CC BY
7DOI: 10.29141/2658-5081-2024-25-1-7 EDN: JQXGEM JEL classification: G33, D21, H12
Irina N. Tkachenko Ural State University of Economics, Ekaterinburg, Russia Ivan A. Chechulin Ural State University of Economics, Ekaterinburg, Russia
Crisis resilience assessment and management of public utility companies
Abstract. Currently, the most frequently used models for forecasting the probability of company bankruptcy in the housing and utilities sector lack accuracy. The hypothesis is put forward that crisis resilience of a company can be assessed based on its adaptive capabilities. The paper aims to construct a more accurate compared to the known regression model for predicting bankruptcies, as well as develop models for assessing the quality of crisis adaptation management at public utility companies allowing for the stakeholders' interests and peculiarities of their interface. The methodological basis of the study consists of the theory of crisis management and a stakeholder approach. The methods include multiple regression analysis, stakeholder mapping, sociological survey, and expert assessments. The evidence comes from the accounting and statistical reporting of 49 public utility companies, materials of arbitration cases, survey results of 33 heads of organisations obtained in the period from February to March 2023. The theoretical developments are implemented within the empirical studies of public utility companies. To improve crisis adaptation and resilience of public utility companies the findings recommend to launch staff training programmes, establish mechanisms for horizontal intra-sectoral connections and maintain cooperation at the level of public authorities in order to control investments in the housing and utilities sector.
Keywords: crisis resilience; crisis management; housing and utilities; crisis adaptation; stakeholder approach.
Funding: The research was supported by the Ural State University of Economics (project no. TZ-5.2022/1).
For citation: Tkachenko I. N., Chechulin I. A. (2024). Crisis resilience assessment and management of public utility companies. Journal of New Economy, vol. 25, no. 1, pp. 131-159. DOI: 10.29141/2658-5081-2024-25-1-7. EDN: JQXGEM. Article info: received November 4, 2023; received in revised form December 14, 2023; accepted December 28, 2023
Introduction
The housing and utilities sector (HUS) is an area of economic activity aimed at satisfying the basic needs of the population and ensuring social and economic reproduction.
In the Soviet era, the HUS was centrally organised, owned by the state and operated through utility service providers. In contrast to the countries where public utilities are subject to private control, utilities in Russia were and are often in municipal ownership [Primizenkin, Reznichenko, 2022]. This implies that responsibility for their maintenance and service lies with municipalities, whose budgets amid crisis are often insufficient to ensure their proper functioning [Fedorova, Frygin, 2022].
In recent years, the state has begun to actively engage private businesses in managing the HUS. However, this has led to the fact that interests of end consumers were even more neglected.
While studying the HUS systemic crisis in Russia, Sokolov [2020, p. 13] found that "The volitional decision by the authorities to replace municipal forms of residential real estate management with private ones in the absence of real competition in the public utility market disrupted the controllability of the essential services sector for the population at all levels of government structures. As a result, first the authorities, and then modern Russian business shifted responsibility for socially minded activities in this market to the owners, i.e., consumers of public utilities".
The functioning of the HUS is characterised by two opposing specific features: on the one hand, there is a trend of the government limiting utility tariff rates and, on the other, there is a constant demand among the population for high-quality services, or, in other words, the need to invest in services and utilities, which entails an increase in tariffs and the occurrence of non-payments on the part of consumers.
These specificities play an important part in ensuring the economic sustainability of the industry and making accurate predictions about the probability of bankruptcy in order to take proactive crisis adaptation measures.
Bankruptcy seriously affects an enterprise itself and its property. The liquidation process is often time- and resource-consuming, which can lead to additional losses for the company [Maslennikova, Peftiev, 2023]. Rather than focusing on reviving and restoring its business, the enterprise has to deal with prolonged bureaucratisation, which only exacerbates its financial problems. However, bankruptcy procedure exerts the most profound effect on the firm's stakeholders, including creditors, owners, employees, and customers. Creditors who expected ultimate repayment of the debt are now forced to fight for their rights and collect the money that they are owed through a complicated legal process. The company owners, in turn, often find themselves in a hopeless situation, having lost their investments and reputation. Employees face uncertainty about their future and may lose their jobs, while
customers feel dissatisfied with and undecided about the company's services, which can result in loss of trust and consumer disloyalty.
In the context of the HUS, the concept of sustainable development is of special interest. It aims to meet the needs of the present generation without compromising the ability of future generations to meet their own needs. Sustainability in the HUS is closely related to people's quality of life.
Despite its social significance, the industry is experiencing a systemic crisis caused by the critical deterioration of fixed assets, which exceeds 47.2 % and keeps growing by 2 % annually1. According to expert estimates, wear and tear is much greater than the average statistics presented. This is not just wear and tear, but a catastrophic aging of the housing stock, two-thirds of which are 65 % worn out. At the same time, 20-25 % of the country's population lives in housing that is only partially, if at all, equipped with amenities [Sokolov, 2020].
The HUS needs reform that would provide consumers with high-quality, reliable and affordable public utility services.
The purpose of the study is to develop a more accurate regression model for forecasting bankruptcy compared to the existing ones, as well as a model for assessing the quality of crisis adaptation management at companies considering stakeholder interests and the characteristics of their interaction within the housing and utilities sector.
