Reforming the WSU

The reform of the sector of housing and public utilities has been in progress for more than 10 years now. The Russian Government first focused its efforts on the problems of the public-service sector in 1997, when an RF Presidential Decree was passed, called "On the reform of the housing and utilities sector in the Russian Federation".

That started the move of the formerly monopoly-dominated sector towards entrusting the public utility infrastructure to the most effective managers, towards healthy competition, but with public controls kept in place.

The main roadblocks to the implementation of the programme were the utilities' multibillion arrears in accounts payable and receivable, shortage of resources and lack of effective mechanisms to drive the reform.

The reform of the sector of water supply and wastewater disposal (WSU) has so far been treading water. To date, the share of private interests in the power supply is 61%, in heat supply 59%, in our sector of water supply and wastewater disposal a mere 14%.

Private companies have good prospects for building up their business in W&W. More than 90% of WSU are managed by municipal operators, with the local authorities, aware as they are of being unable to provide the required investment, warming up to the involvement of private investors.

The experience of Rosvodokanal as a trailblazer in the WSU reform implementation makes it possible to identify the root causes of the underperformance in our sector - and ways to deals with them:

 1.     Extrabudgetary funding.

- funds are to be provided on non-repayable terms only for WSU projects in small towns, and for projects that have a long payback period (over 15 years).

- some funds are to be provided on a repayment basis - by a dedicated state financial institution for WSU infrastructure development (GFIR). The mechanism of state financial institution has been used to advantage in the USA, Denmark, Sweden, Finland, and the Republic of South Africa.

- projects with a payback time of up to 7 years in large and medium-sized towns to be financed 100% using extrabudgetary sources.

Such funding scheme will make it possible, on the one hand, to address the key problems of WSU, with greater responsibilities given to Vodokanals, among other things; on the other hand, to minimise the dependence on budgets at various levels and significantly streamline the budget fund spending oversight.

 2.     Legislative elimination of investors' risk exposure.

- to provide for the protection of business on a legislative level by reducing the risk of investment non-repayment. This can be done by adopting legislative acts to require that towns have urban development plans and to make the local governments responsible for implementing them

- to ensure the viability of the WSU operator's business model, i.e., an opportunity to make profit. This can be achieved by using tariff scales designed for many years. With Federal Law 210 having been in effect for more than 2 years now, a great number of regulations, such as «Basic pricing guidelines...» as well as «Procedures for tariff calculation...», have yet to be put in place. Tariffs must be economically justified and socially balanced.

- to provide incentives to businesses operating in challenging conditions which materially interfere with water supply and water disposal (in particular, the conditions of reduced water content and/or increased contamination of water-supply sources).

 3.     Prevention of corruption in awarding contracts for WSU management in competitive bidding.

- legislative regulation of tendering procedures to select an operator,

- statutory support for fair and open bidding