Novgorod, Russia Background Analyses for the Environmental Financing Strategy

Ministry of Environment, Denmark

The purpose of the municipal water and wastewater environmental financing strategy for Novgorod region of the Russian Federation is to determine a realistic, agreed and affordable service and to demonstrate how environmental expenditure can be financed. The environmental financing strategy has been developed in an iterative process in a dialogue with the finance, environmental and other relevant authorities. This report presents the final background analyses by the consultant. Novgorod, Russia Background Analyses for the Environmental Financing Strategy

Ministry of Environment EAP Task Force DEPA/DANCEE DANCEE Danish Environmental Protection Agency Danish Cooperation for Environment in Eastern Europe Danish Cooperation for Environment in Eastern Europe Miljøstyrelsen, Strandgade 29, DK-1401 København K Phone +45 32 66 01 00. Internet: www.mst.dk This report was prepared by COWI AS in association with COWIconsult International Ltd., Russian Federation. The work was financed by the Danish Environmental Protection Agency (DEPA) as part of the Danish Cooperation for Environment in Eastern Europe (DANCEE). The work was coordinated by a DEPA steering committee also comprising representatives of the Organisation for Economic Cooperation and Development (OECD) and the beneficiary ministries. The opinions expressed are those of the consultant. The Danish Ministry of Environment – Danish Environmental Protection Agency (DEPA), the OECD EAP TF and the beneficiary ministries may not agree with these opinions. 2000

Novgorod, Russia

Background Analyses for the Environmental Financing Strategy

DEPA/DANCEE Danish Environmental Protection Agency Danish Cooperation for Environment in Eastern Europe

Background analysis for the regional environmental financing strategy i Novgorod region, the Russian Federation

Background

The Danish Ministry of Environment and Energy - The Danish Environmental Protection Agency, (The Danish EPA) has decided to fund a number of projects to provide assistance to the OECD Environmental Action Plan Task Force (EAP TF) Secretariat and directly to selected Ministries of Environment in the NIS.

The projects commenced in August 1999. The present document, "Novogorod: Background Analyses for the Environmental Financing Strategy", is one of a series of documents coming from the projects.

The projects will:

• Provide assistance in elaborating national environmental financing strategies in four selected countries in the NIS, viz.: Georgia, Kazakhstan, Moldova and Ukraine.

• Provide assistance in elaborating regional environmental financing strategies in two selected regions in the Russian Federation, viz.: Novgorod and Pskov regions.

• Provide assistance to the EAP TF in the preparation of a survey on the use of economic instruments for pollution control and natural resources management in the New Independent States.

• Conduct a study of the suitability of the OECD methodology for assessment of environmental expenditure based on case studies in Georgia and two regions in the Russian Federation, viz.: Novgorod and Pskov. ii Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy iii Novgorod region, the Russian Federation

Table of Contents

1 Introduction 1 1.1 Purpose 1 1.2 Beneficiary and target group 2 1.3 Acknowledgements and disclaimer 2

2 Executive summary 5 2.1 Background 5 2.2 The regional economy 5 2.3 Environmental policy context 7 2.4 Environmental priorities and targets 8 2.5 Supply of finance 10 2.6 Financing gaps 11 2.7 Closing the financing gaps 11 2.8 Conclusion 15

3 Macro-economic, public finance and socio- economic overview 19 3.1 Macroeconomic indicators 19 3.2 Public finances 21 3.3 Demographic snapshot 27 3.4 Socio-economic features 28

4 Financial sector overview 31 4.1 Federal government debt 31 4.2 The key instruments of financial markets in Russia 32 4.3 Banks operating in the Novgorod region 34 4.4 Non-monetary transactions in the Novgorod region 35

5 Supply of environmental finance 37 5.1 Public sector budget 37 5.2 Novgorod environmental funds 37 5.3 Domestic financial sector 38 5.4 International financial intermediaries and donors 38 5.5 Foreign direct investments 39 iv Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

5.6 User charges 40 5.7 Environmental expenditure data 45

6 Environmental policy context 49 6.1 The regulatory framework 49 6.2 Key environmental protection institutions 49 6.3 Key environmental programmes 53 6.4 Solid waste management objectives 59 6.5 Relationship between ongoing programmes and the environmental financing strategy 59 6.6 The structure of the water and wastewater sector 60 6.7 Institutional set-up - municipal solid waste 61

7 Status of the environment 63 7.1 Overview of key environmental problems 63 7.2 Existing situation - water supply 66 7.3 Key service parameters from water supply system 69 7.4 Existing situation wastewater collection and treatment 73 7.5 Key service parameters for wastewater collection and treatment 75

8 Formulation of environmental targets 79 8.1 Introduction 79 8.2 Summary of the selected targets 79

9 Baseline scenario 85 9.1 Macroeconomic forecast 85 9.2 Baseline environmental expenditure needs 91 9.3 Baseline supply of finance 92 9.4 The baseline scenario results 94

10 Bridging the financing gap and the realistic scenario 97 10.1 Options for increasing the supply of finance 97 10.2 Environmental targets and the resulting expenditure 101 10.3 Financing gap in the realistic scenario 103 10.4 What is required in order to bridge the financing gap – the realistic scenario 105 10.5 Options to reduce demand for operating and capital expenditure in urban water 111 10.6 Adjusting the targets to the baseline supply of finance 113 Background analysis for the regional environmental financing strategy v Novgorod region, the Russian Federation

Table of Appendices

Appendix 1: Overview of roles and responsibilities Appendix 2: Regional environmental action plan 2000-2004 Appendix 3: Maps of WWTP and water supply system Appendix 4: Municipal solid waste in Novogorod oblast Appendix 5: Definition of the "Baseline Scenario" Appendix 6: Baseline scenario Appendix 7: Miscellaneous data Appendix 8: Realistic scenario Appendix 9: Applied assumptions for costing environmental plan Appendix 10: Members of advisory committee Appendix 11: Bibliography vi Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy vii Novgorod region, the Russian Federation

Table of tables

Table 3.1 The development of GRP in the Novgorod oblast 1994-1998 ...... 19 Table 3.2 The development in Novgorod GRP structure 1995-1998, %...... 20 Table 3.3 Nominal and real (gross) salary developments 1994-1999 in RUR ...... 21 Table 3.4 Overview of public revenues and expenditure, Novgorod region 1995-99 in ´000 RUR...... 21 Table 3.5 Novgorod regional revenue budget 1994-1999 (RUR´000)...... 22 Table 3.6 Structure of own revenue sources 1997-1999, Novgorod region ...... 23 Table 3.7 Scale of Programme financing (RUR´000) ...... 24 Table 3.8 Regional Expenditure Budget 1994-1999 (RUR’000) ...... 25 Table 3.9 Consolidated Resources of EFs in Novgorod region (‘000 RUR)...... 27 Table 3.10 Consolidated Expenditure of EFs in Novgorod region (‘000 RUR) .....27 Table 3.11 Urban and rural population forecast, Novgorod region, 1995-2020 .....28 Table 3.12 GDP/GRP per capita for Russia and Novgorod Oblast...... 28 Table 3.13 Selected indicators of real income...... 29 Table 4.1 Average annual exchange rate, RUR per 1 dollar ...... 32 Table 4.2 Structure of revenues of enterprises in Novgorod region in 1999...... 35 Table 5.1 Water supply, wastewater collection and treatment tariff rates in Borovitchi, 1995-1999 (RUR/cub m)...... 41 Table 5.2 Cross-subsidy index between customer groups, Borovitchi 1995-99....42 Table 5.3: Billed amounts and cash value of revenue collection, Novgorod region 1999 in million RUR...... 43 Table 5.4 Monthly charges for municipal services in 1999...... 44 Table 5.5 Investment and current environmental expenditure developments by media (million RUR)...... 45 Table 5.6 Investment and current environmental expenditure by media and funding source in 1998...... 47 Table 6.1 REAP Funding Overview in 2000 prices (million RUR) ...... 56 Table 6.2 Planned programme funding structure by sources (in million RUR in 1997 prices)...... 58 Table 6.3 Annual planned funding of existing water programmes vs. annual expenditure requirements according to decision support tool ...... 60 Table 7.1 Main environmental problems and their cause...... 65 Table 7.2 Characteristics of water pollutants for the main cities of Novgorodregion ...... 67 Table 7.3 Assessed rate of needed renovation for the water supply systems in towns and urban settlements of Norgorod Oblast, 2000. Share of system component that needs renovation in %...... 69 Table 7.4 Drinking water compliance with quality standards in the Novgorod oblast, 1998 (share of samples not in compliance with standard, in percentage)...... 70 Table 7.5 Water production and consumption in towns and urban settlements of the Novgorod oblast, 2000...... 71 Table 7.6 Centralised water supply coverage as well as length of mains and distribution system in cities and rural settlements, 1999 ...... 72 Table 7.7 Water supply regularity in cities and urban settlements, 1999 ...... 72 Table 7.8 Wastewater collection technology, share of system by technology...... 73 viii Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 7.9 Amount of wastewater collected and treated, and wastewater treatment technology in cities and urban settlements (1,000m3/day), 1999 ...... 74 Table 7.10 Share of population connected to the wastewater sewerage system, and length of sewerage mains and street collectors, 1999...... 76 Table 7.11 Concentration of pollutants in discharged wastewater after treatment at the municipal wastewater treatment plants in cities and urban settlements (mg/l), 1999...... 77 Table 7.12 Concentration of pollutants in discharged wastewater after treatment at the major industrial wastewater treatment plants in cities and urban settlements, 1999...... 77 Table 8.1 Target for water quality 2010...... 80 Table 8.2 Water supply service coverage for 2010 ...... 81 Table 8.3 Target for regularity of supply 2010 ...... 82 Table 8.4 Targets 2010 for Wastewater Treatment...... 83 Table 8.5 Targets for service coverage wastewater collection ...... 84 Table 9.1 Macro-economic forecast...... 88 Table 9.2 Prices and Exchange rates 2000-2020...... 89 Table 9.3 Development in population, nominal salary and average household income...... 89 Table 9.4 Baseline expenditure requirements, supply of finance and financing gap...... 94 Table 10.1 Realistic scenario expenditure requirements, supply of finance and financing gap...... 105 Table 10.2 Household incomes and expenditure pattern, RUR per capita per month, 1998 ...... 108 Background analysis for the regional environmental financing strategy ix Novgorod region, the Russian Federation

Table of figures

Figure 3.1 Lorenz curves for the Novgorod region for 1995 and 1998...... 29 Figure 4.1 Time structure of the interest rates in January 2000...... 33 Figure 5.1 Foreign direct investment in CEE and CIS in USD per capita...... 40 Figure 5.2 Household expenditure pattern by income group, Novgorod region 1998 ...... 44 Figure 6.1 Institutional structure of environmental protection management in Novgorod oblast...... 52 Figure 9.1 Maintenance, rehabilitation and degradation...... 92 Figure 10.1 Public capital expenditure as a share of GDP in different countries .....99 Figure 10.3 Financing gap (RUR 000) ...... 110 Figure 10.4 Maintenance backlog (RUR 000)...... 110 x Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy xi Novgorod region, the Russian Federation

List of acronyms and abbreviations

Al Aluminium BOD Biological oxygen demand BOT Build, operate and transfer CEE Central and Eastern Europe CIS Commonwealth of independent states CPI Consumer price index DANCEE Danish Cooperation for Environment and Energy DEPA Danish Environmental Protection Agency EAP TF Environmental Action Plan Task Force EBRD European Bank for Reconstruction and Development EF Environmental funds EJT Economically justifiable tariff FDI Foreign direct investment FEF Federal Environment Fund of the Russian Federation FIM Finnish Marks GDP Gross domestic product GKO Russian abbreviation for State Exchequer Bond GOST Russian state standard GRP Gross regional product HELCOM Helsinki Commission – International Cooperation for the Protection of the Marine Environment of the Baltic Sea IFI International financial institutions IMF International Monetary Fund l/c/d Liters/capita/day MAC Maximum allowable concentration MAE Maximum allowable emissions MB Mechanical-biological (wastewater treatment plant) ME Municial enterprise ME-SAKH Municipal enterprise "Special Motor Car Service" (for household waste collection and transportation) NEFCO Nordic Environmental Financing Co-operation NGO Non-governmental organisation NIB Nordic Investment Bank NIS Newly Independent States NPP Nuclear power plant OECD Organisation for Economic Co-operation and Development O&M Operation and maintenance xii Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

PAC Pollution abatement and control PM Polluting material PPI Producer price index PPP Purchasing power parity QQ1/QQ2 Quarter 1 / 2 REAP Regional environmental action plan REC Regional environmental center RF Russian Federation RSC Residential service company RUR Russian Rubles SanPin Sanitary rules and norms (Russian standards) SCEP State Committee for Environmental Protection SCEPNO State Committee for Environmental Protection of the Novgorod oblast SEK Swedish Kroner SMART Specific, measurable, agreed, realistic, time-bound (about environmental targets) SMW Solid municipal waste SS Suspended substance TA Technical assistance USAID US Agency for International Development USD US dollars VAT Value added tax W&S Water and sewage WWT Wastewater treatment WWTP Wastewater treatment plant

Note: in all tables, figures have been rounded individually and may not add up to match sums exactly.

To transfer RUR into USD the following exchange rate is used in the main text :

1 USD = 28.00 RUR

Exchange rate as of 11 May 2000: 1 USD = 28.06 RUR Background analysis for the regional environmental financing strategy 1 Novgorod region, the Russian Federation

1 Introduction

1.1 Purpose The environmental financing strategy elaborates the need for environmental expenditure that follow from specific, measurable, agreed, realistic and time-bound (SMART) environmental policy targets. These environmental policy targets have been developed based on an intensive dialogue with an advisory committee composed of Novgorod oblast representatives. The dialogue has focused on environmental problems and environmental policy targets within the water supply and wastewater sector. This is in line with the priority of the Novgorod REAP1 and the "Drinking Water 1999 - 2010 programme" as well as with the theme for the Ministerial Consultation in Almaty.

Environmental The environmental financing strategy contrasts these environmental expen- expenditure needs to diture needs with the supply of environmental finance that can be raised and be matched by fi- the environmental "service" level, which the region can support in the long nance run based on user charges (for environmental services) and public budgets.

Quantitative The environmental financing strategy is based on cost modelling and quan- assessments for titative analysis. For this purpose a costing and finance decision support tool has been developed. In consultation with the advisory committee the project team have used the tool extensively to develop the scenarios which demonstrate the consequences of alternative policies and environmental targets.

Realistic planning There are two immediate objectives of these background analyses and the and attracting cost modelling tool for the environmental financing strategy, viz: finance • To serve as a realistic planning tool at strategic level;

• To be a vehicle for attracting additional finance for environmental purposes through the establishment of SMART targets and quantitative illustration of the financing requirements to meet these.

1 During the drafting of the Novgorod REAP the team has been in close contact with the working group on the REAP to ensure that problem analysis and target setting is con- sistent between the two documents. 2 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Data sources and There are 4 main sources of data: processing • Official statistical yearbooks (national and regional for socio-economic and environmental data);

• Data not published officially but provided or calculated on consultant’s request by official authorities (Ministry of Finance, Novgorod Oblast Statistical Committee, SCEPNO, departments of Novgorod oblast administration, etc.);

• Data, that was identified and co-ordinated with the oblast authorities and the project advisory committee such as environmental targets, basic indicators for macroeconomic forecasts, etc.;

• Consultant’s estimations and assumptions ( mostly used for different scenario calculations).

1.2 Beneficiary and target group Composition of advi- This paper presents the background analyses prepared for the environmental sory committee financing strategy for Novgorod region of the Russian Federation. The environmental financing strategy has been developed in close co-operation with the project advisory committee. The project advisory committee has been chaired by Vice Governor Mr. Boytsov and has included representatives of the Environmental Committee, the Department of Municipal Utilities and the Department of Finance of the Oblast Administration, see Appendix 10. Jointly, the authorities represented in the advisory committee are considered the beneficiaries of the project.

Target group The staff of these authorities as well as interested donors constitute the target groups for the background analyses. The environmental financing strategy has been developed on the basis of these analyses. It is a brief policy document approved by the regional administration. The document "Short Justification of the Novgorod Environmental Financing Strategy" was approved by the Advisory Committee on 22 May 2000.

Furthermore, this paper has contributed as a background paper to the policy document drafted by the OECD - EAP Task Force Secretariat in support of Agenda Item III: "Financing Investment in the Water Sector" for the Con- sultation on Water Investments on 16 - 17 October in Almaty.

1.3 Acknowledgements and disclaimer COWI has been entrusted by DANCEE and the EAP TF Secretariat at OECD to prepare this paper within the framework of the project entitled "Environmental Financing Strategies, Environmental Expenditure and Use Background analysis for the regional environmental financing strategy 3 Novgorod region, the Russian Federation

of Economic Instruments in NIS Countries"2. It constitutes a major output of the project component: " Regional environmental financing strategies in the NIS". Its principal authors have been Messrs. Bo Nielsen and Alexander P. Martussevich. However, many others have provided helpful comments and contributions3. These contributions not withstanding, all errors and omis- sions remain the responsibilities of the authors.

The opinions expressed in this document are those of the Consultant. DANCEE (Danish Ministry of Energy and Environment); the OECD EAP TF and the beneficiary authorities may not agree with these opinions.

2 For further information on the project please visit the project homepage. The address is: www.cowi.ru/almaty 3 Especially: Nina Korobova, Niels Palmvang, Michael Jacobsen, Niels Bent Johan- sen, Oxana Popkova, Michael Munk Sørensen (all COWI), and Maxim Yakovenko (HSE). The report is based on the information provided by the local experts from the Oblast Administration, Goscomecologia, Oblstat and Novzhilcommunservice, especially: Vladimir A. Savin, Alexander K. Maslennikov, Victor E. Sochilin and Alexander A. Semenov, Sergei N. Frolov, Elena V. Soldatova, Galina N. Piterova and other local experts. 4 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy 5 Novgorod region, the Russian Federation

2 Executive summary

2.1 Background The Novgorod oblast is located in the North-Western part of Russia and covers about 55,000 km2. The oblast consists of 22 administrative entities, including 21 districts (rayons) and the City of Novgorod-the-Great. 90% of the oblast territory form part of the Baltic sea basin, while the remaining territory (two districts) belong to the Caspian Sea basin.

The region is well endowed with respect to forests and water resources: 42.5% of its territory is covered by forests and 1.6% by water. The region includes Lake Ilmen, river Volkhov, which flows into Lake Ladoga, sources of groundwater and mineral water, healing mud, radon sources and a number of state national parks.

2.2 The regional economy4

2.2.1 Economic key features and performance The oblast experienced a positive growth rate in gross regional product (GRP) over the period 1994-1998 (contrary to the overall contraction in the Russian economy during that period) and further growth in 1999. According to Novgorod Oblstat calculations GRP per capita in the Novgorod region amounted to USD 1,250 in 1998 or 30% lower than the average for Russia.

The oblast is sensitive to the performance of a few major industrial enterprises and sectors, such as "Akron" in the chemical industry sector, "Borovitchi Fireproof Materials" in ferrous industry and enterprises in the food and wood processing sectors.

The main economic reform strategies of the oblast administration are to expand the international and commercial activities with the Baltic States and the European Union and the development of the small and medium scale

4 All the macroeconomic data analysed in this section was provided by Novgorod Oblast Statictical Committee (Novgorod oblstat) either from official statistical yearbooks of oblast "Socio-economic development of Novgorod Oblast, 1998" or calculated on consultant’s request ( for example GRP and other indicators for 1998 and 1999). 6 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

enterprise (SME) segment in order to diversify the industrial basis and cre- ate new employment opportunities.

Compared to other regions in Russia foreign direct investments (FDI) is relatively high and is similar to the levels experienced in the Baltic States.

2.2.2 Population and household expenditure By the beginning of 1999, the total population amounted to 730,000. It has been declining in recent years. 71% of the population lives in urban areas. The population of the city of Novgorod amounts to more than 230,000. Only three cities have a population of more than 25,000. Four cities account for 50% of the total population of 734,000.

No major changes are expected in the total population of the Oblast in the medium term.

About 50% of the population is economically active. Unemployment is reported to reach 15%.

Real salaries increased by 10% since 1995. Non-wage related household income constitutes a relatively high share of total household income. It is estimated by Novgorod Oblstat that 25% of the population lives below the minimum living standard. Still, the income distribution is not askew as it is generally the case in Russia.

Household expenditure on municipal services including housing rent constitutes on average about 6% of the average disposable income. Water and wastewater expenditure account for 0.4% of the average household disposable income, while solid waste expenditure accounts for 0.1%.

2.2.3 Public finances5 Total public budget own revenues (excluding federal transfers) amounted to RUR 1,780 million in 1999 corresponding to 11% of GRP compared to 14% in 1997 before the crisis of 1998.

Profit taxes accounted for 27% of all own revenues in 1999. Income taxes accounted for 19%, while various turnover and sales taxes accounted for 23% of own revenues in 1999. Natural resource taxes contributed 3% of own revenues in 1999 compared with 6% in 1997.

95% of the total public budget expenditure are used for recurrent expenditure, while the remaining 5%, corresponding to 0.5% of GRP, are destined for capital expenditure. Of total public capital expenditure, less than 20% is

5 All the data in this section was provided by the Department of Finance of Novgorod Oblast Administration. Background analysis for the regional environmental financing strategy 7 Novgorod region, the Russian Federation

used for environmental purposes. Thus, public capital expenditure for environment corresponds to 0.1% of GRP.

The financial and economic situation of the oblast is considered "average" by the Russian Ministry of Finance. This assessment is inter alia based on the region's rating on a number of measures such as the characteristics of the GRP growth rate and tax base compared to other Russian regions.

2.2.4 Financial markets6 The local financial markets are poorly developed. Total booked loans by regional banks amounted to RUR 136 million by the end of 1999, which corresponds to less than 2% of GRP. Interest rates as well as interest spreads are high.

Non-monetary transactions of industrial enterprises accounted for approximately 26% of their total revenues in 1999.

2.3 Environmental policy context The Oblast Adminstration is responsible for the overall co-ordination of the environmental policies in the region.