To attain the stated purpose, we set the following objectives:
- to determine the distinguishing features of public utility companies;
- to formulate the requirements for a bankruptcy forecasting model taking into account the distinguishing features of public utility companies;
- to construct an industry-specific bankruptcy forecasting model;
- to identify stakeholders of the HUS and analyse the interaction between them;
- to find an industry-specific crisis factors and methods for managing them;
- to propose a model for assessing crisis resilience of public utility enterprises.
The problem of crisis resilience: A stakeholder perspective
The problem of crisis resilience is widely debated in numerous studies. Since the 1930s, researchers have been examining the opportunity of predicting the collapse of companies based on their performance indicators [Fitzpatrick, 1932; Smith, Winakor, 1935; Merwin, 1942; Chudson, 1937/1945; Beaver, 1966; Altman, 1968; Fulmer et al., 1984; Taffler, 1984; Berlak, Aljinovic, 2007; Barbuta-Misu, Madaleno, 2020].
A crisis is a maladaptation of an organisation to the external environment. The crisis resilience of an organisation is interpreted as a manifestation of its adaptive properties to crisis phenomena [Chechulin, 2022, p. 116]. It is dependent not only
1 The Russian Federal State Statistics Service (Rosstat). https://rosstat.gov.ru/folder/14304. (In Russ.)
on financial indicators, but also on other data about the company's performance, including non-financial indicators, organisational culture, and the balance of stakeholder interests that influence the company's activities and are contingent on it.
In management, a stakeholder approach dates back to 1984 and the work by Edward Freeman [Freeman, 1984]. Later on, many scientists [Savage et al., 1991; Clark-son, 1995] contributed to the development of the theory. Currently, the stakeholder approach in management is a fairly developed research field and is reflected in the works of economists worldwide.
For instance, a number of studies delve into specific examples of managerial decision-making [Svendsen, 1998; Coff, 1999; Wilson, Bunn, Savage, 2010], while others examine the moral aspects [Calton, Payne, 2003; Noland, Phillips, 2010] and the role of deliberative democracy in management [Corus, Ozanne, 2012; Dawkins, 2021].
Researchers concentrate on responsible leadership [Maak, 2007; Miska, Hilbe, Mayer, 2014; Patzer, Voegtlin, Scherer, 2018], organisational legitimacy [Mitchell, Agle, Wood, 1997; Arenas, Lozano, Albareda, 2009; Beelitz, Merkl-Davies, 2012; Cas-tello, Etter, Nielsen, 2016; Desai, 2018] and the issues of innovation and entrepre-neurship [Bendell, Huvaj, 2020; Watson, Wilson, Macdonald, 2020; Chen, Liu, 2020; Alvarez, Sachs, 2023].
A number of works investigate the relationship between the quality of stakeholder interaction and companies' economic performance [Cheng, Ioannou, Serafeim, 2011; Henisz, Dorobantu, Nartey, 2014; Jones, Harrison, Felps, 2018; Gupta, Crilly, Greck-hamer, 2020].
In Russia, the stakeholder approach has been closely scrutinised since the early 2000s [Petrov, 2004; Tambovtsev, 2008]. Since then, a large number of Russian researchers have added to its development [Ivashkovskaya, 2012; Vashakmadze, Mar-tirosyan, Sergeeva, 2013; Dolmatova, 2013; Kharin, Gareev, 2014; Kogdenko, 2018; Zlygostev, 2019; Tkachenko, 2021; Ramenskaya, 2021; Tkachenko, Zlygostev, 2022; Kravchenko, Bolotova, Kulabukhov, 2023; Gabduldayanova, Fomina, 2023; Rodnyan-skiy, Paley, 2023]. However, it is worth nothing that there is a lack of applied works devoted to the specificity of using the stakeholder approach's tools in the housing and utilities sector.
This topic is much more popular among foreign researchers. For example, some of them explore the sectoral specificity of the approach [Kosteroglou, Theriou, Dimi-trios, 2016; Dodson, 2017; Evans, Karvonen, Raven, 2018; Holscher, Frantzeskaki, 2021; Monstadt et al., 2022]. The organisational and institutional management issues in the field of housing and utilities infrastructure development are addressed in works on the financial risks faced by public utility companies [Csaba, Vasa, Hegedus, 2020], on business structures in the HUS [Abegg, Baumann, 2022], on development
opportunities for public utilities in the form of quasi-syndicates, whose independent participants can isolate commercial, project and strategic management functions in a separate superstructure focusing on current interaction with consumers [Smojver, Stumpf, Schiozzi, 2017].
We believe, the publication by Shevchenko and Frolov [2014] is the most fundamental work of Russian researchers tackling the issues of management structures construction for the development of the utilities sector. The authors analyse the option of building an enterprise with homeowners' participation that will be bearing subsidiary liability for resident debts for services consumed and at the same time accumulating funds for major housing repairs. However, these proposals are not unambiguous and require additional research that would combine models of intersubjective interaction in the industry and identification of stakeholders.
One of the most comprehensive studies by Russian scholars on methods for analysing sustainability of public utility companies is the research by Perevalova and Bratukhina [2020]. Having provided an in-depth coverage of active economic indicators and mechanisms influencing the management system of public utility enterprises, the authors propose a scoring subjective factor method for assessing the economic sustainability of companies. The method can assist managers in identifying the likelihood of financial difficulties and bankruptcy of public utility companies in the near future. However, it does not take into account the impact of stakeholder interests.
The overview of scientific publications has shown that there is a lack of works on the stakeholder approach used to study applied problems of sustainable development and crisis states of the economy, especially in relation to the HUS. There are no substantiated methodological guidelines for assessing and managing crisis resilience based on integration of financial and non-financial approaches to preventing bankruptcy of public utility companies.
