risk of under-investments in infrastructures. Many municipalities and cities are concerned for example on the technical condition of water supply network.
The researchers recommend that accounting practices should be more specific in terms of reflecting the technical condition of the infrastructure and making it sure that necessary investments are not neglected while seeking high returns. On the other hand it is evident that municipalities and cities have financed some of their basic services – such as education or healthcare - with the help of revenues raised from infrastructure and utilities.
The Finnish Ministry of Finance has initiated last year a proposal to renew the legislation on municipal enterprises.Media material: Financial performance of Finnish technical networks
Pekka Leviäkangas | EurekAlert!
Graphene gives a tremendous boost to future terahertz cameras
16.04.2019 | ICFO-The Institute of Photonic Sciences
Mount Kilimanjaro: Ecosystems in Global Change
28.03.2019 | Julius-Maximilians-Universität Würzburg
A stellar flare 10 times more powerful than anything seen on our sun has burst from an ultracool star almost the same size as Jupiter
A localization phenomenon boosts the accuracy of solving quantum many-body problems with quantum computers which are otherwise challenging for conventional computers. This brings such digital quantum simulation within reach on quantum devices available today.
Quantum computers promise to solve certain computational problems exponentially faster than any classical machine. “A particularly promising application is the...
The technology could revolutionize how information travels through data centers and artificial intelligence networks
Engineers at the University of California, Berkeley have built a new photonic switch that can control the direction of light passing through optical fibers...
Physicists observe how electron-hole pairs drift apart at ultrafast speed, but still remain strongly bound.
Modern electronics relies on ultrafast charge motion on ever shorter length scales. Physicists from Regensburg and Gothenburg have now succeeded in resolving a...
Engineers create novel optical devices, including a moth eye-inspired omnidirectional microwave antenna
A team of engineers at Tufts University has developed a series of 3D printed metamaterials with unique microwave or optical properties that go beyond what is...
17.04.2019 | Event News
15.04.2019 | Event News
09.04.2019 | Event News
18.04.2019 | Life Sciences
18.04.2019 | Physics and Astronomy
18.04.2019 | Life Sciences