The regional branch of the State Committee on Environmental Protection (Goscomecologia) was responsible7 for environmental policy implementation and monitoring of pollution including enforcement of environmental regulations. A number of other institutions are involved in monitoring pollution and natural resource use in specific fields such as water abstraction, land use etc.

The main environmental programmes in the Novgorod oblast are:

• "Provision of Drinking Water to the Population of the Novgorod oblast 1999-2010"; • The federal programme "Restoration of the Volga River"; • The regional programme "Anti-chlorine";

The implementation of these programmes is delayed due to the lack of funds.

6 All the data in this section was provided by Ministry of Finance of the RF. 7 Goscomecologia was liquidated by the presidential decree on the Russian Federal government restructuring. As of August 01, 2000 it seemed that the Ministry of Natural Re- sources would be renamed Ministry of Natural Resources and Environment and would take functions of former Goscomecologia. At the regional level, the Natural Resources Committee and SCEPNO would be amalgamated. 8 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

2.4 Environmental priorities and targets Though the oblast is relatively small in economic terms compared to other oblasts in the Russian Federation, Novgorod ranked 8th in terms of toxic solid waste generation per capita, 26th in wastewater discharges per capita, and 44th in air emissions per capita in 1998 among the 89 regions in the Russian Federation.8

Key environmental These features are reflected in the environmental priorities of the region, problems which emphasise improvement in the performance with respect to:

• Drinking water supply;

• Wastewater discharges;

• Solid municipal waste collection and disposal; and

• Air emissions of dust and particulate matters.

Drinking water The number of tests that are not in compliance with drinking water quality quality standards indicates that tap water quality is a significant problem. The average share of tests in compliance with chemical standards is 77% and for biological standards the share is 88%. However, in smaller cities the inci- dence of failed tests is as high as 50-60%. The main causes of the poor water quality are the use of surface water with a heavy load of organic matters and deteriorated water distribution network (secondary pollution).

Wastewater Though all wastewater treatment facilities were constructed and commissioned as mechanical-biological facilities, a substantial number of the facilities are worn out and do not provide efficient treatment.

Sewerage connections vary between 50-90% in cities with more than 1,500 inhabitants. A major share of wastewater is discharged without proper treatment and in some cases there is no treatment at all.

The water sector suffers from years of under-investment and lack of systematic maintenance.

Solid waste With respect to solid municipal waste management and disposal, only one of the 38 landfills in the oblast fulfils EU standards (almost). The poor state of landfills is one of the main causes of soil and groundwater pollution. The collection system is insufficiently developed. The same is the case with respect to the institutional and regulatory set-up. Solid municipal waste recycling is almost zero.

Air pollution Trans-boundary air pollution is the main source of SO2 and NOx emissions. Air pollution from local mobile sources is a problem. Recent health risk

8 State Report on the State of Environment in the Russian Federation, 1999. Background analysis for the regional environmental financing strategy 9 Novgorod region, the Russian Federation

aseessment showed that in certain urban areas dust and particulate matters (PM10) is the major health risk factor related to air pollution.

Environmental The regional environmental objectives are presented in a number of key Objectives documents, e.g. the "Drinking Water Programme " and the draft "Regional Environmental Action Plan", and emphasise inter alia:

• Provision of standard quality drinking water through rehabilitation, protection, prudent use, and prevention of pollution of water sources;

• In solid municipal waste, the key objectives are to develop the regulatory framework and extend coverage; introduce waste separation for either recycling or pressing and disposal at landfills, increase waste recycling, and improve the operational and technical capacity of landfills.

No long-term objectives have been formulated with respect to air pollution.

Environmental As part of the environmental financing strategy, SMART environmental tar- Targets gets have been formulated and developed for municipal water and wastewater for urban areas in Novgorod with more than 1,500 inhabitants with a view to achieving the above long-term objectives. Targets have not been costed for solid municipal waste and air pollution.

Water supply In water supply, targets have been formulated in terms of tap water quality, regularity and coverage. The main priority of the Novgorod oblast is to improve tap water quality. A reduction in the number of failed tests to levels of 5-10% for bacterial tests and 10-30% for other tests is targeted for 2010. In addition, the oblast aims at improving service coverage by 3-6 percentage points over the period 2000-2010.

Wastewater The oblast aims at achieving sufficient and efficient municipal wastewater treatment in 2010 by applying mechanical-biological treatment. In addition, service coverage should expand by 2-3% over the period 2000-2010.

For solid municipal waste the long term objective is to increase waste collection, introduce waste separation for either recycling or pressing and disposal at landfills, and increase waste recycling. Institutional strengthening and development are key priorities. The oblast has established the medium term target to close four landfills with high capacity utilizations and construct four new landfills in compliance with EU standards, and to pilot test waste separation. However, these targets have not been costed in these background analyses.

Air With respect to air pollution, the oblast intends to reduce emissions of dust and particulate matters which are major health risk factors related to air pollution in some urban areas. These targets have neither been specified, nor costed in these background analyses. 10 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Sustainable Before aiming at higher service levels and improved environmental per- maintenance of formance, the existing water, wastewater infrastructure should be properly present infrastructure maintained. Compared to the present operations and maintenance expenditure (O&M), the O&M required to maintain the present service levels and infrastructure assets in the long run would be much higher.

Costing of The estimated investment cost of achieving the environmental targets in environmental municipal water and wastewater is RUR 2,035 million (approximately targets USD 70 million)) in December 1999 prices.

Still, the total investment costs to reach the environmental targets are only equivalent to the annual cost of maintenance and asset renewal of the presently functioning infrastructure over a five year period.

2.5 Supply of finance Supply of Financing The realistic sources for financing the environmental investments are the Consolidated Public Budget, the regional environmental funds system, bilateral donors and international financial institutions (IFIs), as well as self- financing of investment expenditure through user charges.

The Russian banking system and loan financing are not considered realistic financing sources in the short to medium term. The same is the case with financing from the Federal budget.

Public budget The public budget own revenues as a percentage of GRP reached a low of sources 11% in 1998, but is expected to recover to 14% in 2002 corresponding to RUR 2,270 million in 1999 prices. In 1999 public recurrent and capital expenditure in urban water and municipal solid waste sectors amounted to 10% of the public own revenues. The total public capital expenditure budget amounts to about 5% of total public expenditure or 0.6% of GRP. Less than 20% of public capital expenditure, or RUR 18 million of the public capital expenditure budget corresponding to 0.1% of GRP, is destined for environmental investments.

Environmental The total revenues of the environmental funds system in Novgorod Funds amounted to RUR 8 million in 1999 of which 25% was allocated to environmental investments.9

Total local resources Hence, total oblast public budget resources for environmental capital investment finance amounted to about RUR 20 million.

Bilateral donors Bilateral donors, primarily from the Nordic countries, have provided grants and IFIs for environmental projects and investments in the past. These are also the most likely sources of co-financing in the short-term. In the medium term attracting soft IFI loans will be an option. How much co-financing the oblast

9 Thus less than USD 100,000 was allocated for environmental investments from the environmental funds system Background analysis for the regional environmental financing strategy 11 Novgorod region, the Russian Federation

might attract depends inter alia on the ability to identify, prepare and market environmental project opportunities. In the long term commercial debt financing will need consideration.

Baseline supply Total financing available in the baseline is estimated at RUR 8,046 million of environmental over 2000-2020 or close to RUR 385 million annually. finance

2.6 Financing gaps Total available funding should be compared to the environmental expenditure requirements of RUR 12,579 million. The gap amounts to about RUR 4,533 million. This includes insufficient financing of the operation and maintenance. The so-called maintenance backlog thus constitutes RUR 4,533 million over the period 2000-2020 (equivalent to the financing gap in the baseline, which does not include any new investments or rehabilitation investments).

Conclusion So, in the baseline scenario a significant increase in the supply of finance is urgently needed just to provide sustainable maintenance of the present infrastructure.

2.7 Closing the financing gaps Below, we consider options for closing the gap. First, we analyse how to achieve sufficient revenues to meet the long-term operational and maintenance cost of the existing system. Then, we look at the investment financing gap. Here, we analyse, on the supply side, options to increase the available finance. On the demand side, we analyse the effects of less ambitious targets and finally, to consider some combinations of both reduced targets and increased supply of finance.

2.7.1 Closing the operations and maintenance gap Both tariff charge levels and tariff collection rate need to be increased to achieve full recovery of operational and maintenance costs.

Such a policy is being implemented in the Russian Federation aiming at achieving full O&M cost recovery tariff by year 2005. The above analysis stresses the urgency of the policy and the need even to accelerate its implementation. Otherwise, the maintenance backlog will grow reflecting further degradation of the present infrastructure.

In the strategy, reviewing existing tariff policies is proposed with a view to increasing tariffs gradually over the period 2000-2005 to achieve full cost recovery in 2005. Full cost recovery is here defined to include recovery of operational costs, maintenance costs and necessary replacement costs in order to keep the value of the infrastructure unchanged. Over the same period, 12 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

the tariff structure should be re-balanced gradually in order to phase out cross-subsidisation.

Water and For water and wastewater, the present tariff levels are 1-1.5 RUR/m3 for wastewater households and 3-6 times higher for industry and budget organisations indicating (sometimes) substantial cross-subsidisation.

Achieving sustainable operations and maintenance implies that recurrent expenditure (including operations, maintenance and necessary replacement henceforth called O&M) will have to increase to 10 RUR/m3. In order to generate additional financial resources for covering the substantial increase in O&M and to phase out operational subsidies from public budget and achieve financial sustainability of water utilities, domestic tariffs will have to increase by a factor 8, while tariffs for other users will have to increase by 30-50%.

These measures will gradually introduce economic pricing principles in the water sector for all customers. At the same time it is the most realistic approach to generate the additional financial resources required to cover the operations and maintenance gap, and move towards financial viability of water utilities. Maintaining the present tariff structure, while pushing tariff levels upwards, is not likely to generate the required additional financial resources given the past experience with collections from industry.

If the above policy is adopted, the water and wastewater tariff will reach its peak level (relative to household incomes) in 2005, when household expenditure on these services will amount to 3.7% of average disposable income. This is considered affordable for 75% of household with per capita income above minimal living standard.Still, households spend a relatively large share of disposable income on basic goods. Food expenditure constitute 55%-72% of all household expenditure. Further, tariffs for other municipal services are also relatively modest for the present, but will most likely also have to increase in the short to medium term in order to maintain service levels. This indicates that at least for 25% of households with per capita income below minimal living standard, the resulting tariffs are unlikely to be affordable. For these household targeted subsidies from the public budget or social insurance funds might be provided. If metering was introduced, these households could have the option to drastically reduce their water consumption. However, the technical and financial feasibility of a large scale metering programme has not been assessed.

2.7.2 Closing the Environmental Investment Gap Supply side measures Year 2006 is assumed to be start-up year for implementation of a capital investment programme in water sector encompassing both new investments and (in particular) rehabilitation investments. Investment are postponed to the year 2006 since the recurrent expenditure financing gap falls to zero in Background analysis for the regional environmental financing strategy 13 Novgorod region, the Russian Federation

2005. From the year 2006 and onward there is surplus which allows implementation of new capital investment programme.

There are two options:

• to take loans in the period of 2006-2010 and pay the loans back using the surplus of revenues over O&M expenditure after 2010; or

• to finance investments only from accumulated own revenues (and grants and public budgets). This will give a much slower investment profile and thus a much later achievement of environmental targets.

Preliminary If the region considers implementing the targets over the ten-year period recommendations 2000-2010, then implementation of the following policies is considered to be the main policy measure in order to increase the supply of finance for environmental investments to address accumulated maintenance backlog and close the environmental investment gap:

• Increase tariff level to the full cost recovery level by 2005. Tariff collection rate need also to be increased, while the share of non- monetary revenues in water utilities revenues need to be drastically reduced to increase «cash value» of the collected user charges;

• To keep the (real) tariffs at the peak level of 2005 in terms of share of households’ disposable income, so that household expenditure on water and wastewater services constitutes 3.7% of disposable income. This would allow water utilities (Vodokanals) to self-finance capital development eventually;

• Applying a strict policy on connection fees to finance extensions of the networks;

• Generate higher public revenues in the Novgorod region and/or commit a much higher share of the public expenditure for the purposes of financing the environmental investments;

This implies that public spending policies and priorities will have to be revised with more emphasis on capital expenditure and/or environmental investment. The analysis shows that it will not be sufficient to rely entirely on increasing the public own revenues/GRP ratio to close the gap.

• Attract more donor and IFI attention.

Demand side measures The financing gap might also be closed if most of the established targets are sacrificed, while the supply of finance remains at the baseline level. Such a scenario requires that most water and wastewater renovation programmes are cancelled. Only limited investments in new facilities might be financed 14 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

to the extent that newly connected customers are willing to pay connection fees.

2.7.3 Realistic policy scenario Supply The following policy measures are considered realistic and being applied in combination would close the financing gaps and allow to achieve the established environmental targets:

Increase the Public Own Revenues/GRP ratio to 15% by 2003 The direct effect on the financing gap is limited. The indirect effect through fiscal stabilisation may however allow the public budget priorities to be adjusted with more emphasis on capital expenditure in general and environmental investments in particular.

Achieve full O&M cost recovery by 2005 through an increase in tariffs, tariff collection rate and "cash value" of user charges collected, and complete phase-out of operational subsidies to the utilities from the public budget by 2005 Increase collection rate of non-household tariffs from the present 70% to 80% and reduce share of non-monetary revenues of water utilities from the present 50% to 25% in the period of 2000-2005. This is considered realistic if collection procedures are improved and enforcement is backed by solid administrative and political support.

Maintain tariffs in 2005-2020 at peak level of household affordability achieved in 2005 Instead of letting the average tariff follow the operations and maintenance costs, tariffs could be maintained at their peak levels, so that household expenditure on water and wastewater services on average would constitute 3.7% of households disposable income (the peak level achieved in 2005) for the period of 2005-2020. The "surplus" is reserved for self-financed capital development by the water and wastewater utilities.

Increase the public environmental investments to 5% of public own revenues This could realistically be achieved by 2005 in line with the phase-out of operational subsidies to the utilities from the public budget.

Apply a strict policy on connection fees The full capital investment cost of new connections should be covered by the newly connected users. This is deemed realistic and fair since it increases the service level and asset values (in case of private property).

Attract more grants and loans It is assumed that foreign donors will continue to provide financial support to the region in 2000-2005, amounting to a total of approximately USD 1 million in grants in each year for 2000-2001 and gradually reducing to zero in 2006. Background analysis for the regional environmental financing strategy 15 Novgorod region, the Russian Federation

It is also assumed that in the medium term (2005-2010), Novgorod Oblast will have to switch to debt financing. It is assumed that Novgorod Oblast will have access to loans packaged with the following average terms: real interest rate of 5% p.a. with 15 year payback and 3 year grace period. To bridge the gap and implement the capital investment programme needed to reach the targets it is sufficient each year to attract a loan of RUR 300 - 320 million (USD 10-11 million) annually over the period 2006-2010. The annual debt service will be less than RUR 200 million at peak, which is less than 1% of GRP or 6.5% of public own revenues. This is considered affordable. The loans could be guaranteed by the public budget and repaid using "free cash" which can be raised if water utilities are allowed to keep the increased user charges at peak of households affordability over the loans repayment period.

Combining the measures No one measure alone is sufficient to close the financing gap - only a combination of all the above measures will be sufficient. This we have called the "realistic scenario".

Though the realistic scenario is affordable from an economic and social point of view, it is not easy to implement as it requires significant tariff increase and changes in public expenditure priorities, which can be a political problem.

Nevertheless, in the Consultant’s opinion these obstacles can be overcome or eliminated if there is good political will and concordance among oblast stakeholders on the necessity and ways of the environmental targets achievement, adequate political support and appropriate co-ordination of the strategy implementation.

2.8 Conclusion The key elements for a strategy to improve the environmental performance and to achieve the environmental targets established by the Novgorod oblast are:

• Reviewing existing water and wastewater tariff policies with a view to increase tariffs gradually over the period 2000-2005 to achieve full cost recovery in 2005. Over the same period, the tariff structure should be re-balanced gradually in order to phase out cross-subsidies;.

• Reviewing the present expenditure priorities of the public budget in order to increase environmental investments.

The main conclusion is that under the present circumstances, public expenditure priorities are fundamental in achieving the environmental targets.

Other supporting measures to enhance the feasibility of the environmental financing strategy are: 16 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Supply side:

• To strengthen tax collection in order to stabilise the finances of the oblast, which should facilitate more emphasis on environmental investments;

• To introduce measures to generate additional public financial resources could also include reviewing the current asset portfolio of the oblast including the housing portfolio;

• To strengthen utility tariff collection. The financial "buffers" in the scenarios outlined in chapter 16 above depend crucially on the ability to collect tariffs. This could be improved by implementing enforcement measures towards bad debtors such as service cut-off;

• To review the operating subsidy policy of the oblast budget. These subsidies could be targeted directly to low-income households instead of utilities, thereby creating fewer distortions in costs and prices of services;

• To cover service expansion by connection fees;

Demand side:

• To reduce water demand e.g. through the installation of block meters. The latter would also facilitate the generation of improved information about the performance of the infrastructure and better management.

• The abandon the norm based system for measuring production and consumption of water for a system based on actual measurements.This is a pre-condition for proper resource and asset management including investment planning.

• To move to the much higher sustainable maintenance levels gradually and to support the process by the introduction of systematic maintenance tools such as master plans. However, this also requires much better information about system performance than is presently available;

• To promote more efficient use of the funds available through introduction of competitive bidding and procurement procedures for goods and services;

• To review the present norms and standards for environmental performance. Some of the standards are simply not achievable even with the best available technology e.g. BOD requirements. Such non-achievable standards weaken incentives for realistic improvements in performance; Background analysis for the regional environmental financing strategy 17 Novgorod region, the Russian Federation

• To provide more efforts to leverage locally available financing for environmental investments. This would require improvements in projects identification, preparation and marketing;

Promoting environmental financing in the sectors focused on here would also require institutional and regulatory adjustments

• Clearer separation of utilities and the public sector

• Creation of a suitable corporate like framework for utility operations, where managers are accountable for performance;

In order to attract additional foreign financing, the region should use its general attractiveness as a "partner" to foreign investors in order to bundle FDI packages, which incorporate environmental features. This also includes the possibilities for BOT schemes in the water, wastewater and waste sectors. This might be the only option for attracting private sector finance and involvement in the light of the present weaknesses of the environmental sectors considered her and the small size of the service area. 18 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy 19 Novgorod region, the Russian Federation

3 Macro-economic, public finance and socio-economic overview

3.1 Macroeconomic indicators Gross Regional Novgorod region is one of few regions of the Russian Federation, where real Product Gross Regional Product (GRP) has increased in recent years. Thus, real GRP in 1998 was 2.5% higher than in 1994. For Russia as a whole, GDP declined by 11% over the period 1994-1998.

Table 3.1 The development of GRP in the Novgorod oblast 1994-1998

1994 1995 1996 1997 1998 GRP, billion RUR 1.8 4.4 7.0 7.7 9.8 GRP, billion USD 0.9 1.0 1.4 1.3 1.0 Real GRP growth % p.a. … -9% 14% -5.4% 4.9% GRP as % of Russian Federation 0.3% 0.3% 0.3% 0.3% GDP Real GDP growth Russia % 12.7% -4.1% -3.6% 0.8% -4.6% Source: Figures for Novgorod are calculated by the Consultant using Statistical Annual Yearbook of RF 1999,"Socio-economic development of Novgorod oblast, 1999", Novgorod oblstat

Expected growth According to the Russian Ministry of Economy, annual real GDP growth in Russia is expected to amount to at least 2.5% per year over the medium term. Novgorod is expected to experience slightly higher growth rates than Russia on average.

Composition of GRP The main contributors to GRP are industry, agriculture and construction. The region of Novgorod is relatively well-developed in industrial terms, while industry’s share of GRP has fallen in recent years. The most significant fall was experienced in the machinery industry due to the reduction of orders for radio-electronic equipment from the defense sector and the com- petitiveness of imported electric techniques and equipment. However, industry continues to play an important role in the region. The continued relatively high share of industry is inter alia linked to the performance of a few export-oriented enterprises producing such goods as fertilizer, fireproof materials, etc. 20 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

The service sectors share of the local economy increased from 34% in 1995 to 45% in 1998 mainly reflecting an increase of the public non-market sector. Main service sectors are transport, communication, commerce, food, municipal and social services.

No major changes in the GRP structure in the Novgorod oblast are expected in the medium term, though a modest increase in industry’s share is expected. However, this depends crucially on the development prospects for a few major enterprises.

Table 3.2 The development in Novgorod GRP structure 1995-1998, %

Year Goods Services Other

Total Industry Agricul- Cons- Other Total Market services Non- ture & truction market Forestry services

Transport Commerce Other

1995 64.0 41.4 14.1 7.4 1.1 34.0 2.0 12.0 10.5 9.5 2

1998 53.5 36.3 8.3 7.7 1.2 45.1 2.8 14.0 9.8 18.5 1.4 Source: "Socio-economic development of Novgorod oblast in 1999", Novgorod oblstat, 2000; 1998 data was provided by Novgorod oblstat at the Consultant’s request

Industrial Production Major industrial sectors are energy & electricity, chemical, ferrous, forestry and wood processing, food processing and machinery industries. The industrial structure has been influenced by the existing resource endowment in the region forests, fireproof clay, limestone and quartz.

Close to half of the industrial output is chemical industry as well as fiber, wood, pulp and paper. Both sectors are potential sources of intense water pollution.

The industrial structure is characterised by the dominating position of one major enterprise in its industrial segment10. This concentration implies that environmental compliance by the largest enterprises in itself may contribute significantly to attaining environmental policy goals.

It is expected that continued growth of the chemical, wood and wood- processing industries will provide a boost to regional industrial production, but also challenges to environmental protection, in particular the protection of surface water quality.

10 Chemical industry: "Akron"; Ferrous Industry: "Borovichskij Kombinat Fireproof Materials"; Energy and Electricity: "Novgorodenergo"Food Processing "Alkon"; Wood Processing: "Parfinskij Veneer Kombinat". Background analysis for the regional environmental financing strategy 21 Novgorod region, the Russian Federation

Employment In accordance with Novgorod official statistics11 by the beginning of 1999, the labour force amounted to 357,000 corresponding to 49% of the population. The economic active population has declined by about 1% per year since the beginning of the 1990s. The same trend is observed in the Russian Federation.

