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Implementation Considerations
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11. Implementation Considerations
In the economic assessment presented in the previous section, it is evident that a combination of initiatives needs to be undertaken that have a net effect of reducing the maximum quantity of contaminants in the wastewater stream combined with actions that reduce energy consumption. This combination will fulfill the objectives of the Dnieper River Basin Strategic Action Plan as well as the SVK. The principles of pursuing projects that have an immediate return on improving the integrity of the river combined with substantial savings in energy and operational costs, improved treatment efficiency are well established. However, there are ancillary elements to be considered in the implementation of any projects.
An integral element in implementing any of the identified projects is a prescribed Industrial Pre-Treatment and Sludge Treatment Strategy. While there may be little intervention in the short-term, industrial discharges need to be addressed. For key projects, such as new aeration tanks and sludge dewatering system, to be successful, nutrient and contaminant rich industrial discharges need to be dealt with on site prior to treatment at the MWTP. While not considered in the analysis, substantial efficiency gains could be realized through developing industry pre-treatment programs and associated enforcement. However, within the current economic climate, additional industry fees and regulation may not be salient. Programs that emphasize the cost benefits of the adoption of closed-loop water systems and water recycling (including nutrient reduction) could be promoted through government incentive programs. Enforcement fines of industries discharging beyond their MPD to the utility could be considered be redirected towards the utility (as this would abide by the “polluter-pay” principle).
From a privatization perspective, the matter of tariffs need to be revisited. In principle, to ensure both the financial viability of water supply and wastewater operations and their long-term financial sustainability, SVK’s financial objective for its water supply and wastewater tariffs should be to ensure full cost recovery in its broadest financial terms. Full cost recovery in this regard should include: the cost of appropriately operating and maintaining the system; the cost of capital rehabilitation/reinvestment necessary to ensure sustainable supply of existing levels of service; and the cost of new capital investment necessary for improved levels of service and/or expansion of services in response to affordable demand.
While this is a good objective in principle, in reality increasing tariffs may present a long-term challenge in the minds of the public and industry. As Vodokanals will likely remain under State control for a while, tariffs would remain regulated for the immediate term. Utilities will likely remain solely responsible for its wastewater and also accept effluent from a range of industries.
As mentioned in Section 4, the RF’s Ministry of the Economy is working with the Ministry of National Resources in developing a new law where water fees collected will be dedicated towards a water fund. The objective is to make the process of re-investment in water protection activities clear and transparent. Thus, liberating water from the tax system may improve the probability of re-investment in water protection measures. However, many still feel that privatization is the appropriate route to deal with the critical issues of an under financed clean water management system and a sustainable tariff structure.
There has been some experience in this arena already. Since the transition to a market economy, there has been the case of about twenty (20) cities that transferred the rights of their water supply to a private company. The expectation was that in privatizing access to the supply and the capital assets, investment in new infrastructure and improved water services will ensue. However, the experience has not been positive – private entities have not fulfilled their responsibility. The key reason for this failure is that the legal base for equitable public-private partnerships are not fully developed within the Russian Federation. Given recent experiences with privatization and concerns with existing private investments, international investors are cautious about financing projects in Russia.
While privatization presenting a challenge, the utility may seek gaining greater control over its revenues. This would be a positive step in providing SVK a sense of sustainability over financial resources and to develop longer-term infrastructure management (maintenance, upgrade and replacement program). It would also result in more strategic investment. At this point the facility is focused on reducing its greatest cost burden – electricity. With sustainable funding, SVK, given its level of energy consumption, can negotiate preferred longer-term electricity contracts with the power utility. Another area for negotiation between SVK and The City would be property taxes. As this is a municipal property, removal of this burden (estimated at approximately 6 million roubles in 2003).
There are a couple of other avenues worthy of exploration.
- Smolensk is one of the key historical cities in Russia – it is one of the Hero Cities. Consideration could be given towards its designation as a UNESCO World Heritage Site. This may result in favourable attention from the international community.
- Given the current tuberculosis problem, applying for WHO funding/grants could be considered towards investing in health programs.
Though connected with the Dnieper River Basin SAP, evaluation of the scope of such programs is outside the realm of this analysis.
With a number of priority environmental projects – with aeration tanks at the top of this list – and the fiscal constraints faced by the utility, some flexibility could be considered in terms of external funding. For example, if grants are feasible, they should be focused on a select couple of treatment plant projects. However, the grant could be staged based on the utility’s ability to resolve its tariffs, revenue retention, authority transfer payments, property taxes as well as improve its revenue collection.
Loans too could tied to incentives, such as requirements to attain environmental targets, as well as improving revenue generation and system knowledge (application of information technology), upon which lower interest rates are charged, or amortization schedules could be extended.
Ultimately, a mix of financial instruments combined with industry incentive and enforcement programs would be the likely approach, where the pursuit of key environmental objectives of reducing pollution into the Dnieper River could be used as a vehicle for improving SVK’s overall performance and efficiency. Any new investment infrastructure upgrades will hopefully provide an economic development impetus for a city steeped in history.
