Housing and utilities are among the best performing sectors in the economies of developed countries. In Russia they are among the most backward. The country's infrastructure has not been renovated in decades, and one-third of its assets have outlasted their service life. Moreover, a shortage of energy-generating capacity and engineering services is holding back housing construction.
A reform launched in the early 1990s was meant to solve these problems by introducing market rules to the industry: tariffs as close to actual production costs as possible, demonopolization, modernization and, ultimately, a high level of services. The Fradkov government, however, considered the reform in October of this year and said it was not pleased with its progress.
Nevertheless, some of the goals set have already been achieved. In many regions of Russia tariffs have been raised to economically viable levels (recovering 100 percent of costs). The government offers subsidies to low-income families whose spending on utilities exceeds 22 percent of combined family income. Also underway is a federal program to upgrade housing and utility infrastructure. The first steps have been taken towards de-monopolizing the sector, and some of the administrative functions in housing and utilities are gradually passing from the federal government and municipalities to private companies and operators.
Private business accounts for 30 percent to 40 percent of the housing and utility industry in Russia. Of the two, de-monopolization is more advanced in the housing sector. Private companies (small and medium-sized businesses) are engaged in the maintenance and management of housing and performing capital repairs. Soon the administration of housing stock will be handed over to private interests, too. The new Russian Housing Code, which went into effect on March 1, 2005, has given a boost to the process. Under the code, municipal housing maintenance offices, which are leftovers from the Soviet era, are to give way to private management companies. Apartment building tenants will, for the first time ever, have the right to choose whom to entrust with the management of their building.
On the other hand, preliminary experience has shown that homeowners' self-government in Russia is still in its infancy. As planned, by January 1, 2007 people must decide how to manage their housing, but many have not been able to make a choice. The law, however, says whoever fails to do so will have to accept the ruling of the municipality. As a result, in November 2006 the lower house of the Russian parliament was obliged to pass amendments to the law, extending its deadline by one year.
For a number of reasons, the communal sector is even less privatized. First, no complete legal framework exists that regulates the private management of utilities. It was assumed that the federal law "On Concession Agreements," adopted in July 2005, would solve all problems. It failed, however, to address many of the issues, so it must be supplemented with a law on communal services. Second, debts amassed over the years by utilities, which run into the millions, pose a big obstacle to investors. The sector currently owes about 325 billion rubles. Both the government and parliament have repeatedly raised the issue of debt restructuring, but without results so far.
Even so, investment has started flowing in. A few large utility companies, Russian Utility Systems (RUS), Rosvodokanal, Eurasian Water Partnership, Mezhregiongaz subsidiaries, etc., are operating more-or-less successfully in some Russian regions. Utility infrastructure is being leased on a short- and long-term basis, and considerable sums are being invested in it. Utilities, however, still have to cope with many snags in Russia. RUS president Mikhail Slobodin, for one, believes it's high time to review general tariff agreements in order to guarantee a return on investments and protect investors' property rights.
The key to reforming housing and utilities today is to draw private operators into the industry that are able to efficiently run utility companies and invest a sufficient amount. In order for the industry to make a substantial profit in the next three to four years, it's necessary to address some vital issues, above all tariff and investment policy. It's necessary to permanently fix the powers and guarantees of participants in the housing and utilities market. Public-private partnerships are the best way to move forward.
Private operators must guarantee service quality, manage efficiently and attract investment. The government, in turn, must regulate relations between players on the utilities market by creating equal conditions for everyone, and it must regulate prices by setting tariffs or establishing price ceilings.
It is not enough, however, to list the aims, objectives and functions of a public-private partnership. In order to pick up the pace of reform, the two sides must meet each other halfway.
By Nikolai Palagichev