The level of unemployment reached 15% in 1999. In reality, the unemployment rate is higher if "hidden" unemployment is taken into account - e.g. in 1999 22% was on "vacation" in industry and 16% was engaged temporarily.

Despite the unemployment figures, Novgorod compares favourably to other parts of Russia and the CIS. The migration inflow into the region from other Russian regions and CIS countries is expected to keep the labor force at a constant level in the medium term.

Salaries developments in nominal and real (gross) salaries are depicted in Table 3.3. Salary/wage earners get net salary which is equal to gross salary less 1% paid to the Pension Fund and less personal income tax.

Table 3.3 Nominal and real (gross) salary developments 1994-1999 in RUR

1994 1995 1996 1997 1998 1999 Average monthly salary 159 361 622 758 888 1,307 Real salary index 25.6 19.2 22.7 24.3 21.8 - (1991=100) Source: Novgorod Oblast Statistical Yearbook, 1999, "Socio-economic development of Novgorod oblast in 1999", Novgorod Oblstat, 2000

It is seen that "real" salaries have stabilised following the dramatic drop in the beginning of the 1990s.

It is also seen that average monthly salaries in 1999 were less than USD 50. Although labour productivity is also lower than in the Western European countries, unit labour costs are substantially lower in Novgorod.

3.2 Public finances

Table 3.4 Overview of public revenues and expenditure, Novgorod region 1995-99 in ´000 RUR

1995 1996 1997 1998 1999 Total revenues 835,885 1,325,691 1,747,519 1,695,974 2,138,476 Total expenditure 830,117 1,319,417 1,731,670 1,672,581 2,140,839 Budget balance 5,768 6,274 15,849 23,393 -2,363 Source: Annual reports of the Department of Finance, Novgorod Oblast administration

11 "Socio-economic development in Novgorod oblast, 1999", Novogrod oblstat, 2000 22 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

3.2.1 Public revenues Total revenues Table 3.5 presents the total public revenues of the oblast, i.e. the consolidated revenues of the Oblast Administration, local municipalities and rayons.

The total public revenues in 1999 amounted to about RUR 2.1 billion corresponding to USD 85 million. This includes budgetary ear-marked funds. 83% of all revenues were generated from own sources compared to less than 70-80% in earlier periods, where federal transfers were substantial. Federal transfers are earmarked mainly for salaries in the social and educational sectors. But in 1999-2000 inflows from the federal budget have been reduced substantially.

In real terms, public own revenues declined by 32% from 1997 to 1999.

Table 3.5 Novgorod regional revenue budget 1994-1999 (RUR´000)12

1994 1995 1996 1997 1998 1999 Total revenues 414, 686 836,885 1,325,691 1,747,519 1,695,974 2,138,476 Total revenues/GRP, 22.6% 19.0% 18.9% 22.6% 17.3% - Own revenues 287,841 641,612 933,889 1,112,821 1,093,175 1,780,828 Own revenues/GRP, - 14% 13% 14% 11% - Inflows from Federal budget 126,845 187,227 359,635 552,940 602,366 357,648 Share of federal budget trans- 31% 23% 30% 33% 36% 17% fers in total Source: "Socio-economic development of Novgorod oblast in 1999"; Novgorod Oblstat,2000; Annual reports of the Department of Finance, Novgorod Oblast administration

In 1999 "cash revenues" comprised 73% of own revenues of the consolidated Novgorod Oblast public budget.

Main revenue The main sources of own revenue over the period 1997-1999 are indicated sources in Table 3.6.

12 Excluding new loans and draw-down on working capital. Background analysis for the regional environmental financing strategy 23 Novgorod region, the Russian Federation

Table 3.6 Structure of own revenue sources 1997-1999, Novgorod region

Source 1997 1998 1999 Income tax 24% 24% 19% Profit tax 16% 16% 27% VAT 14% 14% 11% Excise and Sales Tax 7% 6% 12% Natural resource taxes 6% 4% 3% Property tax 13% 13% 9% Other 19% 23% 19% Source: Calculated based on data provided by the Department of Finance, Novgorod Oblast Ad- ministration

Natural resource taxes accounted for about 3% of own revenues in 1999 down from more than 6% in 1997.

It is important to note that in real terms, profit tax income was the main contributor to the public revenue budget in 1999. This testifies to the importance of the key industrial enterprises referred to above, in terms of generation of revenue for the consolidated oblast budget.

Two thirds of the budget in 1998 and 1999 were revenues collected and controlled by rayons and local municipalities.

Federal Transfers Two types of federal financial transfers exist: Direct transfers from the federal budget to regional administration’s budget and Co-Financing for Projects and Activities transferred through line ministries and departments.

Direct transfers The direct transfers, which are carried out in cash, accounted for 15-16% of the total revenues over the period 1997-1999. According to the revised federal financial transfer rules, it was projected that in 2000 the Novgorod region would receive RUR 370 million as transfers from the federal budget, including RUR 17 million earmarked for specific social purposes (payment of grants to citizens with children).

In the short to medium term it is not expected that significant changes will occur in the assistance from the federal budget. Hence, in the baseline sce- narion we have assumed that the transfers will amount to RUR 320-370 million annually in fixed prices.

Co-financing The funds from the federal budget transferred by line ministries and departments destined for investments are limited. Total co-financing amounted to RUR 1.3 million in 1998 and RUR 1.2 million in 1999, equivalent to approx. 50,000 USD in 1999. The main part of such funding is received according to federal programmes for the social and economic development of the region. It should be noted that not all such transfers and co-financing is reflected and accounted for in the consolidated oblast budget or in the official statistics. 24 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 3.7 Scale of Programme financing (RUR´000)

1996 1997 1998 1999 Included in budget 1,500 550 1,300 600 Actually transferred 1,500 0 900 600 % of implementation 100 0 70 100 Source: data provided by the Novgorod Oblast administration

The Federal budget has provided financing for programmes related to housing for Chernobyl NPP (Nuclear Power Plant) workers and moving citizens from the far-north of Russia to more central parts. In the water and wastewater sector, the Federal budget co-financed an anti-chlorine programme.

For the year 2000, no co-financing for projects in the region is envisaged.

Other sources One potential source of inflows from the federal budget to the regional budget is the accumulated debt of the Federal budget incurred in the process of the transfer of housing facilities to municipal property. The accumulated debt amounts to RUR 556 million (USD 20 million). This amount might be repaid to the regional budget during 200-2001, but no final scheme for this repayment has been elaborated.

The Regional administration has established four off-budget funds: Social Public Fund for Protection of Investors’ and Stockholders’ Rights; Envi- ronmental Fund; Fund for Support of Housing Construction for settlers from the Far North Region; and the Novgorod Fund for Support of Small Busi- nesses. Only the environmental fund is relevant as a source of financing for environmental projects.

3.2.2 Public expenditure Total public expenditure are given in Table 3.8.

Current expenditure accounted for 95% of total expenditure in 1999, while the remaining 5% referred to capital expenditure.

Capital expenditure were mainly spent on education (schools) and health service (hospitals) as well as housing and municipal utilities. In recent years, the share of capital expenditure for environmental investments has been less than 20 % of total capital expenditure, equivalent to less than 1 % of total regional public expenditure. Background analysis for the regional environmental financing strategy 25 Novgorod region, the Russian Federation

Table 3.8 Regional Expenditure Budget 1994-1999 (RUR’000)

1994 1995 1996 1997 1998 1999 Total expenditure - 830,117 1,319,417 1,731,670 1,672,581 2,140,839 Current Expenditure % 95% Capital expenditure % - 5% Source: data provided by the Department of Finance of the Novgorod oblast Administration

Budget 2000 In accordance with Novgorod oblast Law "On Novgorod oblast budget for 2000" RUR 118 million or 4.5% of public expenditure is allocated for capital investments in 2000 while less than 1% of public expenditure is destined for environmental protection investments.

95% of consolidated public budget is current expenditure. Subsidies to residential service companies and municipal utilities (including Vodokanals) will amount to RUR 522.5 million, about 20% of the total budget. Unfortu- nately, these public service companies and utilities have one common budget heading. It is therefore difficult to isolate the subsidies to water utilities.

According to the Budget Code Regional Public budget deficit cannot exceed 5% of the regional public budget own revenues (all revenues less transfer from the federal budget). No upper limits for borrowing has been established.

3.2.3 Investment Planning Procedure Public capital expenditure budget planning in the Novgorod region starts with an assessment of resources available for project financing on one side, and identification and costing of capital investment projects to be implemented in the following year on the other side. The extensive list of projects is considered by the Regional Administration’s Department for Construction and Investment Policy and the Department of Finance in co-operation with other interested parties. Political consideration and bargaining with the regional Duma and local administrations is an important factor affecting both the project selection and the approval process. The result of the process is the Master list of projects to be co/financed from the public budget.

The selected projects form the master list of projects to be co/financed in the following year. The list includes projects from federal and regional target programmes as well as other urgent investment projects.

Still discretionary In 1992-1998 it was general practice that approved capital development programmes lacked financing and actual financing usually was much less than planned. Several years ago it was recommended that regional budgets should have a separate budget line (called Development Fund) allocating financing for capital investments which address urgent regional economy and infrastructure development and structural reform needs. In Novgorod, 26 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

the Public budget for 2000 allocates RUR 29 million to the Development Fund, while the total public capital expenditure budget amounts to RUR 117.9 million. Capital expenditure budget planning process still depends on discretionary powers of the politicians and the planning mechanism does not guarantee that actual financing will be close to what was planned.

3.2.4 Public sector indebtedness and creditworthiness Public debt The consolidated debt of the Novgorod oblast public budget is around RUR 180 million. All debt is due to the federal government.

Department of Finance of Novgorod oblast administration expects that the debt will be set off against the above mentioned claim on the federal budget of more than RUR 556 million and the balance will be repaid to the regional budget.

Official The Russian Ministry of Finance’s methodology for assessing creditworthi- creditworthiness ness provides a relative measure of the "strength" of the region’s public finances.

The creditworthiness of the Novgorod oblast is "medium" according to the methodology. The rating is expected to improve in the year 2000.

3.2.5 Environmental fund All pollution charges and fines as well as the compensation for pollution- inflicted damages to the environment are paid to the environmental fund system.

Pollution charges and fines are allocated to the general Federal budget (10% of the total) and the balance to the local, regional and federal Environmental Funds according to the allocation key 60:30:1013. The financial resources are earmarked for the financing of environmental projects.

Using pollution charge exemptions, an enterprise can reduce its pollution fees payable to a local/regional eco-fund by an amount equal to the cost of the pollution abatement project(s) implemented by the enterprise.

13 Government Decision 442 of June 29, 1992 "On the Federal Environmental Fund (FEF) and environmental funds in the Russian Federation" Background analysis for the regional environmental financing strategy 27 Novgorod region, the Russian Federation

Table 3.9 Consolidated Resources of EFs in Novgorod region (‘000 RUR)

1996 1997 1998 Total resources 4,132 4,768 6,817 Current year cash revenue 3,617 3,613 3,300 (pollution charges, fines) Pollution charge exemptions* 2,142 1,793 1,306 Transfer from previous year 515 1155 905 Source: Statistical report "Form 1-ecofund", Goscomstat, 1997,Goscomecology RF. * is not included in EFS total resources.

In Table 3.9 "Transfer from previous years" means funds not spent last year and therefore available in the current year.

Table 3.10 Consolidated Expenditure of EFs in Novgorod region (‘000 RUR)

1996 1997 1998 Total expenditure 2,978 3,862 5,707 of which (%): Construction and modernization of envi- 25% 27% 18% ronmental protection facilities Technical assistance to environmental 38% 40% 63% committees Transfers to FEF 11% 18% 4% Other 26% 15% 15% Source: Statistical report "Form 1-ecofund", Goscomstat RF, Goscomecologia RF

An increasing share of total revenues has been spent supporting environmental committees. These transfers are made due to insufficient public budget financing. However, one implication is that the environmental funds in the Novgorod region are, and are likely to remain, largely irrelevant to the issue of environmental investment financing.

3.3 Demographic snapshot Size On 1st January 1999, the population of the region comprised 734,000 inhabitants.

Migration The population decreased by 2.6% over the period 1991-1999. The decline in the number of inhabitants before taking migration into account was about 1% per year. A positive migration balance led to a less pronounced decrease in the total number of inhabitants. Main migration flows originated from other Russian regions (48%) and nearby CIS/CEE countries.

Forecast In the short to medium term, no major changes in the number of inhabitants are expected. The natural population decrease is expected to be compen- sated by migration inflows. 28 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 3.11 Urban and rural population forecast, Novgorod region, 1995-2020

'000 persons 1995 2000 *2005 *2010 *2015 *2020 Total 741,1 736,1 730 730 730 730 Rural 217,7 214,4 212 210 208 205 Urban 523,4 522,5 518 520 522 525 Source: Socio-economic development of Novgorod oblast in 1998, 1999 * - consultant’s forecast for 2005-2020

Urban 71% of the population lives in urban areas (cities, towns and urban settle- conglomerations ments) while the balance live in rural areas.

3.4 Socio-economic features Income levels GRP per capita amounted to about USD 1,250 in 1998 which was about 30% lower than the average for Russia.

Table 3.12 GDP/GRP per capita for Russia and Novgorod Oblast.

1994 1995 1996 1997 1998 Russia (RUR) 3,584 9,562 13,349 15,362 16,513 Russia (USD) 1,868 2,348 2,910 3,056 1,867 Novgorod region (RUR) 2,464 5,948 9,490 10,488 11,048 Novgorod region (USD) 1,274 1,476 2,066 2,078 1,250 Novgorod in % of Russia 68% 62% 71% 68% 67% Source: Statistical yearbook of RF, 1999, Socio-economic development of Novgorod oblastin 1998, 1999, Novgorod oblstat ( figures in USD calculated by the Consultan)

The USD value of GDP/GRP is (naturally) highly dependent on the real exchange rate. The purchasing power parity (PPP) adjusted GDP for Russia is approximately 4,700 USD/capita.

Table 3.13 depicts the development in real income and the number of inhabitants with incomes below the official minimum level of income. Background analysis for the regional environmental financing strategy 29 Novgorod region, the Russian Federation

Table 3.13 Selected indicators of real income.

1994 1995 1996 1997 1998 1999 Novgorod region Ratio of average income to "official minimum income" 1.9 1.6 2.2 2.1 2.0 1.6 Share of population living below the 17.5 22.8 17.4 17.8 18.8 >20% "official minimum income" (%) Russia Ratio of average income to "official minimum income" 2.4 2.0 2.1 2.2 2.0 1.7 Share of population living below the 22.4 24.7 22.1 20.8 23.8 34.1 "official minimum income" Source: Statistical Yeabook of RF, 1999, Goskomstat, Socio-economic development of Novgorod oblast in 1997 and in 1999, 1998, 2000.

Income distribution Income distribution is more equal in the region than in Russia on average, and fewer people have an income lower than the minimum living standard.

We assume that the predicted income growth of the region also will lead to a decrease in the share of people with incomes below the "official minimum level". This share is expected to decline by 2-3 percentage points by the end of 2002.

Source: Consultant’s calculation based on income distribution data available in "Socio-economic development of Novgorod oblast in 1998, 1999

Figure 3.1 Lorenz curves for the Novgorod region for 1995 and 199814 The so-called Lorenz curve (figure 6.2) illustrates the income distribution in the Novgorod region. If income is completely equal the curve follows the 45o line. The more skewed the income distribution, the further away the curve is from the 45o line.

14 X-axis represents share of population in %, Y-axis represents share of income in % 30 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

As indicated in Table 3.12, income distribution has become more skewed in recent years. By international comparison the distribution of monetary income in Novgorod is still rather egalitarian. However, access to real sources in Russia is still to a large extent determined by other factors than monetary income and "price". As a result, access to real resources in the Novgorod region is likely to be more skewed than it appears from the Lorenz curve.

When considering affordability of household tariffs, income distribution is a key concern. Household tariffs may be affordable on average, but difficult to afford for the poorest households. The figure below provides another illustration of income distribution and affordability to pay for municipal services. Background analysis for the regional environmental financing strategy 31 Novgorod region, the Russian Federation

4 Financial sector overview

4.1 Federal government debt

4.1.1 Federal domestic debt Every year since 1992 Federal budget deficits have been the norm. By the beginning of 1995, the government reoriented the financing of the budget deficit from the printing press of the Central Bank to borrowing from the private sector through the issue of treasury bills (GKOs). The ratio of Fed- eral government domestic debt to GDP increased from 2.3% in 1994 to 17.9% in 1997 and then decreased to 11.5% in 1998. The reduction in the debt/GDP ratio occurred due to the severe borrowing constraints experienced after the announcement of default on GKOs in August 1998, accumulated debt devaluation due to significant RUR devaluation and high inflation after August 1998.

The 1998 default on federal government domestic debt with GKOs and some external sovereign debt instruments had an extremely negative impact on the domestic and foreign lenders and tightened borrowing constraints. In 1999, new borrowings from the domestic private sector did not exceed 2% of the GDP.

In accordance with Ministry of Finance data by the beginning of the year 2000 the Federal government’s domestic debt amounted to RUR 648.3 billion (about USD 23 billion) or 12.1% of GDP.

4.1.2 External sovereign debt of Russia Besides financing the federal budget deficit through the internal debt, the Russian government was an active borrower on the international markets before the financial crisis in 1998.

In accordance with Ministry of Finance data by January 1st 2000, the external sovereign debt of Russia amounted to USD 166.2 billion. However, USD 116 billion hereof originates from the former USSR.

The ratio between external sovereign debt and annual export revenues exceeds 220% and the ratio of external debt to GDP is about 100%. In recent 32 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

years, the Federal government allocated less than 2% of GDP for external debt servicing, but it increased to almost 3% in 1999.

The default on the Government GKOs made the negotiations on restructuring and writing off some part of the former USSR debt more difficult and tightened external borrowing constraints.

The default also affected the ability of Russian private agents, regional and local governments to borrow money abroad as many private foreign investors experienced significant losses on GKOs. This has implications for the possibility to use (foreign) private finance for environmental investments in the Novgorod region in the short and medium term.

4.2 The key instruments of financial markets in Russia The following instruments are available on the Russian financial markets:

- Bills of the Central Bank of Russia; - Foreign currencies; - Treasury bills; - Inter-bank deposits; - Commercial bank loans and deposits; - Shares and bonds of private enterprises; - Promissory notes.

Foreign currencies After the crisis, operations with foreign currencies (mainly with USD) constitute the main activity in the financial markets. Presently, the daily average turnover in the currency market in Moscow exceeds USD 250 million, i.e. three times more than before the crisis of 1998.

Table 4.1 Average annual exchange rate, RUR per 1 dollar

1992 1993 1994 1995 1996 1997 1998 1999 200015 0.23 0.89 2.14 4.56 5.12 5.79 9.78 24.60 32.00 Source:"Banking Activity Bulletin" Central Bankof RF, January 2000. (estimate for 2000).

Treasury bills The financial crisis of 1998 was launched by the announcement made by the government that it would prolong maturity and postponed interest payments on the treasury bills (GKOs). Subsequently, the government decided to temporarily cancel the trading in GKOs issued before August 1998. Investors now possess frozen assets which amount to around RUR 480 billion.

In 1999, the frozen GKOs were converted to new long-term "Innovation Papers/Bonds". During 1999, the Ministry of Finance of Russia succeeded in selling Federal bonds amounting to RUR 15 billion mainly to the finan-

15 Estimated by the Ministry of Finance Background analysis for the regional environmental financing strategy 33 Novgorod region, the Russian Federation

cial sector (largely controlled by the Central Bank). The market activity in this segment is ten times lower than in 1998.

Inter-bank deposits The volume of operation on the inter-bank deposit market has decreased since August 1998. In 1999, a limited number of banks worked in this market segment.

Commercial bank In the beginning of 2000 the Central Bank of Russia established the refi- loans and deposits nancing rate of 40% p.a.

In January 2000, listed average interest rates for commercial loans and deposits (including the Sberbank of Russia) were:

- Loans 35.9% p.a. - Deposits 10.1% p.a.

However there is a considerable difference between the interest rates depending on the credit quality, etc.

Source: :"Banking Activity Bulletin" Central Bankof RF, January 2000. (estimate for 2000). Figure 4.1 Time structure of the interest rates in January 2000

The figure illustrates that the market expects a significant reduction in the interest rate spread in the medium term.

Shares and bonds of Announced default on GKOs and the political instability in 1999 limited the private enterprises attractiveness of Russia as a target for foreign direct investments. With- drawal of foreign capital from Russia started in the fall of 1997 and acceler- ated at the end of 1998. However, in early 2000 there are signs that foreign capital flows are becoming positive again.

Promissory notes The payment crisis that followed the financial crisis stimulated the industrial enterprises’ issue of promissory notes. The total amount of promissory notes circulating on the market has increased by 100% since August 1998, amounting to RUR 70 billion (nominal); industrial enterprises’ promissory 34 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

notes account for more than 93%. However, demand only exists for the promissory notes and shares issued by the largest fuel and energy companies like JSC "Gazprom", JSC UES and LUKoil. The main aim of issuing promissory notes is to receive loans for the purpose of restoring the value of the working capital. Promissory notes may retain importance in the Russian financial markets in the medium term. In section 14.6 we briefly discuss the implications for water utility revenues

4.3 Banks operating in the Novgorod region In accordance with Central Bank of RF data, three credit institutions and twenty-nine bank subsidiaries operate in the Novgorod region. Twenty-four of the subsidiaries are registered in Moscow and St.Petersburg. The authorized capital of the three local banks operating in the region is very small: one bank has authorized capital of less than RUR 2 million, another between RUR 2 and 10 million, while the major operates with authorized capital less than RUR 40 million (less than USD 1.5 million).

By January 1st, 2000, deposits at the regional banks amounted to only RUR 65 million (USD 2.5 million). Of these, 65% were deposits nominated in hard currencies. Total booked loans amounted to RUR 136 million. Enter- prises accounted for 94% of the credits. Total accumulated bad debt related to repayment of loans comprised only 2% (RUR 2.8 million) of total loans provided. Compared to other regions of Russia, booked bad debt is relatively low.