Research methods
Assessment of the economic and financial components. The model for assessing crisis resilience of companies should embrace both the quality of management and the probability of the company going bust. We propose to assess the economic state of companies through a synthetic model that covers elements for projecting the bankruptcy risk for the enterprise.
The existing bankruptcy forecasting models use indicators calculated on the basis of the organisation's assets and equity capital. At the same time, the HUS is characterised by a number of specific features in accounting policy and the procedure for capping the profitability level, which make the application of these models inexpedient. Previous studies have already demonstrated the insufficient accuracy and
applicability of the most common bankruptcy forecasting models, which necessitates constructing an industry-specific model for Russian enterprises [Chechulin, Kudryavtsev, 2021]. Let us look at each factor in detail.
Non-current assets are not a source of debt coverage. Local authorities are responsible for organising public utility services in their territories. To perform these functions, they establish unitary enterprises. At the same time, the role of local authorities is so significant that there is a ban on the alienation into private ownership of state- or municipally owned objects of centralised heat supply, cold water supply and (or) sewerage systems. Due to these circumstances, it is reasonable to separate the accounting of non-current assets that, if absent, make it impossible to perform their basic functions or lead to failures, accidents and utility outage. Keeping the activities of public utility companies uninterrupted is of such importance that there is a specific tool, namely the emergency standby reserve, to ensure their regularity [Rykov, 2022, p. 76].
A financial analysis performed by the authors using data for 20 largest enterprises burdened with utility debts1 to PAO T Plus (the Sverdlovsk branch) revealed that on average non-current assets account for up to half of the enterprise's balance sheet (48.1 %). The average amount of debt is slightly more than half of the enterprises' current assets (53.7 %), and in 25 % of cases the sale of all current assets will not cover the debt in full. At that, the figures vary between 3.2 % (MUP2 Maintenance and Housing Management) and 127.9 % (MUP Vodosnabzhenie of the Beloyarsk Urban District).
Revaluation of assets. The most common bankruptcy forecasting models are based on the results of the foreign practice, which differs from the Russian accounting system. International Accounting Standard (IAS) 16 provides freedom of choice regarding fixed asset accounting - at original, residual or market cost. Due to the fact that revaluation in the future must be carried out on a regular basis and, to be implemented, involves labour costs, this approach is not widespread [Voti-nova, 2021, p. 56]. It indicates that foreign models are impossible to apply in their original forms.
Profitability limitations. The peculiarity of the HUS is also manifested in the presence of mechanisms for regulating pricing within the sector, which negatively affects its profitability levels and caps the influx of private funds [Agafonov, Mozgovaya, 2022, p. 15]. In order to check the uniformity of profitability levels for the largest debtors using the case of the Sverdlovsk branch of PAO T Plus, the return on sales (ROS) was calculated as the closest one to the indicators calculated. The results demonstrate an average negative profitability rate of -4.6 %; and only
1 PAO T Plus. https://ekb.esplus.ru/business/clients/zadolzhennost/antireyting-dolzhnikov-ekb/. (In Russ.)
2 Municipal Unitary Enterprise (MUP).
two out of 20 enterprises have a positive profitability value, these are MUP City Energy Systems of the Kachkanarsky Urban District, and MUP Maintenance and Housing Management. The variability of the indicator proves that its values can be used when constructing an integrated model for determining the likelihood of an enterprise going bust.
Uniformity of operations. The uniformity of a public utility company's operations should be analysed in order to grasp whether it operates smoothly and uninterruptedly. The complexity of such an analysis lies in the fact that most enterprises in the sector submit only annual reports and often stick to a simplified accounting system. Interim accounting statements for all four quarters were discovered only for PAO T Plus for the period between 2015 and 2017. It was found that operations of PAO T Plus exhibited a high degree of uniformity.
Activities of public utility enterprises are of seasonal nature. Revenue increases during the cold months of the year and decreases during the warm months, resulting in more than 20 % fluctuation in revenue throughout the year. During the period under study, monthly fluctuations averaged 5.9 % within quarters.
Conclusions about the assessment model's limitations. Thus, when aiming to enhance their crisis adaptation capabilities and repay debts, public utility enterprises have a limited number of tools at their disposal for raising available funds. In fact, the only source of settling debts and improving a utility company's crisis adaptation mechanisms is its net profit. When assessing an enterprise's resilience, the greatest attention should be paid to more liquid current assets, non-core assets, and the absolute liquidity ratio.
Specific features of accounting. Some public utility companies use a simplified procedure to submit their accounting reports. In general, accounting in the HUS has a number of distinctive features [Kupriyanova, Zykova, 2021, p. 109]. The availability of simplified reporting systems makes it impossible to fully adapt foreign practices that address data lacked in simplified reporting. The method for assessing the state of an enterprise should be accessible to not only internal stakeholders who receive information from internal management reporting, but also to external stakeholders who assess how safe it is to interface with the enterprise.
Western models widely apply the cash flow criterion, which is impossible to calculate in the absence of reporting in Form No. 5 with depreciation data. Only a small part of large Russian enterprises submits these reports [Kazakov, Kolyshkin, 2018, p. 241].
Thus, the limitations and peculiarities of the implemented forecasting model have been formulated.
