The Ministry of Construction proposes to extend the sectoral state support program to utility concessionaires

The Ministry of Construction intends to allow the financing of concessions in the housing and communal services sector through subsidies as part of the industry modernization program – by lifting the ban on agreements with financing through the grantor’s fee, that is, with reimbursement of the investor’s expenses after the commissioning of the facility. This is explained by the fact that the bulk of the facilities in need of renovation are transferred in concession. The likelihood of budget cuts in 2024 also apparently played a role. Market participants and experts support the initiative, noting that the housing and communal services sector is unattractive for investors and needs support.

The Ministry of Construction proposes to admit concession projects to state support within the framework of the housing and communal services modernization program, it follows from the draft government resolution published by the department. We are talking about a program for updating dilapidated networks, designed until 2028; 280 billion rubles are provided for its financing in 2023–2024. Each region is allocated from 500 million rubles. subsidies for the replacement of dilapidated networks in the presence of a regional program and subject to attracting at least 20% of extra-budgetary investments. The program itself has been deployed in conditions where about 40% of networks need updating, and the underfunding of the industry is estimated at 4.6 trillion rubles. (see “Kommersant” dated November 3, 2022).

According to the current rules, the use of subsidy funds for the modernization or repair of facilities that are the subject of concessions is not allowed. However, as the Ministry of Construction notes, the main objects “requiring reconstruction, modernization or overhaul are transferred to concessionaires” – in which financial support for the modernization of the object is provided “using financial support from the grantor’s fee” (that is, reimbursement of the investor’s expenses after the commissioning of the object), and prisoners since the end of last year.

It should be noted that concessions are the main way to attract investment in housing and communal services – this is the most widespread segment of public-private partnerships. Now there are about 2.7 thousand agreements in this industry for 1.1 trillion rubles. (see “Kommersant” dated September 26). Fears of cuts in federal budget expenditures for 2024 could also have prompted such a step – as follows from the explanatory note, due to such risks, regions were recommended to suspend contracting. However, this is how the Ministry of Construction explains the need for other amendments – in particular, the introduction of the possibility of adjusting programs in the event of a reduction in funding.

According to Anna Batueva, managing director for legal support of projects at the National PPP Center, when this program appeared, the main question from the regions was whether support funds could be used for concession projects. The emergence of such an opportunity, she emphasizes, is important for the sector, since the volume of required investments in communal infrastructure “is measured in trillions of rubles.” As the Russian Association of Water Supply and Sanitation (RAWV) explained to Kommersant, investors, taking control of water supply and sanitation facilities, face “the same problems in the industry as municipalities, and given the sanctions and the weakening of the ruble, they require state support – obviously “that with budget support there could be a synergistic effect between the state and business.” RABB also reminds that the industry still remains unattractive for business, primarily due to economically unjustified tariffs.

Associate Professor of the Department of Public Administration and Public Policy of the RANEPA Alexander Vorotnikov believes that support will make it possible to more actively implement projects and make government and business more proactive. According to him, this is a “fundamental decision” – especially for the northern and Far Eastern regions, where concessions are difficult to implement due to subjective (weak personnel, lack of practice) and objective (increasing operating costs due to climate, lack of consumers) reasons.

Evgenia Kryuchkova