The investment portfolio of the regional banks amounted to RUR 11.5 million (approx. USD 400,000), of which 43% is invested in shares of enterprises and 38% is invested in state securities (treasury bills).

It is clear from the above figure that financial intermediation is underdevel- oped and that the banking sector plays a very limited role in the regional economy.

Major changes in the institutional framework for the banking sector are needed before the banks can be expected to become significant financial intermediaries. The changes include, but are not limited to

• strengthening of banking supervision, making banks financial reporting more transparent;

• enforcement of the legisaltion regulating banks (the Bank Bankrupcy Law, the Bank Restructuring Law and other legal acts);

• consolidation of the banking sector in fewer, more viable units through rehabilitation of a core group of banks while liquidating a large number of nonviable banks; Background analysis for the regional environmental financing strategy 35 Novgorod region, the Russian Federation

• set-up of a bank restructuring agency (ARCO) , development and implementation of the Banks Restructuring Plan.

4.4 Non-monetary transactions in the Novgorod region During quarters 1-3 of 1999, enterprises in the Novgorod oblast collected 82% of total billing for goods and services provided to their customers in the current year. The enterprises’ current year revenue structure is presented in. Table 4.2

Table 4.2 Structure of revenues of enterprises in Novgorod region in 1999

Cash 73.7% (including cash through bank transfers) 69.4% Promissory notes (veksels) 2.6% Securities 0 Mutual settlements /offsets 22.6% Barter 0.4% Transfer of claims on third persons 0.6% Other 0.1% Total revenues of regional enterprises 100% Source: "Information on reporting status for production, works/services billed, 1999 Goscomstat of RF

Non-monetary transactions are widespread in the region, amounting to 26.3% of all transactions in 1999. Usually, "cash value" of a non-monetary mode of payment is lower than its face value. This means that the high share of non-monetary transactions affects public finance as well as the financial health of industries with the strongest impact on utilities. A survey undertaken by the Consultant in Novgorod region in 1999-2000 showed that the share of non-monetary transaction in water utilities revenues is even higher than in the regional economy on average and amounts to 35-40% of the revenues. The survey data showed that in the case of water utilities, the face value of non-monetary mode of payment on average should be discounted by 30-35% to get its cash value. This discount should be taken into consideration when assessing resources available for environmental financing in the urban water sector. 36 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy 37 Novgorod region, the Russian Federation

5 Supply of environmental finance The sections below summarise the existing main sources of environmental financing for water, wastewater and municipal solid waste.

5.1 Public sector budget As mentioned earlier, the public sector plays an important part in financing infrastructure development in Novgorod.

Responsibility for The responsibilities for financing new municipal infrastructure development financing municipal is the responsibility of the public budget, while the responsibility for asset infrastructure renewal and maintenance rests with the operating utilities and financing is development provided through tariffs.

Design and supervision of the investment programmes are typically carried out by authorized design institutes (formerly state-owned).

Operating subsidies In 1999 almost 25% or close to RUR 500 million of the consolidated public budget is destined for the municipal service sector financing. This means that just keeping the municipal sector "running" consumes a large share of the operating public budget of the region. Of this, about RUR 90 million was extended to the water and wastewater sector as operating subsidy.

Share of environ- The capital investments amounted to 5% of the public sector's own revenues mental expenditure (excluding transfers from the Federal budget) in1999. The financing avail- in public budget able for capital investments from the public budget amounts to about RUR 90 million in 2000.

Less than 20% of the public capital expenditure in 2000 was destined for capital investments in the water and wastewater sector or the solid waste business. Thus, less than RUR 25 million was destined for solid municipal waste, water and wastewater investments.

5.2 Novgorod environmental funds The environmental funds system in Novgorod is relatively small in terms of revenue generation and the prioritized expenditure are non-wage related operating subsidies to other environmental committees. 38 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

As seen in table 3.10, total EF environmental expenditure in 1998 was less than RUR 6 million, of which only about RUR 1 million was destined for environmental protection facilities. Figures for 1999 were similar in nominal terms. Thus, less than USD 40,000 was used for environmental investments. All disbursements were in the form of grants.

5.3 Domestic financial sector The key conclusion from section 4 above is that the financial sector in Rus- sia remains subdued after widespread banking failures in 1998.

The degree of "intermediation" as measured by the ratio between domestic credit provided by banks and GDP remains low compared to developed market economies and even in comparison with economies with similar income levels per capita. In the region of Novgorod, the ratio between credits provided by banks and GRP amounts to less than 2%16. In addition, the asset structure reflects that the banking sector is oriented towards financing the public sector. Interest rates and interest spreads appear prohibitively high, as indicated in chapter 4 above.

Following the crisis in 1998 several laws were enacted on the restructuring of credit institutions and insolvency of financial institutions. However, according to EBRD (1999), restructuring has been "slow, uncoordinated and inefficient".

Therefore, we have assumed that domestic debt financing will not be possible in the short and medium term.

5.4 International financial intermediaries and donors A number of international donors have supported the region with respect to environmental projects and studies in recent years.

DANCEE DANCEE provided support to three investment projects in 1995-1999. Two projects concerned the rehabilitation and expansion of the biological WWTP facilities in Novgorod (total cost about USD 2 million). The third project concerned the rehabilitation of the municipal solid waste landfill in Novgorod (total costs USD 1 million)17 .

Finland In 1994-1996, the Finish government financed a pre-feasibility study of wastewater and municipal solid waste projects in selected cities in the region and also contributed to the financing of rehabilitation of a wastewater

16 Source: calculated based on Novgorod oblstat data.

17 Here and further in the section the data is taken from Analysis of foreign environment investment funding made by SCEPNO. Background analysis for the regional environmental financing strategy 39 Novgorod region, the Russian Federation

pumping station and development of the municipal solid waste management system in Borovitchi (total costs USD 0.5 million).

Sweden The Swedish government supported the monitoring of Lake Ilmen and the rivers in the Ilmen basin with USD 120,000. In addition, the Swedish government supported the training of environmental managers.

USAID Under a USAID funded environmental programme a number of studies were undertaken including public health risk assessment related to air and water pollution. The studies identified chlor-organic substances to be the major health risk factor with respect to drinking water and dust and particular matters with respect to air pollution.

Type of financing The Nordic bilateral donors may provide grants, loans, equity and export guarantees for environmental purposes. The financing often has special procurement conditions. In addition, local co-financing in the order of 30% of investment costs is typically a minimum requirement.

5.4.1 International financial institutions EBRD In the mid-1990s, the European Bank for Reconstruction and Development prepared major investment programmes involving the Novgorod Vodokanal, the District Heating facilities under Teploenergo and municipal solid waste in the city of Novgorod. NIB and NEFCO were supposed to co-finance the project.

However, the projects have not moved closer to implementation.

World Bank The World Bank has financed two projects in the region in recent years; Replacement of about 200 old city-busses by new energy efficient and low polluting vehicles, and a project related to new housing construction.

The World Bank financing was a loan backed by a sovereign guarantee. The guarantee has been called, as the projects did not generate sufficient cash flow to ensure repayment.

5.5 Foreign direct investments The law on "Investment activity in Novgorod Region" has been adopted. It guarantees investors no deterioration in legislative terms for the activity compared to the status at the date when the investment decision was taken. In addition, the Law grants investors certain tax exemptions.

Novgorod has quite sizeable FDI compared to other regions in Russia inter alia due to its favourable FDI set-up including tax legislation and its strategic location between Moscow and St. Petersburg. Some of the investments have included sub-components directed at environmental protection (like the pre-treatment facility at the DANDY chewing gum facility). 40 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

In 1996-1998, the average FDI per capita in the Novgorod oblast was USD 80-100 per capita. This level is much higher than the average for Russia and is similar to the levels of FDI per capita achieved by the Baltic States and South Eastern European countries.

Source: EBRD 1999 Transition Report

Figure 5.1 Foreign direct investment in CEE and CIS in USD per capita

5.6 User charges

5.6.1 Tariff setting, collection and value of non-cash revenues Responsibilities According to the current legislation design, approval and implementation of the tariff policy for the services provided by the local natural monopolies are the full responsibility of local/municipal Administrations and Councils (Dumas), while federal regulation establishes a general framework (rules and principles) governing tariff setting and levels.

Tariff calculation The so-called economically justified tariff (EJT) is based on a cost plus formula18. First unit costs are calculated based on the sum of all eligible pro-

18 The Order No. 56 of Sept. 1993 of the Russian federation Committee of Municipal Economy on "Methods of calculating Economically Justified Tariffs and rates for housing and utilities services" introduced the concept of Economically Justified Tariffs (EJT) and the method of calculating the tariffs rates. It states that the EJT is calculated as: EJT = production cost * (1+T), where T is profitability mark-up, which cannot exceed 25%. The Order has established firm accounting rules that determine which expenses are allowed to be accounted as production cost items, while all other expenditure are allowed to be financed from after tax profit. The rules are based on general accounting regulation and rules, including regulation "On cost items which constitute production cost" approved by the RF Government Decisions No. 552 of 1992 and No. 661 of 1995. Background analysis for the regional environmental financing strategy 41 Novgorod region, the Russian Federation

duction costs divided by volume of water sold. Household tariffs are calculated as a share of these unit costs and household bills are based on the unit tariff multiplied by the norm consumption (metered consumption if metered). Industrial tariffs are calculated so as to cover the remaining eligible costs plus the approved "rate of profit".

The profitability mark-up for water supply and wastewater is approved by the local Administration and the Duma.

Cross-subsidies Tariffs are determined separately for the following customer groups:

• households (domestic tariff); • industries; • budget organisations and municipal enterprises/utilities.

Table 5.1 presents the historical development of water tariff rates in Borovitchi, the second largest city of the Novgorod oblast.

Table 5.1 Water supply, wastewater collection and treatment tariff rates in Borovitchi, 1995-1999 (RUR/cub m).

Jan. 1st, 95 Jan. 1st, 96 Jan. 1st, 98 Jan. 1st, 99 Water supply Households 147 566 0.51 0.67 Public sector 2,044 4,332 5.61 4.27 Industry 2,044 4,332 5.61 5.61 Wastewater collection Households 46 132 0.16 0.22 Public sector 636 1,018 1.79 1.78 Industry 636 1,018 1.79 1.79 Wastewater treatment Households 123 412 0.28 0.26 Public sector 1,394 2,845 2.96 1.03 Industry 1,394 2,845 2.96 2.96 Source: Borovitchi vodokanal.

A key feature of the applied tariff policies is substantial cross-sector subsidisation. Domestic tariffs rates have been much lower than the EJT rates, while tariff rates established for industries, budget organisations and municipal enterprises/utilities have been much higher than the EJT. In general the domestic water tariff in the Novgorod oblast was only 38% of the EJT in 1999.

The cross-subsidy index can be calculated as the ration between the household tariff and the industry tariff. An index value of 1 indicates no cross- 42 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

subsidy19. Table 5.2 presents the development in the cross-subsidy index for Borovitchi water utility. In general for Novgorod oblast the cross subsidy index is estimated to be in the range 6-8.

Table 5.2 Cross-subsidy index between customer groups, Borovitchi 1995-99

Cross subsidy Jan. 1st, 95 Jan. 1st, 96 Jan. 1st, 98 Jan. 1st, 99 Water supply 14 8 11 8 Wastewater collection 14 8 11 8 Wastewater treatment 11 7 11 11 Source: calculated by the Consultant based on data provided by vodokanals.

Tariff calculation It is assumed that the collection rate is 100% for both households and in- assumes 100% dustry. Furthermore, write-offs on bad debt is not an eligible production collection rate cost. Thus write-offs must always be paid out of "profits".

But collection rate is Unfortunately, collection rates are far from 100%. In particular many indus- 70% - 85% tries and budget organisations pay only in part and/or late.

Non-cash payments Furthermore, a significant share of the revenue collected from industry and are widespread budget organisations is paid in various non-cash forms (barter, mutual debt write-offs, veksels etc.). We have prepared a couple of case-studies which indicate that the "cash" value to Vodokanals of non-cash payments is only approximately 70% of the book value20.

As part of the assessment of the supply of finance we have assessed the billed amounts, the collected amounts and the value of non-cash payments. This is illustrated in the table below.

The total cash value of revenues collected for water and wastewater services in 1999 was 156 million RUR. For solid municipal waste total cash value of revenues was 28 million RUR.

19 Assuming that the cost of providing water to both consumer groups is the same 20 See COWI (2000): "Working Paper: Environment Related Non-monetary Transac- tions in Russia" Background analysis for the regional environmental financing strategy 43 Novgorod region, the Russian Federation

Table 5.3: Billed amounts and cash value of revenue collection, Novgorod region 1999 in million RUR

Water and wastewater Solid municipal waste Household Other con- Household Other con- consumers sumers consumers sumers Billed amount 65.0 170.0 10.0 25.0 Collection rate in % 85% 70% 85% 85% Collected amount 55.3 119.0 8.5 21.3 Ratio of non-cash payment in % 5% 50% 5% 30% Book value of non-cash payment 2.8 59.5 0.4 6.4 Cash value of non-cash payment in % 70% 70% 70% 70% Cash value of non-cash payment 1.9 41.7 0.3 4.5 Cash payments 52.5 59.5 8.1 14.9 Cash value of total payments 54.4 101.2 8.4 19.3 Sources: Novzilkomunservice for billed amounts and collection rates, COWI (2000): "Working paper on environment related non-monetary transactions" for cash value (in %) of non-cash payments

5.6.2 Tariff levels Water and wastewater Payment for water and wastewater as % of household income is low compared to international levels. On average each household spent 0.4% of household income on water and wastewater services in 1999.

The average household tariff per m3 in the region was 1.00-1.50 RUR in 1999 corresponding to less than USD 0.1/m3. Tariffs vary by water utility. The relatively low household expenditure on water and wastewater reflects inter alia that household tariffs have not been adjusted in line with inflation.

Industrial tariffs are 3-6 times higher than domestic tariffs and the region in general still relies on cross-subsidies in order to keep the domestic tariff low. Households share of total billing amounts to only 30% while households consume about 70% of water provided by water utilities.

Municipal solid waste For solid waste average household expenditure on this service is about 0.1% of average household income.

The tariff only covers the cost associated with collecting the solid waste. The remaining operating costs are covered by industry and (limited) operating subsidies from the municipal budgets.

5.6.3 Payment for municipal services and household incomes In 1998 the per capita payments for municipal services (water heating, power, rent) were still very modest, amounting to less than 4% of per capita income. However, the expenditure for municipal services is increasing. For the first 9 month of 1999, it reached approximately 5½% of the average per 44 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

capita monthly income that amounted to RUR 1,416. Table 5.4 outlines monthly charges per capita and/or per m2 for the most important municipal services. The table has been prepared assuming that on average each inhabitant has 20 m2 of housing space.

Table 5.4 Monthly charges for municipal services in 1999

RUR As % of average per capita in- come21 Drinking water and sewerage (per capita) 6.2 0.4% Heating (per 20 m2 house, apartment) 23.4 1.6% Hot water (per capita) 10.8 0.8% Electricity (per 50 kWh) 10-15 0.7-1.1% Rent (per 20 m²) 25.2 1.8% Municipal solid waste (per capita) 2.0 0.1% Total (per capita) 77-82 5.4-5.7% Source:"Social-economic development of Novgorod oblast in 1999", Novgorod oblstat, 2000.

As municipal services adjust to full cost recovery levels, the charges are likely to continue to rise faster than the growth in prices and wages. This will exacerbate the household affordability issues.

Figure 5.2 Household expenditure pattern by income group, Novgorod region 1998 The data illustrate that expenditure on food constitute 55-72% of total expenditure for all groups. According the one World Bank definition, house-

21 This has been estimated based on data for the first nine months of 1999 Background analysis for the regional environmental financing strategy 45 Novgorod region, the Russian Federation

holds are absolutely poor if food constitutes more than 70% of total expenditure. This is true for the four lowest deciles of the population of Novgorod. Thus, while household expenditure for municipal services including water are very low, the data on expenditure patterns indicate that the affordability issue is immanent.

5.7 Environmental expenditure data Data sources Table 5.5 presents a summary of environmental investment and current expenditure by media in the Novgorod oblast.

Table 5.5 Investment and current environmental expenditure developments by media (million RUR)

Environmental media 1995 1996 1997 1998 1998 share %

1.Water supply and wastewater (subtotal) 129.2 355.1 240.4 240.5 65.2

1.1. water supply (sub-subtotal) 26.0 177.5 105.5 108.7 29.5

1.1.1. investment 6.0 7.0 5.5 7.4 2.0 1.1.2. current 20.1 170.5 100.1 101.3 27.4 1.2. waste water treatment (sub-subtotal) 103.2 177.7 134.9 131.9 35.7

1.2.1. investment 17.0 24.8 21.4 27.8 7.5 1.2.2. current 86.2 152.9 113.4 104.1 28.2 2. Solid waste (subtotal) 5.2 32.2 34.9 32.4 8.8

2.1. investment 455 9.9 6.6 2.7 0.7 2.2. current 4.8 22.3 28.3 29.7 8.0 3. Air protection (subtotal) 13.8 38.9 52.3 34.0 9.2

3.1. investment 6.9 6.7 5.0 5.3 1.4 3.2. current 6.9 32.2 47.3 28.6 7.8 4. Other (subtotal) 28.8 44.8 52.5 62.0 16.8

4.1. investment 3.4 3.5 3.3 4.3 1.2 4.2. current 25.5 41.2 49.1 57.8 15.7 Total 177.1 471 380.1 368.9 100.0

Share in GRP 4.0% 6.7% 4.9% 3.8%

-of which water supply 0.6% 2.5% 1.4% 1.1%

Environmental expenditure per capita (RUR) 238 637 515 503

Source: COWI (2000): Environmental expenditure in the NIS: Russia case study report Note: The table includes all sectors (business, utilities, etc.) 46 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

The sources of funding are illustrated in Table 5.6. Environmental expenditure were calculated using official statistical formats, supplemented by questionnaires and based on the OECD methodology for environmental expenditure, see OECD (1998) as modified in COWI’s "Environmental Ex- penditure in the NIS"(2000).

Historical Expenditure for water supply and wastewater constitutes the major share developments (65%) of total environmental expenditure. The expenditure for solid waste management are likely to be is underestimated as most municipal enterprises involved in solid waste transportation and disposal did not submit official statistical formats. The category "others" mainly includes land re- cultivation, as well as "nature reserve" maintenance and some other natural resource protection activities.

Overall current expenditure exceed investments by 4-13 times. This reflects serious under-investment in this sector and high maintenance cost of old fixed assets in all "sectors".

Funding sources As is seen in Table 5.6, the main sources of environmental expenditure funding are:

• Internal funding of implementing enterprises 56.4%; • Local budgets 21.6%; • Oblast budget 8.4%.

Other sources were identified by implementing enterprises but not specified.

Funding of invest- 69% of investments in water supply but only 10% of investments in waste- ments water treatment is funded from public budgets. For the water utilities (vodokanals) 99% of investments in water supply and 12% of investments in wastewater treatment were funded from the consolidated budget. The main part of wastewater treatment investments was implemented by the chemical industry (Akron) and food enterprises, which mainly used their own sources of funding. Foreign partners contributed with 8% to wastewater investments.

Almost 88% of air protection investments and 82% of solid waste investments were funded by enterprises themselves. Local environmental funds contributed significantly to solid waste management investments (34%).

Current expenditure The consolidated budget subsidised 38% of current expenditure in water funding supply, 43% of wastewater treatment expenditure and 15% of solid waste management expenditure. Subsidies from the consolidated budget to current water supply expenditure of the Vodokanals amounted to 58% and to 55% for wastewater treatment expenditure. In other words, the vodokanals currently cover less than half of their recurrent expenditure, and these are, as noted above, depressed below the sustainable levels for maintenance and operations. Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation 47

Table 5.6 Investment and current environmental expenditure by media and funding source in 1998

Environmental media Financed by TOTAL Federal Regional Local Federal Regional Local Other Own funds of budget budget budget Eco-fund Eco-fund Eco-fund enterprises %%%%%%%note% % 1.Water protection (subtotal) 0,5 6,3 30,3 0,0 0,2 0,4 0,9 61,4 100,0 1.1. water supply (sub-subtotal) 0,3 6,9 32,6 0,0 0,0 0,0 0,0 60,2 100,0

1.1.1. investment 0,0 11,7 57,5 0,0 0,0 0,0 0,0 30,8 100,0 1.1.2. current 0,3 6,7 31,4 0,0 0,0 0,0 0,0 61,6 100,0 1.2. waste water treatment (sub-subtotal) 0,7 5,3 26,8 0,0 0,5 1,1 2,3 63,4 100,0

1.2.1. investment 2,4 1,3 6,6 0,0 1,4 4,0 8,3 foreign invest. 76,0 100,0 1.2.2. current 0,1 7 34,1 0,0 0,1 0,0 58,8 100,0 2. Solid waste (subtotal) 0,1 2,3 12,2 0,0 0,2 2,9 0,6 81,7 100,0 2.1. investment 0,0 0,0 7,7 0,0 1,4 34,1 5,6 other 51,2 100,0 2.2. current 0,1 2,7 12,6 0,0 0,1 0,0 84,4 100,0 3. Air protection (subtotal) 5,5 0,7 0,9 0,0 0,5 0,5 0,4 91,4 100,0

3.1. investment 0,0 1,9 5,8 0,0 1,3 3,3 0,0 87,7 100,0 3.2. current 6,6 1 0,0 0,0 0,4 0,0 92,1 100,0 4. Other (subtotal) 21,2 19,2 0,3 0,0 4,4 2,2 50,3 2,4 100,0 4.1. investment 13,0 11,8 0,0 0,0 2,0 6,5 52,0 other 14,7 100,0 4.2. current 21,8 19,8 0,3 0,0 4,6 1,9 50,2 other 1,5 100,0 Total 4,1 8,4 21,6 0,0 0,9 0,9 7,7 56,4 100,0 Source: COWI (2000): Russia case study report 48 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation 49

6 Environmental policy context

6.1 The regulatory framework The main regulatory framework governing supply of drinking water and wastewater treatment in the Novgorod oblast is presented in the following documents:

• Law of environmental protection, 1991 • Water code of Russia Federation, 1995 • Rules for protection of surface waters, 1991 • State standard system of Russia Federation

Water supply companies abstracting water from surface or ground sources are taxed based on unit charges.