Determining quality criteria for crisis adaptation management. To form the enterprises' crisis resilience assessment model that takes into account both the quality of
management and the likelihood of their bankruptcy, management quality criteria should be identified. They determine the ability of company managers to make decisions that would allow them to successfully adapt to the changing economic environment. The level of managers' qualifications, the strive to improve their expertise [Korolev, 2021] and develop a mentoring system play a decisive role in this process [Bigley, Roberts, 2001, p. 1281]. An effective team is characterised by a sense of community, a desire for self-realisation through work, pride in their job, organisational commitment, and a special corporate style [Boin, McConnell, 2007, p. 50]. In addition, the quality of management can encompass such signs of activity as consumer loyalty, which affects payment discipline, as well as the company's openness to potential investors and disclosure of sustainable development information. It should be noticed that, according to the latest data from the Library of Corporate Non-Financial Reports of the Russian Union of Industrialists and Entrepreneurs, there are significant gaps in the HUS: from 2011 to 2022, only five public utility companies published non-financial reports1. Since public utilities is a low competitive sector with homogeneous problems faced by enterprises, the growing importance is attributed to knowledge sharing between employees both within and beyond the boundaries of the business entity, which should also be viewed as a management quality indicator.
Environmental friendliness of economic activity. According to [Balashov, 2020, p. 354; Efimova, Volkov, Koroleva, 2021, p. 82; Astanin, 2022, p. 1787], the ESG principles are increasingly used in best management practices. Therefore, when assessing long-term crisis resilience, it is reasonable to consider the aspect of environmental friendliness in the enterprise's performance, i.e., to reduce greenhouse gas emissions, use recycled materials and renewable energy sources.
Research results
Bankruptcy forecasting model. To construct a model for predicting the probability of bankruptcy, we selected 20 municipal unitary enterprises of the HUS in the Sverdlovsk oblast, which were declared bankrupt and submitted financial statements during 3 years preceding the year of bankruptcy2. Twenty-nine best systemically
1 Library of Corporate Non-Financial Reports as of today. https://rspp.ru/tables/non-financial-reports-library/. (In Russ.)
2 The sample includes: MUP Vodokanal of the city of Novaya Lyalya of the Novaya Lyalya Urban District, MUP Teplovodokanal, MUP Vodokanal Kamyshlov, MUP HUS Gornouralskoe of the Gornouralsk Urban District, MUP Vodokanal, MUP HUS Zapadnoe, MUP City Department of Housing and Utilities Services, MUSP Kamensk Machine-Technological Station, MUP Teplovodosnabzheniye, MUP Municipal Property Management Company of the Krasnouralsk Urban District, MUP HUS Kedr, MUP Heat Supply Company of the Degtyarsk Urban District, MUP Rezh Water Supply and Sewerage Company, MUP Suburban Thermal Power Generation Company, MUP Vodokanal of the city of Mikhaylovsk, MUP Resurs, MUP Komenergoresurs, MUP Saldaenergo, MUP Suburban Heat Supply Company, MUP KGO Vodokanal, MUP HUS Vodokanal.
important public utility enterprises in the Russian Federation1, which were either subjects of public-private partnerships or unitary enterprises, were selected as reference ones. Accounting reports for the last three periods are used to build the model. For the enterprises declared bankrupt, the last period is the one preceding the year of bankruptcy.
Selecting proper indicators is a critical step in building an industry-specific model. The correlation between the indicators and the probability of bankruptcy is the key to a high-accuracy model.
To construct a model, we use LibreOffice Calc software and the method of multiple regression analysis [Dianova, Radkovskaya, 2021, p. 36]. We also rely on the provision that the only actual indicator of insolvency is the negative amount of the enterprise's net assets.
Based on the previous studies, four indicators were selected as characteristic factors of the model that act as exogenous variables assessing the probability of bankruptcy of an enterprise:
- х1 is the cash to current liabilities ratio;
- х2 is the sales profit (loss) to revenue ratio;
- х3 is the net profit to short-term liabilities ratio;
- х4 is the net assets to balance-sheet total ratio.
Table 1 presents the expected values for variables Xl, X2, Xз, X4 for the entire sample under study, as well as individually for the groups of stable operating enterprises and bankrupt enterprises.
Table 1. Expected values of exogenous factors
Enterprises Xl X2 X3 X4
Total sample 0.0179501 -0.1953334 -0.0594160 1.1794009
Stable enterprises 0.0493838 0.1188456 0.2108456 4.6701451
Bankrupts 0.0044785 -0.3299816 -0.1752425 -0.3166324
A test of the correlation between the selected exogenous factors showed the absence of autocorrelation between all pairs of variables. This fact gives grounds for applying multivariate correlation-regression analysis methods to the sample under
1 The reference companies are the following: AO Murmanenergosbyt, AO Mosvodokanal, OOO Water Supply Concessions, OOO Krasnoyarsk Housing and Utilities Complex, AO Vodokanal of Nizhny Novgorod, AO Vodokanal of Rostov-on-Don, OOO BashRTS, AO Yamalkommunenergo, AO Teploenergo, AO Amur Utility Systems, OOO BVK, OOO Gorvodokanal, AO Kirov Utility Systems, OOO Volga Utility Systems, AO Tambov Utility Systems, AO PKS -Vodokanal, OOO Novogor-Prikamye, OOO Nizhnevartovsk Utility Systems, OOO Samara Utility Systems, MUP Novosibirsk Gorvodokanal, MUP Vodokanal of Ekaterinburg, GUP MO Utility Systems of the Moscow Region, KGUP Primteploenergo, GUP Housing and Communal Services of the Republic of Sakha (Yakutia), GUP Vodokanal of Saint Petersburg, GUP Lenoblvodokanal, GUP TEK SPb, AO MES, OOO Ulyanovs-koblvodokanal.
consideration, since it confirms the fulfilment of one of the crucial prerequisites of the least square method underlying regression analysis (Table 2).
