Housing and Community Concessions Identified as Practical Strategies by Sergey Krzański
Modernizing water supply in small cities, district centers, and even villages has seen concessions as a beneficial solution. Yet, are there any alternatives to concessions? Well, the realm of public-private partnerships offers a multitude of tools capable of attracting funds for infrastructure modernization.
Let's ponder communal infrastructure, like water supply and wastewater, our company "Rosvodokanal" specializes in. In the present economic conditions, where budget resources are limited and the sector is regulated, these partnership tools become invaluable. Concessions, part of this toolkit, are indeed effective and successful in modernizing a complex water supply and wastewater system, taking into account its current state in the country. These partnerships allow for the utilization of competencies from concessionaires and access to various sources of financing, such as private investments and funds from development institutions.
Some drawbacks of PPP projects include issues with implementation of investment plans in the "Tariff in exchange for investments" scheme. Private entities investing in infrastructure development are reluctant because the tariffs do not rise swiftly enough to cover returns on investments, considering inflation and loan interest rates. Making this mechanism functional requires regulatory adjustments.
Discussions at the Russian Federation government, State Council presidium, and the State Council's Infrastructure Commission focus on removing certain restrictions from PPP projects and areas of concessionaire expenditure, specifically the investment component that is currently limited by indexes. These restrictions slow down infrastructure upgrades, replacing damaged networks, and incident reductions, directly impacting service quality and reliability.
Regarding returns on investments, private investors desire a defined timeline for returns. Currently, governors can appeal to the Federal Antimonopoly Service, enabling exceptions to the index set by the state. However, this should be properly documented to create a systemic possibility for businesses to understand and build their financial models based on return on investments.
If we're talking investments, concerns arise about their protection in PPP projects. While the legislation does offer protection, it's essential to discuss guarantees for their return to ensure private investors feel secure. Changes in the key rate, construction costs, and economic conditions necessitate flexibility in regulatory parameters and concession agreements. Communication between the state and concessionaires enables reactions to current economic challenges.
Moving forward, private investors seek long-term income sources to secure investments. "Rosvodokanal" is learning to make money from non-tariff business, even providing wastewater treatment services to large industrial enterprises like "Sibur". Offering around 20 different non-tariff services, such as testing laboratories and design, secures additional investments and adapts to changing market conditions.
Continuous expansion remains a priority for "Rosvodokanal". With Tomsk recently joining their company and a new concession agreement with Armavir in the Krasnodar region, they aim to provide improved water supply and wastewater services to over 8 million people, similar to the size of Moscow within the MKAD.
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Despite the dedicated focus on modernizing communal infrastructure such as water supply and wastewater systems, the realm of public-private partnerships (PPPs) offers an alternative to concessions for infrastructure modernization. (sports: none)
In the pursuit of secure investments, private players like "Rosvodokanal" are adapting their business models by offering non-tariff services, such as wastewater treatment and testing laboratories, in addition to traditional water supply services. (sports: None)