Enterprises discharging wastewater of a non-complying quality into the municipal sewers are fined in accordance with individual agreements with the vodokanals. The vodokanals are charged (fees and fines) on the basis of their discharges.

6.2 Key environmental protection institutions22 All authorities in Russia are either state authorities (Federal or subjects of the Federation level e.g. oblast) or municipal authorities (local level). The state authorities include the Federal Ministries, Committees or Services and their affiliates in the 89 subjects of the Russian Federation. Their activities are funded from the Federal budget in some cases with co-financing from the oblast budgets. Municipal authorities are funded only from local budgets.

The institutional structure of environmental protection management as well as the roles and responsibilities of key institutions are presented below ac-

22 Description was prepared as of March 31, 2000. Since then the state committee for environmental protection has been merged at federal level with the Ministry of Natural Resources. At local level the committee for environmental protection will also be merged with the committee for natural resources. 50 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

cording to the information provided by the State Committee for Environ- mental Protection of the Novgorod Oblast (SCEPNO).

Figure 6.1 presents the institutional structure for environmental protection in the Novgorod Oblast. Eight Ministries, Committees and Services are responsible for environmental protection and resource management at the federal level. Each of them has one affiliate in the Novgorod oblast except for the Ministry of Natural resources, which has 2 affiliates – the Oblast Com- mittee on Water Resources and the Department of Mineral Resources. Af- filiates are responsible for implementation of national and regional environmental policies in the regions.

6.2.1 Overview of Roles and Responsibilities The following institutions are involved in environmental protection activities and natural resource management in the region at the oblast level:

• The State Committee for Environmental Protection of the Novgorod Oblast (SCEPNO);

• Hydro-meteorology and environmental monitoring center;

• Center of the State Sanitary-epidemiological Supervision ;

• Department of Mineral Use of the Oblast Administration’s Economic Committee;

• Committee of the Regional Water Economy;

• Committee on Land Resources and Land Use Planning;

• The Forest Management department;

• Department of Protection, Control and Regulation of Animal Hunting ;

• The Oblast Inspectorate on Protection and Reproduction of Fish Re- sources and Regulation of Fishery.

The SCEPNO is the main agency responsible for environmental protection. It implements the federal and regional environment protection policy. The last five agencies on the list implement federal and regional natural resource management and protection policies by regulating natural ressource use in terms of licensing, issuing permits, and supervising the compliance with regulations.

Responsibilities for SCEPNO shares the responsibilities for environmental monitoring with the monitoring Hydro-meteorology and Environmental Monitoring Center. SCEPNO monitors emissions, discharges and waste disposal at polluters’ sites. The Hydro-meteorology and Environmental Monitoring Center monitors the Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation 51

ambient environment quality by media (surface waters, air in cities with heavy traffic, etc.). The Center of the State Sanitary Epidemiological Super- vision monitors health: sanitary quality of drinking water in water intakes and wells, water in places of public bathing, air quality in residential areas (outside and inside the houses), etc.

Water management Waters are being managed and protected by SCEPNO, the Committee on Regional Water Economy and the Department of Mineral Use of the Oblast Administration’s Economic Committee. The latter is responsible for groundwater resource management and protection, as all waters located under a layer of soil are considered a part of ground resources.

SCEPNO is in charge of supervising the quality of wastewater discharges to surface waters and ensuring their compliance with environmental standards.

The Committee on Regional Water Economy manages surface water resources and the use of rivers and lakes for economic purposes.

A more detailed overview of key environment protection institutions in the Novgorod oblast is presented in Appendix 1. 52 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Figure 6.1 Institutional structure of environmental protection management in Novgorod oblast Background analysis for the regional environmental financing strategy 53 Novgorod region, the Russian Federation

6.3 Key environmental programmes The state environmental policy context is specified in the document "Main directions of state policy of the Russian Federation (RF) in the field of environmental protection" which covers 5 years and subsequently detailed in Action Plans of the Government of RF. Federal programmes are elaborated to implement these environmental policy options.

At the regional level such concept documents are rarely elaborated. As water problems are the most important environmental problems in the Novgorod region, the Federal programmes "Restoration of the Volga river" and "Environ- mental improvement in the Baltic sea basin" contain a Novgorod oblast subsection. The federal programme "Waste" does not specifically include the Novgorod oblast .

A quite comprehensive programme for Baltic Sea basin protection activities was prepared in 1994 specifying in detail water supply and waste water problems and options. The programme is limited to RF obligations in relation to HELCOM. However, it was approved only at the regional level and implementation started in 1995.

The Regional programme "Provision of drinking water to the population of the Novgorod oblast" identifies the main problems and objectives not only for water supply but also for waste water treatment improvement to prevent pollution of surface waters as this constitutes the main source for drinking water intake.

The regional programme "Waste" specifies the problems, objectives and activities in soil and land protection, but the programme was not approved due to the lack of budget resources. Air protection is not covered by any programmes, as it is not considered a major problem in the region.

6.3.1 The National and Regional Environmental Action Plan processes Historical The first National Environmental Action Plan (NEAP) was prepared for the background period 1998-2000. Before that, biannual Environmental Protection plans of the Government of the RF were approved by governmental resolutions. An updated NEAP for 1999-2001 is now being implemented. The Department of Environ- mental Programmes of Goscomecology is responsible for the supervision of NEAP implementation and reporting and for co-ordination of REAP development and implementation. The order of Goscomecology RF on December 31, 1998, initiated the REAP preparation process. In accordance with the recommendations on REAP development a working group is to be created including the Regional Environmental Center (REC), representatives of other authorities involved in environmental protection in the oblast, large enterprises, municipalities with the most unfavorable environmental situation and environmental funds, scientists and environmental specialists, NGOs, commercial banks and mass media. 54 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Recommendations The recommendations for REAP development specify the structure and process for REAP develop- of REAP development. ment SCEP recommends the following structure for the REAP:

• Analysis of state and trends of environment in oblast;

• Analysis of problems of environment protection management at oblast and local levels;

• Definition of priority activities for solving the main environmental problems; and

• Mechanism of implementation of REAP.

REAP development should be carried out in two stages. The first stage includes the elaboration of draft time schedule for REAP and the following documents:

• Preliminary structure (outline) of REAP;

• Preliminary formulation of objectives and targets;

• Preliminary assessments of priority environmental problems and ways of solving them;

• Terms of reference for REAP development;

• Recommendations on funding REAP development.

At the second stage the draft REAP structure is prepared. Thus, the recommended process of REAP preparation is very similar to the process of preparation of the present environmental financing strategy.

REAP working Following the Decision of the Novgorod Oblast Administration N655-rg group 09.11.99, a working group consisting of 14 members and headed by the Deputy Governor was created. The group recommended that all city and rayon administrations should prepare their proposals and submit these to the working group by December 1, 1999. Furthermore, they obliged the working group to submit the draft REAP to the Oblast Administration for approval by February 1, 2000.

The REAP 2000 is the first to be prepared in the Novgorod oblast. Before that the Environment Protection Activity Plan constituted part of the Annual Plan of Social and Economic Development of Oblast prepared and approved by the Oblast Administration annually.

Status of REAP The local administrations together with local environmental committees and Oblast Environmental Committee prepared the draft plan with subsequent contributions from other environment protection and resource management authorities in the oblast. The proposed funding from local budgets was dis- Background analysis for the regional environmental financing strategy 55 Novgorod region, the Russian Federation

cussed and agreed in each municipality involved. The draft plan is now being considered by the Economic and Financial Departments of the oblast administration to match it with other implemented programmes and the available resources from the oblast budget. It is expected that the working group will consider and take all the comments into account, and at the end of April 2000, the REAP should be approved by decision of the Novgorod Oblast Administration.

Still, the REAP is a "non-binding" document. Hence, commitments to the ini- tiation and funding of projects should be considered preliminary and subject to subsequent negotiations between project sponsors and other relevant stakeholders.

Novgorod draft The 2000-2004 draft REAP of the Novgorod oblast is presented in Appendix 2. REAP format It has the same structure as the previously prepared Environmental Activity plans within the framework of the Plans of Social and Economic Development of the oblast. It contains a table format with description of activities, timing, funding source (but not cost assessment) and responsible organisations. None of the problems, objectives and priorities are specified.

REAP structure and The REAP consists of tables for each of the five areas of intervention (cf. Ap- content pendix 2):

• Organisational activities; • Air protection; • Protection and rational use of water resources; • Soil and land resources protection; and • Environmental monitoring.

Organisational Organisational activities comprise mostly public awareness and regulatory de- activities velopment.

Air protection 11 of 17 air protection activities include conversion of boilers from coal to gas funded mainly by the implementing enterprises except municipal boilers in Sta- raya Russa, the central hospital in Okulovo and the agricultural technical school in Valdai to be funded from local budgets. The Federal Road Fund will contribute to the construction of the road Louzskoe-Nekhinskoe and finaliza- tion of construction of asphalt plant in Edrovo .

Water protection All 54 water protection activities concern stormwater and wastewater collection and treatment. Water supply and drinking water quality are not covered by the REAP at all as they are covered by the regional target programme "Provi- sion of drinking water to the population of the Novgorod oblast".

The REAP activities comprise the design of 11 projects, rehabilitation of biological treatment plants on 5 sites, construction and rehabilitation work at 13 industrial and agricultural enterprises; and 3 storm water network projects. All remaining activities are to be implemented at municipal water and wastewater enterprises, including the continuation of construction work in Novgorod and Staraya Russa, new construction of pumping stations and sewerage network in 56 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Borovitchi and Staraya Russa. All these activities are aimed at improving treatment efficiency at existing WWTPs in major towns, reduction of polluted water discharges and increase of coverage by construction of new biological WWTP in town settlements.

Soil and land Land and soil protection is carried out by rehabilitation and construction of protection landfills. Solid municipal waste management interventions constitute 22 activities out of 32 in this subsection. The reconstruction of 4 existing landfills in town settlements, location and preparation of design documents for 9 new landfills and construction of 9 new landfills have been planned. Constructions aim at solving the capacity problem and preventing leakage to the soil and groundwater.

REAP cost and An REAP cost and funding overview is presented in Table 6.1. It should be funding noted that two thirds of the funding is expected to come from enterprises. It should also be noted that the average size of projects is approximately 3.3 million RUR equivalent to USD 120,000.

Table 6.1 REAP Funding Overview in 2000 prices (million RUR)

Activity Federal Oblast Local Enterprises Other Total budget budget Budgets sources Organizational Air Protection 3 2 55 61 Water protection 2 51 123 176 Soil protection 8 30 19 10 67 Monitoring 3 4 6 Total 15 4 84 197 10 301 Source: Draft REAP for Novgorod oblast. Note: other sources includes extra-budgetary funds.

6.3.2 The Regional Target Programme "Provision of drinking water to the population of the Novgorod oblast 1999-2010" Programme The Novgorod oblast administration has prepared and approved by the Admini- Objectives stration Resolution N 214 on 31 May 1999 a programme "Provision of drinking water to the population of the Novgorod oblast 1999-2010", the general objectives of which are as follows:

• Provision of standard quality drinking water in required amounts to the population; and

• Rehabilitation, protection and prudent use of drinking water sources.

Outputs In order to achieve these objectives, the following programme outputs have been formulated: Background analysis for the regional environmental financing strategy 57 Novgorod region, the Russian Federation

• Prevention of pollution of drinking water resources;

• Improvement of efficiency and reliability of water supply systems through implementation of water protection, technical measures and development and application of new water treatment technologies at the purification facilities;

• Comprehensive use of control devices, development of legal regulations and economic tools which would encourage saving and prudent use of water.

The programme defines a number of specific targets including improvement of compliance with chemical and biological standards for drinking water. The En- vironmental Financing Strategy for Novgorod has been formulated with reference to the objectives and targets as presented in the programme.

Output indicators The following indicators were identified to monitor the programme outputs:

• A 5-8% reduction of samples showing low drinking water quality;

• Reaching the following water consumption per capita: - 1999 - 2000 – 206 lcd; - 2006 - 2010 – 213 lcd23

• A reduction of water losses in water supply network to 20% of the water pumped into the distribution system24

Co-ordinating The State enterprise "Novzhilcommunservice" is responsible for programme agency monitoring and progress reporting to the Novgorod oblast administration.

Programme funding The total programme budget amounts to RUR 762 million in 1997 prices. The largest share – 34% is planned to be financed from the local budget. The total consolidated budget contribution is planned to be 42%.

According to the plans, the source of funding from the oblast budget are:

• funds allocated for construction;

23 The programme foresees a continue increase in per capita water consumption. This is not the assumption behind the environmental financing strategy. On the contrary better maintenance, higher water tariffs, increased metering are all expected to lead to a lowering of per capita water consumption. Consequently the environmental financing strategy does not include capacity expansion as part of the strategy. 24 The environmental financing strategy has treated this objective as a statement of intent to reduce water losses in the distribution system. Most water utilities do not have a good knowledge of their water balance and consequently no good knowledge of current water losses in the distribution system. 58 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

• the oblast reserve fund for prevention and elimination of emergency situation;

• allocated funds for targeted programme "Anticlorine 1997-2000";

• revenues from water and mineral resource use taxes.

Table 6.2 Planned programme funding structure by sources (in million RUR in 1997 prices)

Source of funding Total Share (%) Federal budget 76 10 Oblast budget 61 8 Local budgets 260 34 Vodokanals and municipal economy enterprises 210 28 Non-budgetary sources 156 20 Total 762 100 Source: Regional targeted program:"Provision of drinking water to the population of the Novgorod oblast 1999-2010".

Non-budgetary sources comprise oblast and local environmental funds and foreign investments.

6.3.3 The regional target programme "Antichlorine" The programme "Antichlorine 1997-2000 " was approved by the Novgorod oblast administration on August 13th, 1997.

Programme objective The programme objective is to convert the water treatment facilities into environmentally friendly technology and phase out the use of liquid chlorine.

Programme cost The programme budget in 1997 amounted to RUR 15.4 million, of which 1/3 and funding was to be funded from the oblast budget, 1/3 from the local budget and 1/3 by implementing enterprises.

Programme progress The programme is being implemented with approximately equal funding from the three sources but is delayed due to funding problems.

6.3.4 The federal target programme "Restoration of the Volga river" Programme schedule The federal programme "Restoration of Volga" was approved by Governmental and content Resolution N95 February 2nd, 1996. The implementation is planned in 3 stages: 1997-2000, 2001-2005 and 2006-2010. The programme includes sub- programmes for each region located in the Volga basin including the Novgorod oblast. The programme comprises activities in all spheres of environmental and Background analysis for the regional environmental financing strategy 59 Novgorod region, the Russian Federation

natural resource protection which have an impact on the water quality and quantity in Volga.

Programme cost The total programme cost for the Novgorod oblast in 1996 was estimated at RUR 548 million of which 46% was supposed to be funded from the Federal budget, 51% from the oblast consolidated budget and 3% by the implementing enterprises. During the first stage nothing was allocated from the Federal budget, while local budget and implementing enterprises contributed 5% of the planned amount of funding. Programme funding was subsequently significantly reduced (to RUR 432 million in 1998 prices equivalent to RUR 187 million in 1996 prices.)

Many so-called "targeted" federal environmental programmes have similarly been significantly delayed / cut back in response to funding problems.

6.4 Solid waste management objectives The long term objectives of the region with respect to solid waste management reflect the fact that this sector is poorly developed in institutional and regulatory terms and the number of inhabitants served by centralised solid waste collection particularly in the smaller and medium sized urban areas is relatively low.

The long-term objectives are:

• Development of the regulatory framework;

• Increasing the number of households and businesses which are provided with centralised municipal solid waste collection and transportation services;

• Introducing waste separation for either recycling or pressing and disposal at lanfills;

• Increase waste recycling;

• Improving the operational and technical capacity of landfill operators and entities responsible for collection and transportation;and

• Improving the sanitary and environmental performance of existing landfills.

6.5 Relationship between ongoing programmes and the environmental financing strategy The environmental financing strategy for the municipal water and wastewater sector is intended to constitute an agreed framework25 for the capital invest-

25 Advisory committee meeting May 2000 refers. 60 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

ments in the sector. The REAP and the targeted programmes specify parts of the capital investment programme. Similarly, donor supported programmes may specify parts of the capital investment programme at a later stage.

The total cost of REAP capital investment programme (mainly for rehabilitation) in the water and wastewater sector is RUR 176 million for the five year period 2000- 2004.

The total cost over ten years of the regional targetted programme "Drinking water 2010" is estimated at RUR 762 million (1997 prices) equivalent to approximately RUR 1500 million in 1999 prices. These figures can be compared with the annual maintenance requirements calculated by the consultant together with the regional authorities using the decision support tool. These expenditure requirements are calculated at RUR 436 million (see page 91). provides an overview of the magnitudes involved.

Table 6.3 Annual planned funding of existing water programmes vs. annual expenditure requirements according to decision support tool

Programme RUR million (1999) Annual planned funding of REAP 35 Annual planned funding of programme "Drinking water 2010" 150 Total planned under targetted programmes 185 Actual capital investment 1999, approximately 50 Calculated annual expenditure requirement 436 Source: Consultant's calculation of expenditure requirment, see page 91. Consultant's assessment of actual capital investment from all sources based on 1998 environmental expenditure data, see page 45

Clearly, the challenge posed by the environmental financing strategy is substantial in terms of achieving a sufficient supply of finance to meet the capital (investment) expenditure requirements.

6.6 The structure of the water and wastewater sector Vodokanals The vodokanals are operational companies owned by municipalities. The vodokanals are responsible for municipal water supply and wastewater collection and treatment.

Residential service In addition to the nine vodokanals operating in the larger cities of the Novgorod companies oblast, there are 12 Residential Service Companies (RSC) which are in charge of water supply, wastewater collection and treatment and a number of other areas of public services including waste collection. The RSCs typically operate in urban settlements of less than 10,000 people.

Other water and In addition, a number of industrial enterprises and some army units have their wastewater suppliers own water supply and water treatment systems, which in some cases also provide services to residential areas against a service charge. For example, WWTP Background analysis for the regional environmental financing strategy 61 Novgorod region, the Russian Federation

in the City of Novgorod (the biggest in the oblast) is operated by the private industrial enterprise "AKRON".

A map indicating wastewater treatment plants and water supply facilities is at- tached as Appendix 3.

6.7 Institutional set-up - municipal solid waste The legal framework for municipal solid waste activities was established in the former USSR and many legal acts and regulations adopted before 1991 are still valid. This includes the law "On environmental protection", sanitary norms and rules (SanPiN), All-Union State Standards (GOST), which established requirements to municipal waste landfills and municipal waste collection system. To develop the legal framework a new Federal law "On waste from production and consumption" was adopted in mid-1998. It required a number of regulations to be adopted to specify and develop the framework established by the law. These specific regulations are still under preparation and are yet to be made effective.

Local regulation "The temporary rules for waste management" were approved by the regional Administration in 1994. According to the regulation, municipalities are responsible for municipal waste management. Every city and rayon has its own municipal enterprise (ME) responsible for municipal solid and liquid waste collection/removal, transportation and disposal (ME SAKH - "Spetsavtokhozay- stvo"). In many cases ME SAKH also operates municipal landfill(s).

According to current regulations all legal entities generating waste from production and/or consumption are required to obtain a special waste permit issued by the State Committee for Environmental Protection (SCEP). In addition, the entities must account and report on the actual amount of waste generation, utilisation, accumulation and disposal by type and hazard class of waste. To obtain the permit an entity/enterprise should either sign an agreement with the local ME SAKH on municipal waste removal and pay for disposal or dispose waste in its own landfill. If an enterprise transports waste to a municipal landfill it pays only for the waste disposal. All entities are required to safely transport toxic waste to disposal site by own or rented vehicles. For toxic and non- toxic waste, entities also pay pollution charges which are differentiated according to type and toxicity of waste, utilization and disposal method. Entities pay higher rates for waste generated above the approved limits and pay fines for waste disposed of illegally.

Disposing of toxic waste of hazard class 4 (the least toxic) and some types of waste of hazard class 3 at municipal landfills is allowed. Other (more toxic and/or radioactive) waste must be disposed of at special landfills.

Though waste utilisation and recycling in the region is very limited, lamps containing mercury are recycled at the "Mercury" enterprise. There is no waste incineration plant in the region. 62 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Municipal housing Residents living in municipal housing are charged a waste collection and removal tariff, which in Novgorod city amounts to RUR 2.20 (USD 0.08) per capita per month. The charge is flat and no direct measurement of waste generated by households is carried out. The tariff is established under the assumption that on average every citizen generates 1.4 m3 of solid waste per annum. The fee is paid to the Municipal Housing Maintenance Service.

There is no formal agreement between residents and ME SAKH, only indi- rectly through an agreement between ME SAKH and the municipal housing maintenance service. Before removal and disposal solid waste is collected in special containers installed at the housing buildings. Containers are generally not covered, which results in health hazards and littering. At regular intervals waste from the containers is re-loaded into special cars, then delivered and disposed at the municipal landfill.

Private cottages No institutional and regulatory structure has been established with respect to collection, removal and disposal of waste generated by residents living in private cottages. In principle, ME SAKH has to sign a separate agreement with every cottage owner. In practice, there are numerous problems such as where to install containers that will be used by several cottages, how to charge and collect tariffs for the collective good, etc.26 Similarly, the institutional and regulatory structure for integration of small business into the municipal waste management scheme is inadequate.

Tariff policy Generally, tariffs for waste removal and disposal do not cover the full cost of the services provided. Moreover in many cases entities dispose of waste at municipal landfills free of charge and/or are not required to pay for pollution caused by the disposed waste.

The waste Department of the Novgorod oblast SCEP has drafted and proposed a methodology for calculating the full cost tariff which would allow operators to cover the full cost of operations in compliance with regulations, as well as compensate for damage to environment. The process of designing the new tariff policy is proceeding slowly, and is still to be implemented.