Table 2. Exogenous factors correlation
Variables Xl X2 X3 X4
Xl 1
X2 0.128236 1
X3 0.410987 0.54939 1
X4 0.009011 0.2267 0.106779 1
The multifactor model (1) presented below describes the dependence of the probability of public utility companies going bankrupt on selected exogenous factors. The endogenous variable y is the probability of enterprises' bankruptcy.
y = 0.638598 - 0.67514 Xi - 0.19024 X2 - 0.90316 X3 - 0.01467 X4. (1)
The value of the model's adjusted coefficient of determination is 0.464, which indicates a fairly high share of the variance of the endogenous variable described by the factors explicitly included in the model, or, in other words, a close connection between real statistical data and forecast model values. The Fisher's statistic (14.327) calculated for the given model confirms that the sample is representative.
Using the model obtained, it is possible to forecast bankruptcy for the companies in the sample and rank them in ascending order of bankruptcy risk.
Management quality assessment. To create a model for assessing the crisis resilience of enterprises that takes into account both the quality of management and the likelihood of bankruptcy, an anonymous survey was conducted of the heads of the existing unitary public utility companies in the Sverdlovsk oblast. A total of 34 enterprises were questioned. The survey was conducted with the active support of the Ministry of Energy, Housing and Communal Services of the Sverdlovsk oblast. The other enterprises were selected due to the liquidation that happened during bankruptcy procedures of the enterprises previously studied in the sample.
According to the research results, the enterprises are divided into three groups by the number of employees: small enterprises (average staffing number is no more than 100 employees), medium-sized enterprises (average staffing number is no more than 250 employees) and large enterprises (average staffing number is more than 250 employees). General data are presented in Table 3.
Table 3. Size structure of the sample
Groups Average staffing number, people Number of enterprises, units
Small enterprises 37 21
Medium-sized enterprises 124 9
Large enterprises 1,326 4
During the survey, respondents were asked to evaluate the significance level of those factors that had the greatest negative impact on the companies in the past period (Figure 1) and the likelihood of similar factors occurring in the next 12 months (Figure 2).
Purchase of imported spare parts and equipment
Training and in-service education for employees
Low tariffs or an insufficient increase in prices for the enterprise's services
Staffing level 5
Requirements and instructions of the enterprise's founders
Customer non-payments
Emergency failure of fixed assets
Identifying sources of additional funding for the enterprise
Increase in prices for suppliers' products and services Compliance with supervisory and regulatory authorities' requirements
— Small — Medium-sized — Large
Fig. 1. Factors behind the challenges faced by the public utility companies under study over the last 3 years
The findings demonstrate that there are significant discrepancies between small, medium-sized and large enterprises. Hiring employees is challenging for small businesses. Large enterprises tend to cope better with organising training and inservice education for employees, which is probably due to more effective management in municipalities and active communication with non-payers. In addition, large enterprises are highly effective in handling the requirements of supervisory and regulatory authorities and are more adapted to changes in tariffs. Taken together, this indicates that small businesses have poorer access to highly qualified personnel.
Purchase of imported spare parts and equipment
Training and in-service education for employees
Staffing level 5
Customer non-payments
Emergency failure of fixed assets
Identifying sources of additional funding for the enterprise
Low tariffs or an insufficient increase in prices for the enterprise's services
Requirements and instructions Increase in prices for suppliers'
of the enterprise's founders products and services
Compliance with supervisory and regulatory authorities' requirements
— Small — Medium-sized — Large
Fig. 2. Factors potentially causing problems for the public utility companies under study in the next 12 months
We can conclude that large enterprises are better at coping with many challenging factors and have greater crisis adaptation capabilities. This proves the need for enterprises in the industry to exchange experience, which is especially important for small enterprises; this will help neutralise the influence of crisis factors.
During the survey, respondents were asked to indicate the methods they used at their enterprises to counter crisis situations and prevent them from unfolding. The results are presented in Appendix 1.
As seen, large enterprises are deeply involved in interface with the founders, devote time to staff training and its development, regularly exchange competencies, apply mechanisms for introducing employees' successful practices and perform error analysis sessions.
Identifying stakeholders of public utility companies. We can distinguish between internal stakeholders, such as owners and employees, and external stakeholders, which include property management companies, counterparties (resource suppliers, consumers of public utility services, i.e., clients), state and municipal authorities, investors, and creditors.
We apply the Mindjet MindManager 23 software to develop the general system of interaction between the key stakeholders in the heat supply process using the stakeholder matrix method (Figure 3).
As seen from the presented matrix, there is a significant imbalance in the power and interest of stakeholders.
Strong influence
S
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I
Care
I
Government authorities
Concession financing
i
Manage
Control
Investor
Investments
Resource supply
Control
Heat supply company
Credit
Employment relationships
Employees
Banks
Training
Educational institutions
Monitor
Resource supply
Customers
Current interaction
Property management company
Inform
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Weak influence Fig. 3. Stakeholders in the heat supply process
A substantial regulatory influence and social importance of the HUS result in the fact that investors and banks are not fully independent, and their freedom of action comes down to the heating season, which is unacceptable to be disrupted, and the risk of prosecution for violating the rights of citizens.
