Development scenarios for the Russian water sector: From loss-making and accidents to systemic transformation
The report “The Water Sector: Global Challenges and Long-term Trends in Innovation Development” is published. It presents the results of the foresight study “Global Challenges and Long-term Trends in Innovation Development” conducted by HSE ISSEK and sponsored by the Renova Group of Companies in May 2014 — June 2015.
| The Water Sector: Global Challenges and Long-term Trends in Innovation Development (in Russian) |
The global situation and the Russian specific features
The researchers stress that the global situation with water resources is far from being perfect. One of the UN Millennium Development Goals — to halve the share of people without permanent access to safe drinking water and basic sanitation by 2015 — hasn’t been accomplished.
International experts from the USA, the Netherlands, Japan, Brazil, India, and other countries have been involved in studying the Russian water sector. Their work resulted in preparing various development scenarios and recommendations to improve the situation, which would be useful not just for individual water supply and sanitation companies and their associations, but their consumers, too — i.e. industrial companies and individuals. The suggested government regulation tools can be applied to shape government policy on developing the water sector. The report also outlines promising areas for further research.
Provision of water supply and sanitation services must be profitable for the private sector, while at the same time solving socially important and security-related problems identified by the government. This objective can be accomplished by improving the tariff policy, moving on to efficient environmental management and balanced development of the sector, including putting water supply and sanitation services on a sound economic basis. Equally important are stability, predictability, elimination of “double standards” and corruption.
The Russian water sector is facing a lot of problems which must be dealt with to increase the quality of life, support economic growth and national security. Accomplishing this wouldn’t be possible without applying integrated management principles, with all relevant organisations being involved at various stages.
The water sector has certain specific features the world over, including high capital intensity and a long investments payback period. Specifically Russian features include highly worn-out capital assets and infrastructure, inefficient management of water resources in industry and agriculture, insufficient treatment of sewage at most of the Russian industrial and communal facilities, and critically low prices of water supply and sanitation services due to government tariff regulation.
Scenarios
The following vectors were outlined for future development of the Russian water sector.
The “Almost Perfect Future” scenario implies steady development of the Russian economy, no sanctions, improved investment climate, and modified tariff policy for the water sector – which, together with access to funding, would allow to upgrade the equipment and infrastructure.
The “Conserving the Problems” trajectory assumes economic stagnation: if the existing problems are not solved, most of the companies would have to abandon development strategies in favour of trying to cut their losses.
The “Loss-making and Accidents” scenario seems likely in a situation of economic recession in the country, with frozen water supply and sanitation tariffs, reduced purchasing power of consumers, and aggravation of the existing problems — all leading to liquidation or downsizing of many water sector companies.
The “National Priority” scenario may become an extension of the “Loss-making and Accidents” or “Conserving the Problems” vectors. Its preconditions include low productivity of the economy and rapid deterioration of the situation in the water sector. The high priority of water supply-related objectives would inevitably lead to making unpopular political decisions (reforming the sector, changing the tariff and tax policies), without which no radical improvements would be achieved. These steps might eventually lead to the changes described in the “Almost Perfect Future” scenario: increased investment appeal of the water sector, adopting market-based tariff regulation principles, improving water supply and sanitation companies’ financial situation. However, unlike the “Almost Perfect Future” scenario, the “National Priority” one involves further centralisation of the sector — which would negatively affect its long-term prospects.
What to do?
According to the experts, the “Loss-making and Accidents” and “Conserving the Problems” scenarios seem to be the most probable ones. However, their implementation would result in major technological problems in the water sector, and may lead to social tensions. According to the “Conserving the Problems” scenario, accidence rate at water supply and sanitation systems is expected to grow sharply in 2019–2020, and under the “Loss-making and Accidents” scenario — two years earlier. The first “alarms” have already sounded: the major sewage failure in Perm, water cuts in Volgograd and Achinsk. A growing number of accidents and water supply companies’ bankruptcies may be expected to lead to the events developing in line with the “National Priority” scenario which implies a certain “manual control”. The authors of the research do not rule out carrying out systemic reforms of the sector either. The choice of specific development trajectory will depend on the political and socio-economic situation at the time when unpopular political decisions will inevitably have to be made.
Implementing solutions and recommendations on government policies suggested for each of the above scenarios would require coordination of the water sector companies’ approaches, and a stronger lobbying of the sector’s interests. Also important are public support, promotion of water-saving attitude which would allow the companies to cut the costs (e.g. save on building new facilities), and careful handling of water reservoirs.
According to Liliana Proskuryakova, leading researcher at HSE ISSEK and one of the authors of the report, “in the current situation, the tariff and tax policies obviously must be changed, the staff training system improved, significant public and private investments must be attracted in the water sector, and numerous other urgent issues have to be dealt with”. To more efficiently attract investments from various sources, the researchers believe different formats of public-private partnership in the water sector should be introduced, in particular new mutually profitable cooperation formats in addition to concessions.
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