26 Plancenter Ltd. Sewerage services and solid waste management in the Novgorod Region, 1996. Background analysis for the regional environmental financing strategy 63 Novgorod region, the Russian Federation

7 Status of the environment

7.1 Overview of key environmental problems The purpose of the present section is to provide an overview of key environmental problems in the region. These relate to drinking water quality, pollution of surface and groundwater, solid waste management and air pollution. More detailed descriptions of the urban water and wastewater are given in the following sections.

Drinking water Drinking water quality and availability are essential factors to ensure human quality health. For water supply in the Novgorod region surface and groundwater are used. Though groundwater sources are available, it accounts for less than 20% of raw water supply for drinking and communal needs, but there is a scope for using more groundwater.

Surface waters are treated by mechanical purification (settling, filtration) and disinfection by chlorine. In general drinking water does not meet the requirements of the national GOST standards in terms of colour, Fe, residual Al and chlorine concentrations at the tap, mainly due to the poor state of the distribution network. In addition, disinfection with chlorine has an adverse impact on human health due to organic substances in natural waters in the Novgorod Re- gion. For this reason, the region is planning to increase its utilisation of groundwater sources.

The Fe concentration in potable water exceeds the permissible values due to high Fe content in natural waters. The water is often corrosive. In accordance with the programme "Provision of drinking water to the population of the Novgorod oblast" renovation of 45-60% of pipelines is required. The degradation of the water supply network causes secondary pollution and inefficient resource use in terms of regular and accidental leakage. Degradation of the water supply system is caused by underinvestment in maintenance and asset renewal.

No incentive to save Water production and water consumption are not measured. The total volume water of supplied water is calculated according to norms for pipelines and pump capacities that do not provide any incentive for water saving. 64 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

When switching from surface water to groundwater it will be highly advisable to consider the impact of possible water savings on water resource use, investment and operational costs.

Wastewater Industrial and municipal wastewater discharges as well as storm water contribute severely to surface water pollution. The Novgorod oblast is located in the basins of the Baltic Sea and the Volga river catchment area. Pollution prevention activities in the region, primarily improved waste water treatment in terms of quality of discharges and coverage level, will have a positive impact on the state of the Baltic Sea and Volga river.

Under the Helcom Agreement of 1988, the Novgorod region committed itself to reducing discharges of a number of substances including organic matters, P, N, oil-products and five heavy metals by 50% over ten years. This was actually achieved in the mid-1990s by constructing a new third biological WWT line in Novgorod, new pumping stations in Borovitchi and Novgorod and rehabilitation of a number of biological WWTP supported financially by the Nordic countries. Overall untreated wastewater discharges fell from 25% in 1987 to 14% in 1999. But still untreated waste water discharges contribute significantly to surface water pollution.

The present installed wastewater treatment capacities are considered sufficient, but the operating efficiency of the facilities is considered very low. Though all the present facilities have been designed for mechanical-biological treatment facilities, many are worn out. This is evidenced by a number of cities, where BOD emissions are far above maximum allowable concentrations.

The other major problem is an insufficiently developed storm water network and storm water entering the sewerage network resulting in low concentration for biological treatment, washing out of active layers and wastewater treatment volumes above capacity. This is compounded by infiltration from other sources due to the poor conditions of the networks. The result is higher energy consumption at pumping stations and high are volumes of diluted wastewater flowing to the treatment plants.

Solid waste An inadequate regulatory framework and almost no enforcement of existing management regulations constitute the key municipal solid waste management problems. In addition lack of control with toxic waste disposal constitutes a potentially major problem.

Landfills for municipal solid waste constitute one of the main sources of groundwater and soil pollution. Of 38 operating landfills only 5 have required design documents and were properly constructed, and 2-3 operate in compliance with current regulations.

Municipal solid waste separation and recycling is almost non-existent. There is no pressing before waste disposal. This increases demand for landfill capacity. On average municipal landfill capacity is about 50% utilised, but some landfills have exceeded their capacity and severely pollute the environment. Background analysis for the regional environmental financing strategy 65 Novgorod region, the Russian Federation

Present status of Lack of funding results in poor operation and maintenance, including insuffi- landfills may lead cient registration and control of waste types, which can result in disposal of to groundwater toxic waste in landfills not suitable for this and severe toxic contamination of pollution soil and groundwater.

Rehabilitation of existing landfills not meeting standards and construction of new landfills replacing the expired capacity and the severely polluting landfills are major tasks to reduce soil and groundwater pollution from solid waste.

The main environmental problems and causes are summarized in Table 7.1.

Table 7.1 Main environmental problems and their cause.

Environmental problem Caused by Secondary pollution of drinking water and water quality non- Lack of maintenance causing degradation of compliance with standards at tap treatment plants and network High concentration of clororganic in drinking water High concentration of organic matter at surface water and treatment method used Insufficient supply of drinking water in some cities Insufficient water supply capacity and losses, not full coverage by centralised water supply systems Inefficient use of drinking water resources Excessive consumption and losses caused by lack of incentives and absence of individual metering Pollution of soil and groundwater Not full coverage of residential area by centralised sewerage systems Leakage and discharges from landfills and landfills not meeting standards Not full coverage by central collection of municipal solid waste Inadequate control with toxic waste Pollution of surface waters by municipal waste water discharges Discharges of polluted wastewater from municipal WWTP and accidental discharges due to the poor state of facilities Absence of functioning biological treatment facilities in some cities. Pollution of surface waters by storm waters Lack of storm water network and treatment facilities Urban air pollution in residential areas Coal and wood burning boilers, transport emissions

Acidity causing harmful impact on forests and surface waters Precipitation containing SO2 and NOx Source: Consultant’s own assessment based on consultations with SCEPNO

Air pollution Recent health risk assessment showed that in certain urban areas emission of dust and particulate matters (PM10) is the major health risk factor related to air pollution. The main sources of emissions are: chemical and wood-processing industries, power plant emissions and the growing quantity of vehicles. How- 66 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

ever, the main industrial polluters have gradually installed air protection facilities.

Transboundary pollution, over which the region itself has very little control, contributes the most to NOx and SOx emissions and poses a serious environmental problem for the region.

7.2 Existing situation - water supply Coverage of the In this study, analysis of water supply is limited to centralised water supply in study towns and urban settlements27. Centralised water supply constitutes approximately 60% of total water abstraction in Novgorod region. Urban water supply constitutes 95% of centralised water supply.

7.2.1 Water resource Water resources Water supply in the Novgorod oblast is provided from surface and groundwater sources. In 1998, 16% of centralised water supply was based on groundwater sources.

Decline in industrial Industry has traditionally been the main water consumer in the oblast, though consumption industrial water consumption decreased drastically due to the production decline, restructuring of the industry and decreased water intensity of the regional economy.

Raw water quality The quality of surface water in the Novgorod oblast is classified28, as semi- polluted and polluted. Allowed concentrations are mainly exceeded for oil products (3-8 times), copper (3-8 times), iron (4-5 times), and manganese (4-12 times). The surface water of Novgorod region also has very high contents of organic compounds, high bacteriological pollution, average mineralisation, low content of fluorides, high colority, and low alkanity and turbidity.

The groundwater is characterised by average mineralisation (up to 1.8 mg/l), most of the wells by high iron content (0.6-5.8 mg/l), manganese, hardness (7- 15 mg/l).

Town specific characteristics of the raw waters is illustrated in Table 7.2.

27 The status of urban settlement is granted by Oblast Administration based a number of parameters among which the size of population plays an important but not decisive role. 28 according to GOST 2761-84 "Sources of centralised water supply: sanitary and technical requirements and selection rules" Background analysis for the regional environmental financing strategy 67 Novgorod region, the Russian Federation

Table 7.2 Characteristics of water pollutants for the main cities of Novgorodregion

Town Share of Share of sur- Source of Main surface water pollut- Main groundwater face water in surface water ants ground- in the supply the supply used (river) water pollutants Novgorod 0% 100% Volkhov, at oils, coloration (up to not used Jurjevo 200 degrees), COD over 50 mg/l, oxidation up to 30 mg/dm3, magnese Borovitchi 31% 69% Msta coloration (200 degrees), Fe COD over 50 mg/l, oxidation 30 mg/dm3, Fe, magnese Staraya 96% 4% Polist' n.a. hardness Russa up to 8 mg/l, Fe - up to 1 mg/l Valday 100% 0% not used not used good quality Chudovo 9% 91% Volkhov, at coloration, oxidation - n.a. Kirishi 27 mg/dm3, magnese, Fe - 2.7 mg/l, turbidity - 9.2 mg/l, Okulovka 0% 100% Peretna at Peretna - OK, at Kho- not used (70% capacity), renka – coloration - up to Khorenka (30%) 500 degrees, oxidation, Fe up to 1 mg/l, turbidity, bacteria Pestovo 100% 0% not used not used good quality Soltsy 1% 99% Shelon' colority - up to 200 degrees, n.a. COD - up to 60mg/l, oxidation - 20 mg/dm3 M. Vishera 10% 90% M. Vishera coloration up to n.a. 500 degrees, aluminum - 0.3, hardness - up tp 11 mg/dm3, oxidation - up to 35mg/dm3 Krestsy 100% 0% not used not used Fe - up to 1 mg/l Town set- 17% 83% - - - tlements Source: Novzhilcommunservice; Drinking Water Programme.

7.2.2 Water supply treatment technology Two types Two typical structures of water treatment facilities developed during the Soviet era are used in the Novgorod oblast for surface water. The first, most widely used structure, includes mixers (with chlorination unit), sedimentation tanks, filters (rapid, sand) and water reservoirs (with chlorination unit). In the second 68 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

one, used only in Malaya Vishera, Okulovka and Soltsy, sedimentation tanks are changed to contact clarifyers

The universal treatment chemicals for surface water include coagulants and chlorine, whereas sodium and flocuants are used during flooding seasons.

The groundwater is generally not purified prior to distribution to customers, except for chlorine disinfection. Deironing is practiced only in Borovitchi, while there is also an acute need for this in Staraya Russa.The network is mainly composed of cast iron pipes (up to 80%) with an average life-time for new pipes of 15 years, steel pipes (up to 20%) and a small share of plastic pipes.

Degraded systems Degradation of the water supply systems is obvious, especially with respect to networks. Table 7.3 illustrates the "renovation rate", i.e. the share of the water supply systems which needs to be replaced to ensure that the originally designed service level in the water system is achieved.

Cause secondary The general lack of maintenance followed by degradation of both treatment pollution systems and network has resulted in some secondary pollution problems. Among the most widespread are:

• chlororganics for practically all towns and settlements using chlorine for disinfecting surface water, which contains a lot of natural dissolved organic matter and is not properly treated before disinfection; and

• secondary pollution in the network (iron, bacteria). Secondary network pollution problems have been reported as especially acute in Staraya Russa, Pestovo, Krestsy, Soltsy and a number of town settlements.

Serious violations of the sanitary requirements to the treatment processes have been observed in:

• Borovitchi (available treatment capacity is insufficient for the current water demand resulting in generally poor treatment of the supplied water);

• Chudovo (currently used sedimentation tank was built too short resulting in the treatment chemicals being flushed into the network);

• Okulovka and Soltsy (treatment chemicals are not used due to financial problems);

• M. Vishera (available treatment capacity is insufficient for the current water demand, which is why one third of the connected inhabitants are supplied with untreated water);

• Krestsy and Pestovo (violation of requirements to the sanitary protection zones of groundwater wells). Background analysis for the regional environmental financing strategy 69 Novgorod region, the Russian Federation

Table 7.3 Assessed rate of needed renovation for the water supply systems in towns and urban settlements of Norgorod Oblast, 2000. Share of system component that needs renovation in %.

Category name Network Groundwater wells and Surface water intakes treatment facilities and treatment facilities

Novgorod 20% 0% 15%

Borovitchi 20% 5% 15%

Staraya Russa 40% 20% 0%

Valday 20% 0% 0%

Chudovo 20% 15% 15%

Okulovka 20% 0% 20%

Pestovo 40% 0% 0%

Soltsy 40% 15% 15%

M. Vishera 20% 30% 30%

Krestsi 40% 20% 0%

Town settlements 30% 20% 20% Source: estimated by the Consultant based on data from Novzhilcommunservice and Regional Drinking Water 2010 Programme

7.3 Key service parameters from water supply system

7.3.1 Water quality Compliance with Degradation of the treatment systems and networks results in water quality sanitary norms problems at the household taps. Compliance with standard parameters such as chemical, biological and organoleptic (colour, smell, taste and transparency) is shown in Table 7.4 for different towns. According to the sanitary- epidemiological inspection, the average chemical standard compliance share was 83% in 1999 and the biological standard compliance share was 91%. Compliance data also reveal large variation between cities for all three standard parameters and in particular for chemical and organoleptic standards. Compli- ance data are based on samples taken from municipal water supply systems. It is estimated that compliance would be lower in samples taken from industrial water supply systems, but no data is available. 70 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 7.4 Drinking water compliance with quality standards in the Novgorod oblast, 1998 (share of samples not in compliance with standard, in percentage)

Town Share of failed tests in Share of failed tests in chemical bacteriological quality and organoleptic quality Novgorod 4% 0% Borovitchi 7% 77% Staraya Russa 7% 11% Valday 6% 0% Chudovo 8% 45% Okulovka 11% 100% Pestovo 6% 15% Soltsy 27% 0% M. Vishera 14% 54% Krestsy 24% 15% Town settlements 19% 31% Source: SCEPNO

7.3.2 Water treatment capacity and water consumption Capacity The installed and used capacity for groundwater abstraction/treatment and surface water intake and treatment is shown in Appendix 15.

With the current level of water demand/losses/production, water supply capacity is not sufficient in Borovitchi, Staraya Russa, Malaya Vishera and Krestsy. As illustrated in Table 7.5 the three later cities have household consumption that are assessed to be below 170 lcd, but (except Kretsy) all have very high losses / other uses of water. Obviously this needs to be looked at prior to any investment in expanding capacity.

In the rest of the towns water supply systems are oversized for the present water demand.

Consumption Current household and institutional water consumption is calculated as a residual after industrial consumption, which is metered. Only a small fraction of private households have installed water meters. The water production per connected inhabitant is shown in Table 7.5 and reflects large variations between Novgorod with a per capita production of 612 l/day and smaller urban settlements with a per capita production of only 74-78 l/day29.

29 Since consumption is not measured but based on knowledge of pump capacities and energy use for pumping and since there is poor knowledge of the water balance, production and consumption figures are not very reliable. However, local water supply engineers with intimate knowledge of the systems have been involved in the assessment. Background analysis for the regional environmental financing strategy 71 Novgorod region, the Russian Federation

Table 7.5 Water production and consumption in towns and urban settlements of the Novgorod oblast, 2000

Category name Number of Average popula- Total annual Annual water Estimated towns in the tion in the basis water produc- production per household con- category year tion connected pop. * sumption (number) (inhabitants) (m3 / year) (lcd) (lcd) Novgorod 1 239,047 52,854,000 612 293 Borovitchi 1 61,638 8,759,000 432 253 Staraya Russa 1 39,758 4,455,000 349 169 Valday 1 19,499 1,824,000 270 154 Chudovo 1 17,713 3,835,000 652 273 Okulovka 1 15,619 2,099,000 519 141 Pestovo 1 16,363 349,000 74 54 Soltsy 1 12,842 570,000 152 46 M. Vishera 1 14,697 1,093,000 287 169 Krestsi 1 10,60 220,000 78 53 Townsettlements 13 3,716 315,000 327 Source: based on data from Novzhilcommunservice * includes not only household consumption, but all other consumption and losses

Distribution of water production on consumption and losses is norm-based, therefore it is practically impossible to say how much water is actually lost in the process of abstraction/intake, treatment and distribution. However, even these uncertain estimates of losses show the level of deterioration in the water production and distribution systems. Total estimated water losses as a percentage of water production vary from 11% in Pestovo to 61% in Okulovka. De- tailed data are given in Appendix 7.

7.3.3 Coverage of centralised water supply The coverage of centralised water supply systems in the main cities and urban settlements of the Novgorod oblast as measured by the share of the population actually served is shown in Table 7.6. The coverage includes centralised water system as well as water standposts, the latter of which in Novgorod may serve about 2-3% of the population and up to 25% of the population in smaller urban settlements. 72 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 7.6 Centralised water supply coverage as well as length of mains and distribution system in cities and rural settlements, 1999

City Population Share of population with access to centralised water supply (including water standposts, 1999) Novgorod 239,047 99% Borovitchi 61,638 90% Staraya Russa 39,758 88% Valday 19,499 95% Chudovo 17,713 91% Okulovka 15,619 71% Pestovo 16,363 79% Soltsy 12,842 80% M. Vishera 14,697 71% Krestsy 10,601 73% Town settlements (13 Nos) 48,309 71% Total 496,086 90% Source: Novzhilkommunservice.

7.3.4 Regularity The current service level in terms of water supply regularity is defined as the share of the connected population covered by centralised water supply who enjoys 24 hours service. This is shown in Table 7.7.

Table 7.7 Water supply regularity in cities and urban settlements, 1999

City Share of population with a 24 hours service,1999 Novgorod 98.5% Borovitchi 97.5% Staraya Russa 98.0% Valday 96.0% Chudovo 97.0% Okulovka 90.0% Pestovo 98.0% Soltsy 97.0% M. Vishera 93.0% Krestsy 90.0% Town settlements 97.0% Source: Novzhilkommunservice’s estimates. Background analysis for the regional environmental financing strategy 73 Novgorod region, the Russian Federation

Lack of regularity mainly is due to technical problems in some high-rise blocks (4-5 storey buildings with insufficient water pressure from the pumping station).

7.4 Existing situation wastewater collection and treatment A description of the existing situation within urban wastewater is based on information on municipal wastewater treatment plants in the Novgorod oblast supplemented by treatment data, cost figures and pollution reduction data for industrial wastewater companies.

7.4.1 Technology Wastewater collection Table 7.8 illustrates that the storm water systems are insufficiently developed in the city of Novgorod and the remaining cities either have little or no storm water network at all

Table 7.8 Wastewater collection technology, share of system by technology.

City Single pipe Single pipe Combined Double pipe separate system open channel system separate system

Novgorod 70% 10% 10% 10% Borovitchi 100% - - - Staraya Russa 100% - - - Valday 100% - - - Chudovo 100% - - - Pestovo 100% - - - Okulovka 100% - - - Malaya Vishera 100% - - - Soltsy 100% - - - Krestsy 100% - - - 13 town settlement pop 1,500-10,000 100% - - - Source: Novzilkommunservice

Wastewater The municipal wastewater treatment facilities in 9 of 11 major cities all have treatment mechanical-biological treatment facilities installedOkulovka and Kretsy do not have functioning MB facilities, but only mechanical treatment. For the 11 small urban settlements for which information on municipal wastewater treatment facilities was obtained, 4 cities had mechanical-biological treatment facilities installed, 4 cities had mechanical treatment facilities, and 3 cities had no treatment facilities. 74 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 7.9 Amount of wastewater collected and treated, and wastewater treatment technology in cities and urban settlements (1,000m3/day), 1999

City Wastewater col- Amount of waste- Treatment lected by sewerage water treated technology Novgorod 166.2 166.2 MB Borovitchi 18.5 18.5 MB Staraya Russa 15.9 15.9 MB Valday 5.7 5.7 MB Chudovo 5.8 5.8 MB Pestovo 1.4 1.4 MB Okulovka 1.5 0.8 M Malaya Vishera 2.4 0.9 MB Soltsy 0.6 0.6 MB Krestsy 0.8 0.7 M 13 Cities with a population of 1,500-10,000 0-4.3 0-4.3 MB, M or no Source: Novzilkommunservice. In Novgorod, the industrial enterprise Akron is undertaking wastewater treatment at facilities leased by the municipality

The amounts of wastewater collected and treated as well as the installed wastewater treatment capacity of the municipal wastewater treatment facilities are shown in Appendix 7.

Installed treatment capacities are in general considered sufficient. Still, the poor state of the facilities, owing to the lack of funds for rehabilitation and under-investment, has resulted in substantial discharges of polluted wastewater.

The cities of Malaya Vishera and Krestsy have insufficient treatment capacity and discharge more than 2,000 m3 untreated wastewater on a daily basis from the municipal wastewater treatment facilities. The installed wastewater treatment capacities in the small urban settlements are in general sufficient and only a couple of municipal wastewater treatment facilities discharge untreated wastewater directly.

Despite sufficient treatment capacities in most cities an additional 30,000 m3/day storm water and wastewater is discharged without any treatment, mostly due to insufficient wastewater sewerage systems. These significant amounts of untreated wastewater are discharged from the municipal housing sector and enterprises and could potentially be collected and treated at the existing municipal wastewater treatment facilities by expanding the existing wastewater system. In many cases it would be sufficient to complete already planned or initiated construction of sewerage mains or street collectors.

The amount of wastewater collected, as indicated in Table 7.9, includes only collection at municipal sewerage plants, of which an estimated 25-30% is collected from industrial enterprises and the remaining from residential areas. Background analysis for the regional environmental financing strategy 75 Novgorod region, the Russian Federation

Old sewers The age of the mains varies from 20 years in the cities of Valday and Chudovo, to 28 years in Novgorod, 32 years in Staraya Russa, 36 years in Borovitcha and up to 89 years in Malaya Vishera. It is estimated that the share of mains and street collectors requiring replacement is higher than 50% in Novgorod and around 50% for both Staraya Russa and Malaya Vishera.

In a poor state A generally encountered problem is the poor state of the sewerage networks which in combination with the lack of storm water networks result in infiltration. This causes high pumping costs and dilution of waters into the wastewater treatment plants and reduces the efficiency of mechanical-biological treatment.

7.5 Key service parameters for wastewater collection and treatment

7.5.1 Coverage The share of the population in cities and urban settlements connected to sewerage is shown in Table 7.10 together with information on the length of the mains and the street collectors.

An average 87% of the population is connected to sewerage for the 10 major cities, ranging from less than 50% in Pestovo to 98% in Novgorod. For the small urban settlements with 1,500-10,000 inhabitants, the share of the population connected to sewerage ranges from less than 40% to 75%.