The influence of state authorities is quite significant due to their participation in tariff setting and a fairly active involvement in view of the obligation to organise the heating season.
Citizens and indirectly property management companies, being consumers of the public utility services, are strongly interested in the quality and stability of supplies. Their impact is due to the available public control tools through pressure on government authorities and the possibility of undermining the economic sustainability of the heat supply system through the deterioration of payment discipline.
Significant influence and great involvement are typical of the resource supplier that is forced to provide energy resources even in the absence of payment and, accordingly, it is interested in stable work and good payment discipline of consumers and the property management company.
A possible restriction of supplies by resource supplier can completely halt the activities of the heat supply company. In terms of protection of rights, a highly competent supplier in the industry is able to create conditions for holding the management of the heat supply company accountable for abuses.
The company's employees are passive participants in this process having no real power to affect it. At the same time, legal protection of labour rights and continued employment opportunities in case of liquidation of the heat supply company make employees less interested in handling the situation.
Educational institutions are only partially dependent on the crisis resilience of the heat supply company, but they provide training to employees and can have a positive impact on the level of their competencies. The benefits from interacting with them can significantly enhance their influence as that interaction increases.
Let us look at stakeholder relationships using the case of a public utility company OOO Teploenergosnabzhenie. A heat supply company was chosen as the object of study, since the heat supply sector is one of the most underinvested and problematic areas of the HUS in Russia.
OOO Teploenergosnabzhenie was a guaranteeing supplier to the centralised heat supply system of the Kirovsky district of the city of Ekaterinburg. The company's responsibilities included providing thermal energy to all consumers in its operation area and ensuring the reliability and quality of heat supply. The gas boiler house was leased from OOO TorgPlast. It used three boilers of the Termotekhnik TT100 series manufactured in 2013, two of which have a power of 6.5 MW and one of 1.72 MW, using gas as an energy source. As of 2023, the average monthly salary was 27,096 rubles 30 kopecks with an average staffing number of 10 people1.
The heat networks used by OOO Teploenergosnabzhenie to provide supply belong to another business entity, namely AO Ekaterinburg Heat Distribution Company. The ownership and organisational structure of heat supply networks clearly reveal the problem of the hybrid form of ownership in the HUS, which creates an imbalance in financial stability of players, leads to the emergence of technical bottlenecks and poses risks of stakeholder rights violation, as illustrated in Figure 4.
The stakeholder matrix for OOO Teploenergosnabzhenie largely mirrors the one in Figure 3. Educational institution was excluded due to the complete lack of measures taken to improve the employees' qualifications. The matrix is added with AO Ekaterinburggaz, which has lost control over the bankruptcy procedure during bankruptcy proceedings and can no longer influence it, since it is highly interested in the company continuing its work. The boiler house's previous owner used it to obtain a loan and earn rent and completely withdrew from current activities.
1 Disclosure of information. TeploEnergoSnabzheniye. https://teploenergosnab.ru/raskrytie-informatsii. (In Russ.)
Strong influence
Care
City administration
Arbitration court
Boiler house owner
:
Manage
OOO Torgoplast
Control
Control
Rent
Resource
i I Payment Control
supply
OOO Teploenergosnabzhenie
Credit
Labour relations
Employees
PAO Rosbank
Monitor
supply
Other customers
AO Ekaterinburggaz
Resource supply _t_
Current interaction
_L
Property management company
Inform
Weak influence
К ч
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Fig. 4. Stakeholders of OOO Teploenergosnabzhenie
The arbitration court can influence the liquidation of a company or the introduction of a rehabilitation procedure, but has no direct interest in the enterprise's activities. Therefore, rather than impose a long rehabilitation period, the court will seek to close the case as soon as possible and liquidate the company.
A special role is assigned to OOO TorgPlast, whose production site is located in the service area. To prevent its production programme from being disrupted, it is especially interested in high-quality and stable services. At the same time, OOO TorgPlast is financially capable of implementing a renovation programme for the heat supply system and is aimed at receiving a "quick reward" in the form of an expensive land plot, which is assigned to the boiler house and can be used to construct a new workshop in its territory. In these circumstances, it is OOO TorgPlast that becomes the key stakeholder of OOO Teploenergosnabzhenie, whose capabilities and interests should be utilised to renovate equipment and improve the quality of services.
OOO Teploenergosnabzhenie displayed signs of insolvency and insufficient assets, as evidenced by the register of creditors' claims. It included claims that dated
back to 2016 and indicated the company's financial troubles. The cessation of settlements with creditors is also evidenced by the arbitration cases database. In particular, in 2015-2017, contractors of OOO Teploenergosnabzhenie filed claims against the company to collect debts exceeding 14.7 million rubles. The very fact of filing claims indicates that the company was unable to fulfil its obligations in the current regime and stopped paying the debt to creditors. A significant amount of accounts payable indicates the critical insolvency of the enterprise, which occurred in 2015. Thus, by March 2017, the company had a significant number of creditors, whose claims were subsequently included in the register of creditors' claims against the debtor. AO Ekat-erinburggaz applied to the arbitration court on December 7, 2017 with a statement to declare OOO Teploenergosnabzhenie insolvent and to initiate bankruptcy proceedings against it.
