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Plans for water

Russia’s fresh water supply is among the largest in the world, but these resources are not always used efficiently. According to Yuri Golubkov, director of S&T Policy and Modernisation department of Renova Group of Companies, optimising the water sector management first of all requires sorting out organisational and legal issues, followed by solving technological problems. In the framework of a joint HSE — Renova foresight project, HSE experts analysed strategic approaches to managing the water sector suggesting four different scenarios.

The project on analysing global challenges and long-term innovation development trends in the water sector is nearing its completion. At the previous stages, HSE experts have identified major factors and risks affecting development of the sector and suggested four possible scenarios for the future. On 10 April, 2015, at the XVI April Conference, Russian and international experts discussed possible development areas for Russian companies, and government policies required under each of the scenarios. 45 representatives of international organisations, leading companies and business associations, universities and research centres participated in the debates. In June, the final report and project results will be presented at the Higher School of Economics.

The market for water-related products and services has a good growth potential: by 2020 it may reach 980 billion US dollars. But maintenance and development of relevant infrastructure require significant investments. “Investment requirements just for water supply and sewage in the period until 2050 amount to 6.7 trillion US dollars, or about 40% of the global GDP”, noted the OECD consultant Alexander Martoussevitch. The whole water sector needs three times that in investments.

The water complex is large and capital-intensive and pursues numerous objectives, so managing it requires coordination of various actors’ activities based on long-term national development strategy. Given the lack of a universal public administration model accepted by all countries, each nation sets its own rules for the water sector players, making a choice between privatising profits and socialising losses and capital expenditures.

In Russia, this sphere is regulated by the Water Code (adopted in 2006), the Water Strategy for the Russian Federation Until 2020 (approved in 2009), and the action plan for its implementation. Relevant measures are funded through the Federal Target Programmes “Development of the Russian Water Complex in 20122020” and “Pure Water”, to be implemented in 20112017. The institutional framework for long-term forecasting of the industry development is established by the federal law “On Strategic Planning in the Russian Federation” adopted in 2014.

At the April Conference HSE experts presented several scenarios for the sector’s development: innovation-based (optimistic, reformist); inertial (conservative, stagnatory); crisis (negative, mobilisation); and “national priority”. These development vectors may help the government and companies to make informed decisions to maximise existing advantages and minimise negative effects.

The four scenarios

The innovation scenario (which is being implemented in most of the developed countries) involves decentralisation of responsibilities and introduction of competition on the water supply market; increasing investment appeal of the water sector; and introducing various formats for public-private partnership. Strict monitoring of the plumbing system’s state, introduction of innovative (including smart) technologies at large-capacity water treatment plants, and systemic reconstruction of waterworks would allow to achieve a high quality of tap water.

The inertial scenario allows private companies’ share of up to 35–40% of the market (with accent on concessions). Private operators want to manage water supply systems in large cities where this business generates profits. Working in small settlements usually brings none. A typical aspect of this scenario is government regulation of tariffs, indexing them below the inflation level. Under such conditions the number of accidents at the water sector infrastructure may grow exponentially by 2019–2020.

Under the crisis scenario the water sector in effect will be completely regulated by the government (not in order to develop the business but to prevent accidents and provide social protection for the population). It may lead to mass bankruptcies of water companies, further centralisation of the sector, and establishment of “Rosvoda” state corporation. Measures to provide an adequate supply of high-quality water to the population would be simple and straightforward, e.g. subsidies or interest-free loans to buy personal water purification equipment (household filters), and soft loans to their manufacturers. Water infrastructure will be optimised only to a limited extent: hydro-engineering works would amount to just prophylactic repair of dangerous sections of installations, and accident prevention at water inlets and dams. Under such conditions the situation may become explosive in three to four years’ time.

An extension of the crisis scenario is the “national priority” one: the situation in the sector deteriorates to the extent when dealing with it becomes a national priority, so it will be controlled “manually”. This would involve centralisation of the water sector companies, and opting for the only public-private partnership format — concession. This would lead to domination of a few major market players affiliated with (or fully controlled by) the government.

Prerequisites for implementation of the scenarios

Mikhail Kozeltsev, chief research fellow at the HSE Institute of Natural Resource Economics and Environmental Policy, noted the declining investments in the water sector (as a share of the total capital expenditures), which is evidence of insufficient investment attractiveness of the sector.

The water sector shows a strong negative trend: expenditures exceed revenues, and the main reasons of that include the tariff policy, worn-out fixed assets (installed in the 1960s — 1970s), and increased accidents rate, noted Sergei Sivayev, professor at the NRU HSE Graduate School of Urban Studies and Planning and managing director of Vnesheconombank’s Federal Projects Funding Centre. The public share is growing, capital assets cannot be privatised, and water supply systems are being centralised on the regional level.

According to Anastasia Likhacheva, deputy director of the HSE Centre for Comprehensive European and International Studies, the government doesn’t create conditions for modernising the water sector and promoting innovation process in it. Capital investments do not result in the growth of profits. And attracting foreign companies — technology developers, first of all from China, could slow down Russian R&D.

Anastasia presented a number of solutions that are critically important to Russia being implemented at various planning horizons. E.g. in the next 3–5 years the key challenges will comprise the growing debt of the water sector companies and increasing numbers of accidents in the sector. Accordingly, mechanisms for dealing with the outstanding debt are needed, together with (sensor-based) technologies to control leaks and complex information systems which among other things would allow to increase energy efficiency.

The expert described product lines and relevant services required under each of the above scenarios in more detail. E.g. under the mobilisation scenario, tried and true energy-efficient services would be implemented, to purify water locally and minimise risks. Under the conservative scenario, leak monitoring systems will be needed. The innovation scenario would create opportunities for much more significant investments: e.g. to develop and install closed-circuit membrane-based water purification systems on a major scale, as well as bio-control systems.

Long-term planning

Economically developed countries apply not just technological, but also infrastructural innovations to upgrade their water supply systems. In particular, the OECD and APEC member states introduce progressive water tariffs, flexible contracts (when water saving is taken into account when consumers are billed), and various water- and energy-saving solutions.

The problem of prompting people to switch to new water consumption patterns is relevant to many countries. According to Daniel Sklarew of the Environmental Science department of George Mason University (USA), it’s primarily due to low tariffs, but also to certain education and social norms. Involving a wide circle of stakeholders, including citizens, would be an important factor of developing sustainable water supply systems.

International integration tools could play a major role in long-term planning of the water sector development. Anumita Raj (Strategic Foresight Group, India) spoke about countries’ relations in the water resources sphere on the example of the five BRICS countries. Indian experts developed a system for measuring transboundary cooperation (219 interaction case studies were analysed), ranging countries by water cooperation index (ranging from 0 to 100). Russia got the highest mark.

Transboundary water cooperation is regulated by several international agreements, reminded Bo Libert, regional adviser on environment at the United Nations Economic Commission for Europe. Among them he noted Convention on the Protection and Use of Transboundary Watercourses and International Lakes (Transboundary water convention). More than 250 experts from 50 countries prepared guidelines for managing water resources and adapting to climate change, monitoring transboundary rivers, lakes, and subterranean waters, managing risks associated with transboundary floods and subterranean waters.

Summarising the discussion of the water sector development scenarios, the participants noted the following key trends: increasing public-private partnership, transboundary cooperation in the water sector, and the need for more flexible regulation of water tariffs.

By Liliana Proskuryakova, Ilya Kuzminov, Elena Kyzyngasheva