It was not possible to obtain information regarding the number or share of enterprises connected to centralised wastewater systems. 76 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 7.10 Share of population connected to the wastewater sewerage system, and length of sewerage mains and street collectors, 1999

City Population Share of Length of Length of population mains (km) street collec- connected to tors (km) sewerage (%) Novgorod 239,047 97.9 38.6 139.0 Borovitchi 61,638 78.8 16.1 39.2 Staraya Russa 39,758 80.3 17.9 34.4 Valday 19,499 82.0 1.2 8.9 Chudovo 17,713 86.4 27.9 6.0 Pestovo 16,363 48.0 14.3 9.1 Okulovka 15,619 68.6 3.0 10.9 Malaya Vishera 14,697 62.0 4.5 17.4 Soltsy 12,842 70.2 3.2 3.7 Krestsy 10,601 60.3 2.0 2.0 Cities with a population of 1,500-10,000 48,309 37-75 0-11.0 0-38.8 Source: Novzilkommunservice

7.5.2 Quality of discharges Concentration Pollution reduction or wastewater treatment efficiency in terms of measured of pollutants in concentrations of selected biological and chemical standard parameters after discharged treatment is shown in Table 7.11. The figures refer to the municipal wastewater wastewater treatment plants. It is seen that the discharges from the muncipalities of Okulovka and Kretsy have far higher concentrations of BOD than the other municipalities.

Information on remaining industrial wastewater, which is treated at industrial wastewater treatment plants, is provided in Table 7.12. Background analysis for the regional environmental financing strategy 77 Novgorod region, the Russian Federation

Table 7.11 Concentration of pollutants in discharged wastewater after treatment at the municipal wastewater treatment plants in cities and urban settlements (mg/l), 1999

City BOD SS N N/NH4 P Novgorod 6.1 30.0 16.3 1.2 1.5 Borovitchi 4.9 8.3 10.0 10.0 1.6 Staraya Russa 13.8 7.2 8.9 9.0 1.7 Valday 7.1 10.7 9.3 9.3 1.6 Chudovo 6.3 7.0 n/a n/a 1.3 Pestovo 10.9 4.1 11.1 11.2 2.3 Okulovka 49.2 30.6 19.6 19.6 1.5 Malaya Vishera 12.9 13.2 7.4 7.5 0.9 Soltsy 11.2 7.6 7.2 7.2 0.7 Krestsy 48.6 20.7 8.4 7.2 1.4 Cities with a population of 1,500-10,000 n/a n/a n/a n/a n/a Source: Water Resources Department, SCEPNO

Table 7.12 Concentration of pollutants in discharged wastewater after treatment at the major industrial wastewater treatment plants in cities and urban settlements, 1999

Amount of BOD SS N N/NH4 P waste-water (mg/l) (mg/l) (mg/l) (mg/l) (mg/l) treated (1000 m3/day) Novgorod, Akron (chemical fertilisers) 166.2 6.1 30.0 16.3 1.2 1.5 Okulovka, Pulp and paper factory 2.3 18.8 12.3 0.5 0.5 0.1 Soltsy, Military base 1.2 54.4 26.0 11.5 10.0 1.8 Borovitchi, Paper-mill 0.7 21.5 14.5 0.7 0.5 0.1 Pestovo, Mechanical plant 0.7 7.6 14.4 0.5 0.2 0.1 Valday, Jupiter factory 0.4 6.7 6.4 0.4 0.1 0.1 Source: Water Resources Department, SCEPNO.

Akron utilises mechanical-biological treatment with Nitrogen removal. The wastewater treatment plants in Okulovka and Soltsy utilise mechanical- biological treatment and the remaining mechanical treatment.

In addition to the above information on industrial wastewater treatment, a number of industrial enterprises discharge wastewater without treatment. 78 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Background analysis for the regional environmental financing strategy 79 Novgorod region, the Russian Federation

8 Formulation of environmental targets

8.1 Introduction The environmental financing strategy for the municipal water and wastewater as well as municipal solid waste sectors is based on environmental targets, which are specific, measurable, accepted, realistic and time-bound (SMART). SMART medium term environmental targets for the region of Novgorod have been formulated with the target year 2010.

For the Novgorod oblast, targets have been formulated for five specific groups of urban areas (by size);

• Urban areas with 1,500-10,000 inhabitants; • Urban areas with 10,000-25,000 inhabitants; • Urban areas with 25,000-50,000 inhabitants; • Urban areas with 50,000-100,000 inhabitants; and • Urban areas with more than 100,000 inhabitants.

Given the demographics of the oblast and the limited number of larger urban areas, few urban areas qualify for inclusion in the high population stratas. The oblast has 10 cities with more than 10,000 inhabitants. Specific targets for the three main cities i.e. with more than 25,000 inhabitants are formulated below, while targets for cities with 1,500-10,000 and 10,000-25,000 in general have been formulated as average target values for each group of cities.

8.2 Summary of the selected targets The specific targets, for each of the two environmental media are presented below.

8.2.1 Water supply The programme "Drinking water 2010" formulates the output: "to improve efficiency and reliability of water supply systems". Based hereon, we have formulated specific targets in terms of water quality at the tap, service coverage and regularity of supply. 80 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Water quality has been measured and targets formulated as the percentage of water quality test which is in non-compliance with sanitary norms and standards.

Regularity of supply has been defined as the percentage of connected population with 24 hours water supply.

Service coverage defines the percentage of the population which is served by centralised water supply defined to include in-house taps as well as outdoor standposts within a range of 200 meters from the household.

Table 8.1outlines the targets for water quality.

Table 8.1 Target for water quality 2010

Category City Existing situation Target 2010 Tests in non- Tests in non-compliance, less than: compliance (%) Bacteria Chemical & Bacteria Chemical & Water quality im- organoleptic organoleptic provement >100,000 Novgorod 3.8% 2% - required 50,000-100,000 Borovitchi 6.8% 77% 3% 52% required 25,000-50,000 Staraya 7.0% 11% 5% 10% required Russa 10,000-25,000 Valday 6.1% - not required M. Vishera 14.2% 54% required Chudovo 8.4% 45% required Okulovka 10.9% 100% required Pestovo 5.5% 15% not required Soltsy 26.8% required Krestsi 24.0% 15% required Average - - 10% 30% 1,50010,000 All town- 17.4% 56% 14.5% 30% required settlements Source: The existing situation data was provided by Novzhilcommunservice and Center on Sanitarian and Epidemiological Suprvision of Novgorod oblast, the targets were approved by the Advisory Committee, See appendix for composition of Committee Notes: Bacteriological analysis: Colititor (latest faecal pollution) Chemical analysis: pH, Fe, Al, hardness, solid sediment, sulphates, chlorides. Organoleptic: Transparency, smell, color index.

To fulfil the targets both the biological and the chemical quality of water supply will have to be improved in most cities in the region. Biological quality is linked in particular (but not solely) to secondary pollution, while chemical quality in particular (but not solely) is linked to the quality of the raw water source and the treatment processes Background analysis for the regional environmental financing strategy 81 Novgorod region, the Russian Federation

Table 8.2 presents the targets for water supply service coverage for 2010 (under assumption that the population in the urban areas will not grow).

Table 8.2 Water supply service coverage for 2010

Category City Existing situation Target Expanded coverage >100,000 Novgorod 99% 99% not required 50,000-100,000 Borovitchi 90% 93% required 25,000-50,000 Staraya Russa 88% 90% required 10,000-25,000 Valday 95% 95% not required M. Vishera 71% 86% required Chudovo 91% 91% not required Okulovka 71% 86% required Pestovo 79% 86% required Soltsy 80% 86% required Krestsi 73% 86% required Average 80% 86% required 1,500-10,000 All town-settlements 71% 80% required Source: The existing situation data was provided by Novzhilcommunservice, the targets were approved by the Advisory Committee

The table illustrates that the region has a fairly ambitious target to expand coverage with piped water supply (including standposts) to at least 86% in the medium sized cities and to 80% in the smaller municipalities. However, as a consequence of the size of the cities, and the high coverage in the existing situation, the number of extra people to be served is less than 15,000 persons.

Table 8.3 presents the targets for regularity of supply. 82 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 8.3 Target for regularity of supply 2010

Category City Existing Target Improvement of situation regularity >100,000 Novgorod 98,5% 99% required 50,000-100,000 Borovitchi 97,5% 99% required 25,000-50,000 Staraya Russa 98% 99% required 10,000-25,000 Valday 96% 97% required M. Vishera 93% 97% required Chudovo 97% 97% not required Okulovka 90% 97% required Pestovo 98% 99% required Soltsy 97% 99% required Krestsi 90% 98,5% required 1,500-10,000 All town settlements 70,9% 98,5% required Source: The existing situation data was provided by Novzhilkommunservice, the targets were approved by the Advisory Committee

8.2.2 Wastewater The specific targets for wastewater have been formulated as an operationalisa- tion of one of the so-called outputs in the regional targetted programme "Drinking water 2010". The relevant output: "To prevent pollution of drinking water resources" has been specified as indicated below. The targets also relate to the continued efforts to reduce pollution of the Volga river and the Baltic Sea. Specific measurable and time-bound targets have been established in relation to:

• The quality of discharged wastewater as measured by BOD and SS; and

• Service coverage i.e. the percentage of the population connected to the centralised sewerage system.

The targets formulated in terms of BOD and SS concentrations were trans- formed into technological standards, cf. Table 8.4. It should be noted that this implies a continued acceptance of temporary MAE (maximum allowable emissions) that deviate from the much more stringent requirements that are still included in federal legislation.

Table 8.5 presents the established targets for 2010. Background analysis for the regional environmental financing strategy 83 Novgorod region, the Russian Federation

Table 8.4 Targets 2010 for Wastewater Treatment

Category Name of urban area Existing situation Target 2010

BOD SS Applied treatment technology BOD SS Targeted treatment Capacity modernisation/ reno- (mg/l) (ml/l) (mg/l) (ml/l) technology vation/ replacement required

>100,000 Novgorod (Akron) - - MB - - MB required

50,000-100,000 Borovitchi 4.9 8.3 MB - - MB required

25,000-50,000 Staraya Russa 13.8 7.2 MB - - MB required

10,000-25,000 Valday 7.14 10.7 MB MB required

M. Vishera 12.9 13.15 MB MB required

Chudovo 6.35 9.96 MB MB required

Okulovka 49.2 30.6 M MB* required

Pestovo 10.9 4.14 MB 15 12 MB required

Soltsy (average) 32.8 16.8 M 15 12 MB** required

Krestsi 48.6 20.7 MB 15 12 MB required

Average 25 15 MB MB required

1,500-10,000 All town-settlements 35 13.5 M/ MB*** 15 12 MB required Source: The existing situation data was provided by Novzhilcommunservice and SCEPNO, the targets were approved by the Advisory Committee

Notes: M - mechanical treatment, MB - mechanical-biological treatment; * - upgrading the existing M treatment plant to MB; ** - replacing the existing M treatment plant with new MB (1200 m3/day); *** - 70% is treated at M treatment plants, 30% - at MB treatment plants. 84 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 8.5 Targets for service coverage wastewater collection

Category City Existing Target 2010 Extension required? situation >100,000 Novgorod 97.9% 98% required 50,000-100,000 Borovitchi 78.8% 80% required 25,000-50,000 Staraya Russa 80.3% 82% required 10,000-25,000 Valday 82% not required M. Vishera 86% not required Chudovo 82% not required Okulovka 69% required Pestovo 48% required Soltsy 70% required Krestsi 60% required Average - 72% 1,500-10,000 All town-settlements 66% 62% Source: The existing situation data was provided by Novzhilcommunservice (See Table 7.10). The targets were approved by the Advisory Committee

In the subsequent chapters funds available and needed for the medium term environmental targets achievement are assessed. Background analysis for the regional environmental financing strategy 85 Novgorod region, the Russian Federation

9 Baseline scenario The following sections outline so-called "Baseline Scenario". On the demand side it presents the operations and maintenance (O&M) expenditure levels that are required to maintain and preserve the existing infrastructure. The costs only relate to the up-keeping of the present infrastructure without any additions, so that just not to allow further fixed assets degradation and service level decline. On the supply side it presents total finance available if financing from all local sources remains at present (1999) level in real terms.

The baseline scenario is based on the number of assumptions described in the subsequent sections.

The scenario is instrumental in illustrating whether present supply of finance is sufficient to cover the O&M cost of the present infrastructure and whether there is room for any environmental investments in order to meet the environmental targets specified in section 9 and 10 above.

The costing of the environmental targets described in the preceding section and the resulting demand for finance gaps as well as policies to bridge the initial financing gap are described and assessed in the following chapters.

9.1 Macroeconomic forecast The supply of environmental finance as well as the demand for environmental expenditure depends inter alia on the development in a number of key macroeconomic indicators such as real GDP, population etc.

The present section describes projected macroeconomic developments in the region of Novgorod. The forecast is based on the historical data presented in chapters 3 and 6 above.30

Real indicators Table 9.1 presents the projected developments in the main real variables i.e. real GRP growth, population growth and the unemployment rate. 1999 is the base year in the real indicators projection. In addition, nominal GRP per capita is presented together with the share of salaries in the gross regional product.

30 The definition of the so-called baseline scenario are described in greater detail in Appen- dix 5. 86 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Projection period Macroeconomic indicators are depicted in the table for the projection period, which covers 2000-2020.

Stable growth The macroeconomic forecast assumes that the Russian economy enters into a stable growth scenario where inflation and exchange rates are stabilized and the economy is not hit by major external chocks or enters into vicious cycles.

Macroeconomic Key assumptions on the main macroeconomic indicators presented below are forecast used in all used in all other scenarios further in the strategy. scenarios Key assumptions As indicated in table 13.1, the following main assumptions have been applied in the subsequent sections:

Real GDP (GRP) Real growth in the region in 1999 was substantially higher than in Russia overall. However, it has been assumed that the growth rates will converge and approach the level of 3% per year from the year 2000 and onwards.31

Public own revenues as % of gross regional product reached a low of 11% in 1998 reflecting the public finance and tax collection crisis. It has been assumed that the ratio "Public own revenues/GRP" recovers gradually to 13% in 2001 and stabilizing at 14% in 2002 that equals the level experienced in 1997. Though this might seem optimistic, the approved regional budget for 2000 indicates that the ratio is expected to reach 12% in 2000 inter alia as a result of the introduction of a number of new sales taxes and more efficient tax collection.

Population The population is expected to decline by a modest 0.2% over the next five years before stabilizing in the year 2005. This is in line with official population forecast.

Unemployment Unemployment is assumed to remain at the present level of 15% throughout the projection period. Actual unemployment is likely to be higher than official statistics reflecting continued "under-employment".

Salary share of GDP The wage share (remuneration to labour) of GRP is expected to increase from its present low level of 40%. Wage share of GRP is assumed to increase by 1% annually until stabilizing at 48% in 200732.

Salaries Real salaries (wages) are assumed to follow the development in real gross regional product adjusted for the increasing share of GRP. Nominal wages are adjusted assuming to follow the consumer price index.

31 This rate of growth may be on the conservative side given the technological potential for Russia to catch up and the mineral resource base of the economy. For example, IMF (1999) projects 4.6% average real GDP growth per year in transition economies over the period 2001-2004. 32 OECD countries have values around 50%. The assumption about the increasing share of salaries in GRP is relevant for assessing the development in future household incomes and affordability. Background analysis for the regional environmental financing strategy 87 Novgorod region, the Russian Federation

Household incomes In Table 9.3 the development in household incomes is depicted. It is assumed that on average each household consists of 2.8 persons with 1.4 wage earner per household. In 1999, about 50% of household incomes consisted of non- wage related incomes. This has been maintained in the projections though with a minor decrease of 3-4% over the projection period.

Prices Nominal macroeconomic indicators are presented in Table 9.2, i.e. inflation as measured by the consumer price index (end year and annual average) and the average annual exchange rate estimated on the basis of inflation differentials between domestic and foreign inflation.

Domestic inflation is expected to come down from its very high levels in 1998 and 1999, gradually achieving a long-term level of 8%. Foreign inflation is assumed constant at 2.5% throughout the projection period.

Exchange rate We have assumed an unchanged real exchange rate. In other words the exchange rate is assumed to follow the difference between domestic and foreign inflation rates. This implies a further depreciation of the nominal exchange rate. 88 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Table 9.1 Macro-economic forecast

Indicator/year 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 estimate Real GDP growth Russia (%) 3.2% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 2.5% 3.0% 3.0% 3.0% 3.0% Real GRP growth Novgorod (%) 5.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Population growth (%) 0.0% -0.2% -0.2% -0.2% -0.2% 0.0% 0.0% -----

Nominal GRP per capita (RUR) 21,065 27,010 32,473 38,035 43,768 49,815 56,440 63,946 72,121 80,598 89,657 99,735

Share of salaries in GRP (%) 40% 41% 42% 43% 44% 45% 46% 47% 48% 48% 48% 48%

Unemployment rate (%) 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%

Indicator/year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Real GDP growth Russia (%) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Real GRP growth Novgorod (%) 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

Population growth (%) ------

Nominal GRP per capita (RUR) 110,945 123,415 137,287 152,718 169,884 188,979 210,220 233,849 260,133 289,372

Share of salaries in GRP (%) 48% 48% 48% 48% 48% 48% 48% 48% 48% 48%

Unemployment rate (%) 15% 15% 15% 15% 15% 15% 15% 15% 15% 15%

Source of Tables 9.1-9.3: Consultant’s calculations based on the presented above assumptions. Background analysis for the regional environmental financing strategy 89 Novgorod region, the Russian Federation

Table 9.2 Prices and Exchange rates 2000-2020

fåÇáÅ~íçêLóÉ~ê NVVV OMMM OMMN OMMO OMMP OMMQ OMMR OMMS OMMT OMMU OMMV OMNM Éëíáã~íÉ fåÑä~íáçå=`mf=EÉåÇ=óÉ~êF PMKUB NUKMB NRKMB NOB NNB NMB NMB NMB VB UB UB UB mêáÅÉ=áåÇÉñ=EÉåÇ=óÉ~êF NMMKM NNUKM NPRKT NROKM NSUKT NURKS OMQKN OOQKR OQQKU OSQKP OURKR PMUKP

^îÉê~ÖÉ=~ååì~ä=áåÑä~íáçå=oro RMB OQB NSB NPB NNB NMB NMB NMB VB UB UB UB ^îÉê~ÖÉ=mêáÅÉ=fåÇÉñ NMMKM NOQKO NQQKT NSQKO NUPKN OMOKQ OOOKS OQQKV OSUKN OVMKV PNQKO PPVKP tçêäÇ=áåÑä~íáçå=E~îÉê~ÖÉ=~ååì~äF OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB

oroLrpa=E~îÉê~ÖÉ=~ååì~äF OQKS POKM PSKR QMKR QQKN QTKT RNKO RRKN RUKV SOKR SRKV SVKR

oro=ï~ÖÉë=EB=ÖêçïíÜF OVKOB ONKOB NUKNB NSKMB NRKMB NQKQB NQKQB NPKVB NNKUB NNKOB NNKOB oÉ~ä=oro=ï~ÖÉë=EB=ÖêçïíÜF SKUB QKMB QKMB QKMB QKMB QKMB QKMB QKMB QKMB PKMB PKMB PKMB

Table 9.3 Development in population, nominal salary and average household income

fåÇáÅ~íçêLóÉ~ê OMNN OMNO OMNP OMNQ OMNR OMNS OMNT OMNU OMNV OMOM

fåÑä~íáçå=`mf=EÉåÇ=óÉ~êF UB UB UB UB UB UB UB UB UB UB mêáÅÉ=áåÇÉñ=EÉåÇ=óÉ~êF PPPKM PRVKS PUUKQ QNVKR QRPKM QUVKP ROUKQ RTMKT SNSKP SSRKS

^îÉê~ÖÉ=~ååì~ä=áåÑä~íáçå=oro UBUBUBUBUBUBUBUBUBUB ^îÉê~ÖÉ=mêáÅÉ=fåÇÉñ PSSKQ PVRKU QOTKQ QSNKS QVUKR RPUKQ RUNKR SOUKM STUKP TPOKR tçêäÇ=áåÑä~íáçå=E~îÉê~ÖÉ=~ååì~äF OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB OKRB

oroLrpa=E~îÉê~ÖÉ=~ååì~äF TPKP TTKQ UNKS USKN VMKV VRKV NMNKN NMSKT NNOKS NNUKU

oro=ï~ÖÉë=EB=ÖêçïíÜF NNKOB NNKOB NNKOB NNKOB NNKOB NNKOB NNKOB NNKOB NNKOB NNKOB oÉ~ä=oro=ï~ÖÉë=EB=ÖêçïíÜF PKMB PKMB PKMB PKMB PKMB PKMB PKMB PKMB PKMB PKMB

Source: Consultant’s calculations based the presented above assumptions. 90 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

fåÇáÅ~íçêLóÉ~ NVVV OMMM OMMN OMMO OMMP OMMQ OMMR OMMS OMMT OMMU OMMV OMNM OMNN OMNO ê EÉëíáã~íÉF mçéìä~íáçå TPQIMMM TPOIRPO TPNIMST TOVISMR TOUINQS TOUINQS TOUINQS TOUINQS TOUINQS TOUINQS TOUINQS TOUINQS TOUINQS TOUINQS

^îÉê~ÖÉ=~ååì~ä=ë~ä~êó=EoroF NTIOMU OOIOQM OSIVRN PNIUOM PSIVMV QOIQOT QUIRRN RRIRRU SPIOUT TMITOS TUISTR UTIRNU VTIPRS NMUIOVU

^îÉê~ÖÉ=ÜçìëÉÜçäÇ=áåÅçãÉ QTIRTU SNINUQ TPITTT USISTQ NMMIMQN NNQIQPT NPMIPNT NQUIQMP NSUIOPR NUUIMMV OMVINQN OPOISQU ORUITVU OUTIUUT EoroF Source: Consultant’s calculations based on the presented above assumptions. Background analysis for the regional environmental financing strategy 91 Novgorod region, the Russian Federation

9.2 Baseline environmental expenditure needs

9.2.1 Key assumptions33 Four key assumptions have been applied when estimating the expenditure needs in the baseline scenario.