The results of the in-depth interview with stakeholders conducted on October 26, 2023 revealed that, despite the bankruptcy procedure, service provision throughout the whole heating season was uninterrupted, and the boiler house performed its functions in a routine mode throughout the entire period of use by OOO Teplo-energosnabzhenie. However, the level of profitability was insufficient for the boiler house to function independently, which required a larger organisation, such as OOO TorgPlast, to join.
We can conclude that economic well-being and the break-even point in performing crisis management of the boiler house were grounded on a low level of wages, which violated the rights of employees. Wages were necessary to be increased to the industry average.
Boiler houses are an important link in the energy system that provide heat and hot water to many homes and organisations. However, boiler house employees held responsible for ensuring boilers' continuous operation and comfort of residents, work in conditions that leave much to be desired. This is contrary to basic principles of justice and infringes on the rights of workers. These facts clearly demonstrate the problems of the HUS as an underfinanced industry with low investment attractiveness, which can only be compensated for by external financing.
During the bankruptcy procedure, all stakeholders of the public utility company face a number of risks (Table 5).
Constructing an assessment model. A survey and in-depth interview were conducted with 33 representatives of public utility enterprises to form the final model considering the significance of all of the listed factors in crisis resilience. The method of in-depth interviews [Selezneva, Chirkovskaya, 2020, p. 80] and expert assessments were used. To construct a score-based assessment model for the enterprise's crisis resilience, we identified enlarged groups and 14 assessment criteria in accordance with the modified ESG 4 structure.
Table 5. Interests and risks of the housing and utilities sector stakeholders during
bankruptcy proceedings
Stakeholders Interests Risks
Local authorities Continuous functioning of public utilities. Avoiding financial liabilities. Shortening the period for returning property. Cutting costs incurred in returning property Interruptions in service provision due to accidents. Subsidiary liability for debts. Delaying the procedure. Non-transparent property valuation procedures
Resource suppliers Recover as much money owed as possible. Shorten the period of free delivery of reserved resources Writing off a significant portion of debts. Delaying the procedure
Other creditors Recover as much money owed as possible Writing off a significant portion of debts
Head of a public utility company Saving their job. Earning a salary. Avoid financial liabilities Dismissal upon introduction of bankruptcy proceedings. Delays in payments. Subsidiary liability
Residents Continuous functioning of public utilities. Debt write-off. Enhancing the quality of public utilities Interruptions in service provision due to accidents. Litigations. Decreasing quality due to lack of investment
Employees Saving their jobs. Earning a salary Dismissal upon introduction of bankruptcy proceedings. Delays in payments
1. Economic criteria:
- probability of the enterprise going bankrupt.
2. Environmental criteria:
- reduction of greenhouse gas emissions;
- use of recycled materials;
- use of renewable energy;
- waste reduction.
3. Social criteria:
- a mentoring system available;
- corporate style and uniform;
- mechanisms for vertical and horizontal information exchange at the enterprise;
- protocols for error analysis sessions;
- annual advanced training for employees.
4. Governance-related criteria:
- stakeholder interaction;
- crisis protocols for managers;
- participation in industry conferences and round-table discussions;
- participation in regional and federal programmes for industry development.
The results of the interviews and correlation analysis were used to compile a scoring system based on the methods for constructing ESG ratings [Kanygin, Khoreva, 2022]. In it, each criterion is awarded with its own amount of points showing the level of compliance with the parameters specified by the model adjusted to significance of the indicator. The scores were summed up and a cumulative assessment was obtained to directly compare the correlation models with the bankruptcy probability indicator. The maximum possible score is 100, the calculation table is presented in Appendix 2.
When assessment is performed by the economic criteria, the expert uses data from the company's management and accounting reports for the current period, tax returns, bank account statements, and inventory data.
As for the second group of criteria - environmental friendliness, - the expert uses internal calculations and plans, protocols, audio or video recordings, photographs, and reports of independent experts.
When it comes to the third group - the social criteria, - the expert uses a list of stakeholders, minutes of meetings, decisions, orders, instructions, employee survey data, audio or video recordings, photographs, independent experts' reports, job descriptions, etc.
To perform the assessment by the governance-related criteria, the expert uses a list of stakeholders, job descriptions, audio or video recordings, photographs, independent experts' reports, survey data of employees and stakeholders, minutes of meetings, decisions, orders, instructions, etc.
Conclusion
As part of the study, the methods for assessing crisis adaptation of public utility enterprises were developed, as well as methods and techniques for guiding crisis adaptation were identified. In ensuring sustainable development and crisis resilience, a significant role is given to close interaction with all stakeholders, consumer loyalty, and coordinated policies of the founders and the enterprise. This provides a safety buffer when going through crisis periods. Due to the fact that the HUS is rather organisationally and materially uniform, it is possible to deepen interaction through cross-regional horizontal links on the basis of sectoral public organisations by improving enterprises' crisis adaptability. Careful attention to employees as well as investments in their training and in-service education will also allow ensuring the adaptive capabilities of public utility companies.
Among the possible directions for further research are modifying the list of exogenous indicators and increasing the sample size of statistical data for analysis, which will most likely improve the qualitative characteristics of the model and generate the most reliable forecasts.
Public utility companies have a wide range of industry-specific characteristics that require a specialised approach to be applied for analysing crisis resilience, the likelihood of bankruptcy and management. In the paper, we developed a sectoral assessment model and found that the current methods and tools of crisis management utilised within the HUS are ineffective, entail an increase in losses and create long-term obstacles to the renewal of fixed assets of enterprises.
