Water Supply and Sewage Treatment Plants of Russia: survive or grow?

30 april 2015

The Analytical Center became a partner of the III All-Russian conference of water supply and sewage treatment plants held in Alushta. During the meeting a number of problems making the sustainable development of water supply impossible was identified. According to experts, now water supply and sewage treatment plants are facing one fundamental question - to survive or to grow?

All water utilities, especially small and medium-sized, experience common difficulties: poor water quality, lack of development and import dependence of technologies, depreciation of fixed assets, shortages of qualified personnel, underfunding of the industry. What are the opportunities for overcoming these challenges? In addition to cutting costs (perhaps for 5-15%, which is not enough), possible increase in tariffs for water and sanitation, the transition to a single water treatment technology which may be interesting for investors when combining water utilities, as it will be a major project and actual joining.

The debate on which sphere water supply and sewage treatment plants belong to - the business or social sphere, had no winners. Perhaps the water supply is still located at the junction of these categories, and we can not do without any public policy or without private initiative. According to Dmitry Vahrukov, the chief of Department of the state regulation of tariffs in the electricity sector of the Ministry of Economic Development of Russia, a public policy in this area is still emerging, including through the Federal Law №416-FL "On Water Supply and Sanitation", after the adoption of which the question moved from the municipal and regional to the state level. Today, the water supply is managed by the Ministry of Construction of Russia.

Tariffs for water supply and sanitation are regulated by the state. According to experts, and it is confirmed by the practice of Eastern Europe, which has experienced an increase in tariffs, this way has no alternative. The fact is that water utilities have no income other than payments of end users, and in this connection it is problematic to find an investor, willing to invest in the development of water utilities - rates are low and do not allow companies of the industry to reach a break-even level. Experts believe, that the tariff leap will make other development tools work, including concessions, on which the state focuses today and which stalled for several reasons.

"Raising tariffs does not mean greed, this is the common sense, dictated by the concern for consumers," says Elena Dovlatova, the executive director of the Russian Association of Water Supply and Sanitation (RAWSS). "The water quality is reduced, networks deteriorate. We come out for the implementation of standardization, such as verification - a standard procedure of the maintenance of network. These procedures require costs, and we are now trying to determine the amount. 115 of the 146 million Russians have running water, and only 86.9 have sewage. We pay the national average of 2.34 kopecks per liter of water, and 1.97 kopecks - per liter of sewage. 318 billion rubles is the revenue from the core business of water utilities with the 900 billion in heating organizations, serving the same number of people. Water utilities are below the cost recovery and have negative margins. In 2015, the Government made it possible to increase water prices by 10.5% with inflation of 16.3% only in March."

According to experts, the government should give targeted subsidies to poor citizens who are unable to pay higher tariffs. "Now it is a bad time for water supply and sewage treatment plants, and only an increase in tariffs, and not concessions, could save the industry," said Igor Shpektor, the chairman of the Commission on the development of social infrastructure and housing and communal services of the Public Chamber of the Russian Federation. "70% of networks, both in supply and water treatment, need to be replaced, so the tariff increase is necessary, but poor people should receive subsidies." However, according to Lydia Goryacheva, the Deputy Director of the Department of Housing and Utilities of the Ministry of Construction of Russia, the public subsidy system is inefficient, since vulnerable people often are not physically able to get benefits due to bureaucratic delays.

At the same time, the Ministry of Construction offers such a tool to support water utilities as subsidized interest rates on loans. A direct state support of small towns water utilities is planned, as well as assistance in creating investment programs.

As for the association of water utilities, it may be attractive to investors due to consolidation projects. Examples of successful associations in England, Greece, Italy, show a decrease of joint costs by 20-45%. Unfortunately, a serious obstacle on this way is the resistance of a number of municipalities which do not want to lose control of the municipal enterprises. In addition, due to Russia's vast territory, the association may be inappropriate, since the control will be lost (the experience of the Krasnodar Region), which blurs the projects' investment attractiveness, especially for big cities. "We need to create a municipal association, and for this the will of the regional and municipal officials is necessary," says Elena Dovlatova.  "There is no single pill for all ills - the country is large, and somewhere it is necessary to unite, and somewhere it is impractical."

Special attention should be paid to new constituent territories of the Russian Federation. During the congress, it was stated that the Republic of Crimea will be an experimental platform for the implementation of the most effective technologies in the water and sewage treatement sevtor. "We have a task to go five years for the year," says Alexander Sheptunov, the general director of State Unitary Enterprise "Water of Crimea". "Now there are 19 water supply and sewage treatment plants in Crimea, they are uneven, we dont have water from the Dnieper, the north of the peninsula stays without reclamation. We are working to create an unified water supply and sanitation schemes, which will redirect resources primarily for the drinking water supply."

The Russian Association of Water Supply and Sanitation offers its concept of water supply and sanitation sector development strategy for the long term, that takes into account all the critical moments. Water supply and sewage treatment plants consider their tasks as the margin recovery through centralization and consolidation, identification and replication of best practices, standardization and benchmarking. They hope for the import substitution and personnel policy and, of course, for the reasonable rates growth.