To deal with the emerging contradictions, there is the need to synchronise stakeholders' goal-setting and make their interface more effective. Companies operating in the HUS need to pay attention to the quality of personnel and customer service. It is also required to introduce advanced training programmes for employees and establish mechanisms for horizontal intra-sectoral connections in order to exchange experience at all levels of management. The urgent need of public utility enterprises for competencies in attracting and managing investments can be satisfied through broader interaction at the level of state authorities as one of the key stakeholders in the process of providing public utilities.
The study may be of use to managers of public utilities to ensure long-term sustainable development of companies and improve the quality of projects initiated and implemented within the HUS, as well as to experts to determine the investment attractiveness of projects.
Appendix 1. Prevalence of crisis management methods applied by small, medium-sized and large enterprises
Methods Small, % Medium-sized, % Large, %
Clear and detailed job descriptions 40.0 66.7 75.0
Mentoring system as an element of staff training 20.0 44.4 50.0
Corporate identity to create a favourable image of the company 0.0 0.0 50.0
Corporate uniform to create a favourable image of the company 13.3 44.4 25.0
Attention to ordinary employees' opinions about the emerging problems and ways to resolve them 33.3 44.4 75.0
Conditions for introducing employees' positive experience at the enterprise 13.3 11.1 75.0
Advanced and in-service training in educational institutions 33.3 55.6 50.0
Experience exchange by the company's management and maintaining informal links with colleagues from the industry 53.3 55.6 75.0
Management takes part in business events dedicated to industry and regional development 46.7 55.6 50.0
Error analysis sessions and analysis of successful practices 33.3 7.0 100.0
Use of regional and federal subsidies to raise additional funds 33.3 33.3 50.0
Deferred payment in settling debts with suppliers 73.3 77.8 25.0
Crisis protocols for managers 20.0 66.7 50.0
Using lending as a source of additional funds 13.3 22.2 50.0
Using public-private partnership tools to generate additional funds 26.7 22.2 0.0
Participation in sectoral state programmes to develop and renew fixed assets 26.7 33.3 25.0
Interaction with the founder to obtain assistance 60.0 55.6 100.0
Interaction with the founder to guarantee the enterprise-founder unity of purpose 26.7 55.6 75.0
Interaction with local governments to obtain assistance 53.3 77.8 75.0
Interaction with regional authorities to obtain assistance 33.3 33.3 50.0
Interaction with federal authorities to obtain assistance 20.0 22.2 0.0
Minimisation of production activities 6.7 0.0 0.0
Appendix 2. Calculation of the enterprise crisis resistance score
Criterion Criterion value
Economic
Points 0 12.5 25 50
Likelihood of the enterprise going bankrupt Over 80 % Over 50 % 20-50 % Less than 20 %
Environmental
Points 0 0.25 0.5 1
Reduction of greenhouse gas emissions No measures taken Volume of greenhouse gas emissions is assessed A reduction plan is developed. Emissions are reduced by 25-49.9 % Emissions are reduced by 50 % a nd more
Use of recycled materials Less than 4.9 % 5-14.9 % 25-49.9 % 50 % and more
Use of renewable energy sources 4.9 % 15-29.9 % 30-49.9 % 50 % and more
Waste reduction No measures taken Waste volume is assessed A reduction plan is developed. Waste volume is reduced by 25-49.9 % Waste volume is reduced by 50 % and more
Social
Points 0 1 2 4
Mentoring system None A plan for establishing a mentoring system is developed A mentoring system is implemented Mentors' opinions and suggestions are taken into account when implementing the company's staff policy
Corporate style and uniform None Company employees involved in direct interaction with customers wear uniforms The company's corporate style is used in all its elements The company's corporate style evokes a positive reaction from consumers
Appendix 2 (concluded)
Criterion Criterion value
Mechanisms for vertical and horizontal information exchange at the enterprise None A plan for creating mechanisms for vertical and horizontal information exchange is developed A system of mechanisms for vertical and horizontal information exchange is implemented Positive results of vertical and horizontal information exchange mechanisms were recorded
Protocols for error analysis sessions None A plan for forming error analysis protocols is proposed A system of error analysis protocols is implemented Information is exchanged with other market participants
Annual advanced training for employees None 15-29.9 % 30-49.9 % 50 % and more
Governance
Points 0 1.25 2.5 5
Stakeholder interaction No interaction strategy Stakeholder interaction strategy Stakeholders' opinions and suggestions are taken into account in the decision-making process Stakeholders' actions are in line
is developed with the company's interests
Crisis protocols for managers None Crisis factors are established Protocols for manager's actions in case of crisis are developed Information is exchanged with other market participants
Participation in industry conferences and round-table discussions None Company representatives attend industry conferences and round-table discussions Company representatives make presentations at industry conferences and round-table discussions Policies and standards presented at industry conferences and round-table discussions are put into practice at the company
Participation in regional and federal programmes for industry development None The company's management are aware of the regional and federal programmes for industry development available The company submits applications for participation in regional and federal industry development programmes The company participates in regional and federal industry development programmes
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Information about the authors
Irina N. Tkachenko, Dr. Sc. (Econ.), Prof., Head of Corporate Economics and Business Management Dept. Ural State University of Economics, Ekaterinburg, Russia. E-mail: tkachenko@usue.ru
Ivan A. Chechulin, Applicant for Candidate Degree of Corporate Economics and Business Management Dept. Ural State University of Economics, Ekaterinburg, Russia. E-mail: Hcehculin_ia@usue.ru
© Tkachenko I. N., Chechulin I. A., 2024