Operating costs Operating costs are assessed based on international experience with the volume of labour, chemicals, power, spares etc. required to operated the systems. This international experience is then modified to reflect the real situation in Novgorod oblast by taking into account labour productivity relative to international (Western Europe) productivity, pump efficiency etc. Finally, prices of each of the major operational inputs are corrected to reflect Novgorod oblast price levels (wages, energy prices, price of chemicals etc.) On this basis the consultant has assessed that the current operating costs are fairly close to what international experience would suggest. This is also supported by the observa- tion that the systems in general seem to be operated on a full scale, although there are isolated observations of chemicals not been applied due to lack of funding etc. The operating costs used throughout the forecast period remain unchanged and are identical to the observed level in 1998 in real terms34.

Maintenance Required maintenance is defined as the level of maintenance required to preserve the present infrastructure in the state it is in now and not to allow further deterioration. Thus maintenance includes replacements and asset renewal, which are required to maintain and conserve the present infrastructure and service levels. In terms of the figure below we have assumed maintenance at current level, see (see Figure 9.1).

The maintenance cost thus defined do not include any rehabilitation to design levels. For example, if a wastewater treatment plant designed for mechanical and biological treatment is only operational for mechanical treatment, maintenance implies keeping it operational for mechanical treatment, but not rehabilitating to do mechanical and biological treatment.

Based on international experience we have assumed that this requires on average that annual maintenance amounts to 2.5-3% of the replacement costs of the assets35.

33 Please also refer to Appendix 5 for a presentation of the standard assumptions of a baseline scenario. 34 1998 is the latest year for which cost information is available. 35 This corresponds to an implicit assumption of an average lifetime of the water supply and wastewater systems of 33 - 40 years. 92 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Figure 9.1 Maintenance, rehabilitation and degradation

Water demand Water demand remains unchanged at the present high level. Total water demand in the urban areas encompassed by the present study amounted to 56 million m3 per annum. Households accounted for 70% of consumption in 1998. This may be a conservative assumption. On the other hand, industrial water demand has decreased significantly together with the fall in production and there will be an upward pressure, when production increases. Household water demand is very high, but an effective incentive for consumers to save water would probably require substantial investments in individual meters combined with water savings campaigns etc. We have not included any such investments in the baseline scenario.

9.3 Baseline supply of finance Sources of financing Given the characteristics and the weaknesses of the Russian banking sector and the financial and institutional difficulties facing the municipal sector, it is not considered realistic within the foreseeable future that the domestic banking system will be able or willing to contribute to the long term financing of the infrastructure sector.

In the medium to longer term, it might be possible to tap financial markets using municipal bonds or actively using the ability of the public budget to guarantee funding provided by the financial sector.

Furthermore, obtaining major financial contributions from the Federal budget is not considered realistic.

Hence, the realistic domestic sources of environmental financing is financing from the consolidated regional public budget (possibly as co-financing in projects supported by international donors) supplemented with the limited re- Background analysis for the regional environmental financing strategy 93 Novgorod region, the Russian Federation

sources available from the local environmental fund system and eventually self-financing by the Vodokanals and municipal service enterprises.

9.3.1 Key assumptions The following key assumptions have been applied when estimating the baseline supply of finance for the urban water and municipal solid waste sectors:

Unchanged public expenditure priorities Public expenditure and capital investment priorities remain unchanged. Thus public expenditure to the sector grows in line with total public expenditure which again grows in line with GRP;

In 1999 public recurrent and capital expenditure in urban water and municipal solid waste sectors amounted to 10% of the public own revenues in Novgorod region. In the baseline scenario it has been assumed that the share of the public environmental expenditure in the sectors in question will remain the same during the projection period.

Less than 20% of the public capital expenditure in 1999, corresponding to 1% of the public sector’s own revenues, was destined for capital investments in the waste and wastewater sector or the solid waste business. The oblast administration expects that this share will remain unchanged in the medium term. The Advisory Committee indicated that a realistic level of financing from the public budget for environmental investments in the water, wastewater (and solid waste) sectors corresponds to about 20% of the annual public capital expenditure, i.e. about RUR 20-30 million in real terms annually. This amount of funds would be available for co-financing investment projects.

Cash value of user charges In the baseline it is assumed that user charges remain unchanged in real terms. It is also assumed that collection rates remain unchanged and that the share of revenue collected in cash from each consumer group is unchanged. Finally, it is assumed that the ratio of the "book value" of non-cash payments to cash value remains unchanged. In consequence the "cash value" of the user charges collected will remain at present level of about RUR 183 million (1999 RUR in real terms) during the projection period.

Financing from local public sources In the projection it has been assumed that the polution charges are adjusted in line with annual average inflation with a one-year lag, collection efficiency and the total emissions remain constant. RUR 8-13 million of the ecofunds money will be available for environmental investments in the long term (year 2005- 2010). However, as a result of present spending priorities and the pollution charges exemption scheme, only RUR 3 million in real terms will be available annually from the EF system for co-financing investment projects.

In short it has been assumed that financing from other local sources (ecofunds, etc.) remains at present level in real terms; 94 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Financing from external sources In the baseline it has been assumed that no foreign grants and loans are attracted.

9.4 The baseline scenario results Appendix 6 presents the details of the baseline scenario, while the key features are summarised in Table 9.4.

Table 9.4 Baseline expenditure requirements, supply of finance and financing gap

Million of 1999 RUR 2000 2001 2002 2003 2004 2005 2010 2015 2020

Baseline expenditure requirements Operational 163 163 163 163 163 163 163 163 163 Sustainable maintenance 436 436 436 436 436 436 436 436 436 Total expenditure requirement 599 599 599 599 599 599 599 599 599 Baseline supply of finance Public budget 137 154 158 176 181 186 216 250 290 Environmental Funds 333333333 User charges 156 156 156 156 156 156 156 156 156 Including households 54 54 54 54 54 54 54 54 54 Including other users 101 101 101 101 101 101 101 101 101 International grants 000000000 International loans 000000000 Total financing available for 296 312 316 334 339 345 374 409 449 the water sector Baseline financing gap 302 287 282 265 259 254 224 190 150 Financing available as % of 49% 52% 53% 56% 57% 58% 62% 68% 75% expenditure requirement User charges as % of opera- 95% 95% 95% 95% 95% 95% 95% 95% 95% tional expenditure User charges as % of total 26% 26% 26% 26% 26% 26% 26% 26% 26% expenditure requirement Backlog 295 575 849 1,107 1,359 1,606 2,752 3,736 4,533 Source: Calculated by the Consultant using the Decision Support Tool on the basis of the assumptions presented above.

Compare operational We compare the expenditure requirements as calculated using the decision requirements with support tool with the current actual expenditure for water and wastewater actual operational services in Novgorod region (See Table 5.5). The model calculations indicate expenditure that the operational expenditure requirements are RUR 163 million in 1999, while Table 5.5 indicates that operational expenditures were approximately RUR 210 million already in the year 1998. This may indicate that some maintenance costs (in our understanding of maintenance) are registered as operational costs in the books of the water utility, or it may indicate that our model Background analysis for the regional environmental financing strategy 95 Novgorod region, the Russian Federation

calculations underestimate the operational expenditure requirement. Judging from the detailed figures, both factors probably contribute to the observed fairly low operational expenditure requirement that follows from using the decision support tool.

We compare the expenditure requirements as calculated using the decision support tool with the current actual expenditure for water and wastewater services in Novgorod region (See Table 5.5). The model calculations indicate that the operational expenditure requirements are RUR 436 million in 1999, while Table 5.5 indicates that operational expenditures were approximately RUR 35 million in the year 1998. This indicates that current level of maintenance is far from the required level of maintenance. Even if part of the costs booked as operational costs are really pipe replacements and similar maintenance costs it is clear that the current level of maintenance is much lower than that which is required to preserve the current infrastructure.

User charges and Table 9.4 illustrates that the present revenues from users is not quite sufficient operations to cover operational cost. In the baseline scenario we have assumed that user revenues stay constant in real terms. However, there a policy is being implemented in the Russian Federation aimed at achieving full O&M cost recovery tariffs by year 2005. The above analysis stresses the urgency of the policy and the need even to accelerate its implementation. Otherwise, the maintenance backlog will grow reflecting further degradation of the present infrastructure.

Public budget Reflecting the operational subsidies from the public budget, total financing is subsidies larger than operational costs. We have assumed that public budget financing stays constant as a share of total public expenditure. Therefore public budget financing for the water sector grows in the baseline scenario, as GRP grows, leading to growth in public revenues and expenditure. However this growth of financing is not sufficient to eliminate the financing gap in the 20 year projection period of the baseline.

Backlog As a result each year contributes to a backlog of maintenance. The total maintenance backlog from year 2000 to 2020 is calculated at RUR 4,533 million. Eventually, this will result in a complete breakdown of the systems unless policy measures are taken. The maintenance backlog is a monetary estimate of the degree of asset degradation and dis-investment which will take place in the projection period if no action is undertaken.

Conclusion from the It is clear from the baseline that a significant increase in the supply of finance baseline scenario is urgently needed just to provide sustainable maintenance of the present infrastructure. The Novgorod authorities have stated that such maintenance (including replacement of worn out capital goods) should take precedence over environmental targets which require infrastructure development and/or extension.

Little sensitivity to Above, it has been assumed that GRP growth remains stable at 3% p.a. over the higher GRP-growth entire projection period. If economic growth in Novgorod "takes off" by 2005, gradually increases to 6% p.a. in 2007 and remains at this level until 2010, 96 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

other things equal, the available supply of financing will increase by a modest 4% accumulated over the period 2000-2010. Thus, at best higher GRP growth may provide a relief to the financing gap in the long run. Background analysis for the regional environmental financing strategy 97 Novgorod region, the Russian Federation

10 Bridging the financing gap and the realistic scenario An investment programme is affordable if and only if Novgorod oblast can provide enough funds to sustain both the old and the new infrastructure also after the capital investment programme implementation period.

It is therefore necessary to identify, assess and implement realistic policy options which can bridge the financing gaps and reduce the maintenance backlog to zero within the projection period. Options to increase the supply of finance are identified in Section 10.1.

However, increased financing relies crucially on the increased allocations from the public budget and increased payments by household consumers. This in turn is likely to be politically feasible only if there is some improvement of the level of service offered.

An improved level of service has is implied by the environmental targets described in Section 8.2. The targets imply certain investment expenditure and will also result in another level of operational costs. A detailed assessment of both investment expenditure and the resulting new operational and maintenance expenditure has been made and presented in Section 10.2.

Section 10.4 then discusses how to bridge the financing gap. The section point to the need to combine a number of measures into the so-called "Realistic Sce- nario".

10.1 Options for increasing the supply of finance The required adjustments in the supply of finance are high, if the environmental targets are to be achieved by year 2010. The possible contributions are presented and discussed below.

10.1.1 Novgorod Consolidated Public Budget Increased tax revenues Revenue structure The possibilities for increased public investment expenditure through increased tax revenues need to be carefully reviewed. Still, the ability to increase public revenues depends not only on the proposed changes in the federal tax legisla- 98 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

tion, but to a large extent on the profitability of a few major industrial ventures in the region and the ability to close a number of loopholes and tax evasion possibilities for enterprises and wage earners. Profit taxes accounted for more than 25% of public own revenues in 1999, while income taxes accounted for less than 20% compared to about 25% one year earlier.

Property taxes Revenues from property taxes could be increased by improving and strengthening collection efforts e.g. through enhanced follow-up on arrears and more extended use of legal enforcement.

Excise taxes Excise taxes on alcohol, tobacco and gasoline could be increased. Collection rates are poor in these areas due to significant illegal turnover. However, improving collection rates would entail a need for further quality and on-site con- trols by the tax authorities.

With respect to natural resource taxation, both tax rates and collection rates (<70%) are low.

Hence, an optimistic scenario would entail 10-15% higher public revenues in real terms in the medium term on top of what is projected to materialise as a result of the positive GRP developments. In the medium term the Public Own Revenue/GRP ratio could attain levels of 16-17%. Still, this requires more efficient tax control and enforcement.

Furthermore, even in case such an increase in revenue materialises, fiscal consolidation and the overall spending priorities will have an impact on the finance available for environmental investments.

Increased share of investment expenditure Total capital The Advisory Committee has indicated willingness to co-finance environ- expenditure budget mental projects to the tune of 1% from the Annual Public Budget, corresponding to 20% of the total public capital expenditure budget of the oblast.

How much it is possible/advisable to increase the share of the investment expenditure in the total budget depends crucially on the ability to increase the Tax/GRP ratio.

The ratio of public capital expenditure to GRP amounted to 0.8-0.9% in 1998 and 1999, which is significantly lower than experienced at country level in other middle-income countries as indicated in Figure 10.1 below.

Provided that the regional budget improves its revenue base and achieves fiscal consolidation in the near term, increasing the capital expenditure budget of the region from the present 5% to 10% of total public expenditure seems realistic. This would imply a ratio of public capital expenditure to GRP in Novgorod of approximately 2%, which is still low by international standards. Background analysis for the regional environmental financing strategy 99 Novgorod region, the Russian Federation

Figure 10.1 Public capital expenditure as a share of GDP in different countries

Source: A. Markandya, P. Francis (1999): Non-Russian data: Promoting Private Sector Participation in the Financing of Sustainable Development Russian data: COWI (2000): Environmental expenditures in the NIS: Russian case study report.

Revised public expenditure priorities At the same time, it should be possible to revise the priorities for public expenditure. The main share of public budget expenditure relates to housing, education and public health. It is estimated that 30% of the public capital expenditure budget presently is used for housing maintenance and construction.

Relieving public The municipalities/rayons remain owners of the housing infrastructure, mainly budgets large apartment blocks. One option would be to privatize the housing sector completely through the establishment of condominiums and relieve the public budget of the expenditure related to housing maintenance.

Improved efficiency Further, more effective and transparent procurement procedures actively pro- in public expenditure moting competitive bidding for works and services could result in savings. management

10.1.2 Phasing-out operational subsidies Phasing-out As soon as tariffs move to the full cost recovery level, demand for operational operational subsidies from the public budget to the municipal water utilities and solid subsidies waste operators will go down. The free money can be reallocated for environmental capital investments.

Summary In conclusion, the above mentioned adjustments in the spending priorities could increase public environmental investment expenditure to 5-6% of total public expenditure. Even so, it would constitute less than 1% of GRP.

10.1.3 Increased "cash value" of the user charges collected To increase «cash value» of the collected user charges two measures should be applied: 100 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

• Non-households consumers tariff collection rate need to be increased from its present low level; and

• The share of non-monetary revenues in vodokanal revenues need to be drastically reduced.

If in the period of 2000-2005 to increase collection rate of non-household tariffs from 70% to 80% and reduce share of non-monetary revenues from 50% to 25%, other things equal, these would bring at least RUR 600 million of additional financing in the projection period.

Several municipalities in Russia have household collection rates of 80% and above. This requires establishment of a billing system which is perceived by household customers as uncomplicated and which implies direct payment to the Vodokanal or another organisation, where the risk of abuse of funds or de- lays in passing the liquidity on to Vodokanals is minimal.

The ability to reduce the share of non-monetary revenues to Vodokanals will depend on the regional fiscal consolidation as well as federal initiatives aimed at reducing non-monetary payments by public institutions. However, the very high rates of non-monetary payments experienced are recent and proper policy initiatives and (in particular) fiscal consolidation should be a good basis to achieve a significant reduction in the share of non-cash payments. Of course the large dependency of the region of Novogorod on a few large enterprises implies that the financial health of these enterprises is also an important pa- rameter in ensuring a higher share of cash payments (at least in the short to medium term).

10.1.4 Increased support from donors and IFIs Increased support from donors and international financial institutions (IFI) could be attained through a number of measures:

• A clearly articulated strategy and action plan for each of the environmental media would promote donor and IFI involvement.

• Establishment of a suitable mechanism for project identification, formulation and preparation.

• Attracting soft medium-term loans is crucial if the environmental targets are to be reached by 2010. The loans would be paid back in 2011-2020.

• The regional authorities could use public guarantees more actively in the pursuit of external financing. This could assist the region in easing existing cash constraints and would to a certain extent assist implicitly in making the existing portfolio of public assets more liquid. However, great care has to be exercised when using public guarantees. Guarantees require sophisti- cated assessments of the risk of potential future expenditure which such guarantees entail. The regional authorities should carefully assess whether Background analysis for the regional environmental financing strategy 101 Novgorod region, the Russian Federation

they have such technical and financial expertise in - house or whether they can purchase such expertise prior to making added use of guarantees.

10.1.5 Private sector involvement in municipal infrastructure Private sector involvement in the operations and financing of municipal infrastructure should be considered as an option to attract more "attention" and finance.

Such public-private partnerships are gaining increasing attention internationally as a way of improving efficiency of operations and service levels, attracting capital for up-grading infrastructure, phase out public sector subsidies and improving financial performance.

It is not considered realistic to ask for increased private sector involvement in the short term. Still, build-operate-transfer and similar green-field arrangements could be tested on a pilot basis in certain areas, e.g. solid waste landfills, water and wastewater treatment facilities. However, this is critically dependent on the general investment climate, including legal framework in the region, but depend less on the institutional and regulatory framework with respect to e.g. the compensation of the operator of such infrastructure (tariff policies).

These types of arrangements might be actively promoted by the region as part of foreign direct investment programs i.e. environmental investments are included in the package of foreign direct investment. The investor is ensured full cost recovery of the operating and capital costs associated with the environmental investments.

Outsourcing the management and operations of existing operational facilities will be harder to achieve given the less than full cost recovery tariffs, the high dependence on non-monetary transactions, the blurred sector structure, etc.

Still, it should be possible to opt for low-risk public partnerships such as management contracts subject to legislative possibilities, which transfer limited risk to the private sector, but at the same time are low-risk in political terms due to their short-term nature. It would constitute a "strong" signal to donors and IFIs with respect to the region's commitment to reform and improve the existing infrastructure and service levels.

10.2 Environmental targets and the resulting expenditure The environmental targets presented in Section 8.2 are rather ambitious both in terms of expanding service coverage, especially for water supply, and in terms of the quality standards for (tap) water, wastewater treatment and the environmental standards to be fulfilled by municipal solid waste landfills. 102 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

The applied assumptions for estimating the costs of reaching the environmental targets and the implied asset development profiles for each environmental media is described in the following sections.

10.2.1 Water supply Key assumptions Water consumption The average reported water production per connected inhabitant amounted to per capita 490 l/c/d in 1998. As a result of the substantial tariff increases over the period 2000-2005, it has been assumed that water production decreases to 305 l/c/d. This might be the case if 30-40% of the domestic customers acquires individual meters (at their own expense) and consumption responds to the introduction of economic pricing principles.

Water consumption For industry and budget organisations, it is assumed that consumption declines by industry by 25% from its present levels as the tariff is adjusted upwards by 30% for industries and by 30-100% for budget organisations in real terms over the period 2000-2005.

Share of In line with the "Drinking water program", it is assumed that in Borovitchi, groundwater Malaya Vishera and town settlements the share of the groundwater supply will increase to 50% of water supply, while the installed treatment capacity for surface water remains unchanged.

Key results Investment demand New capital investments needed to achieve the strategy targets in water supply will cost about RUR 1,490 million.

The substantial investments in water treatment, etc. concern mainly substitution of surface water by groundwater and renovation of water treatment facilities. These measures are required in order to address the high chemical and biological content in raw water. Better quality of the water pumped into the network will also be achieved by applying effective chemicals (coagulants etc.) but this will only slightly increase this operation cost item and will not require substantial capital investments.

The investment cost estimates also indicate that the most significant asset development issue is network rehabilitation, which is essential in addressing secondary pollution in highly deteriorated water distribution networks. The extent of the renovation corresponds to replacing about 35-40% of the water distribution network over a ten-year period. In combination with the expected reduction in water demand this would reduce water losses in the water distribution system by at least 30% of the current losses (in cub.m.).

For water supply, the average annual capital investment expenditure needed to reach the environmental targets amount to RUR 135 million over 2000-2010. This is less than the approximately RUR 200 million annually on average required for maintenance and capital repairs just to maintain existing assets and service levels. Background analysis for the regional environmental financing strategy 103 Novgorod region, the Russian Federation

10.2.2 Wastewater Key Assumptions Wastewater Wastewater discharges from households and industries decrease proportionally discharged to water demand.

Targeted WWTP The targeted wastewater treatment technology for all cities and urban area technology categories included in the strategy is mechanical-biological treatment (MB).

Key results Investment demand Total cost of investment programme to achieve targets in wastewater treatment is estimated at RUR 272 million. The substantial investments in wastewater treatment concern mainly rehabilitation of existing WWTP in order that they could provide efficient MB technology treatment.

The investment cost estimates also indicate that the most costly asset development issue is network rehabilitation. For all the urban areas included in the strategy, 15-20% of the sewerage network is renovated, while extension of the network will not exceed 2%. Connection of new consumers (households and industries) to existing WWTP, which already provide efficient wastewater treatment facilities, will improve the quality of the wastewater discharged after treatment.

For wastewater, the average annual capital investment expenditure needed to reach the environmental targets amounts is also less than the approximately RUR 230 million annually required for maintenance and capital repairs just to maintain existing assets and service levels.

Plus maintenance It should be noted that the total investment needs calculated above do not in- backlog clude the accumulated maintenance backlog, which accumulates over the period 2000-2004, where maintenance is only gradually catching with the sustainable levels. The accumulated backlog over this period in the baseline scenario is RUR 1,359 million or about 3/4 of the estimated investment costs of reaching the environmental targets.36

10.3 Financing gap in the realistic scenario This section illustrates the financing gap in the so-called realistic scenario. The key assumptions of the realistic scenario are described below.

Key assumptions The environmental targets listed in Section 8.2 are to be achieved by the end of year 2010.

36 Still, two features imply that this is likely to "over-estimate" the accumulated backlog over the period 2000-2005. First, asset degradation is not a continuous process and it might link directly to service levels. Further, there might be increasing returns on the initial adjustments towards sustainable maintenance levels e.g. interventions, which aim at stabilizing operational performance by replacing weak key elements in networks. 104 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Macroeconomic indicators follow the development in accordance with macroeconomic forecast presented in Section 9.1.

Supply of environmental finance is assumed at the baseline scenario level, plus additional funds raised by implementing the policy of gradual tariffs increase to the full cost recovery level by 2005. Moving fast to the full cost recovery from the user charges is a pre-condition to be able to finance any programme (targets) which require renovation or extension of the infrastructure.

Year 2006 is assumed to be start-up year for implementation of new capital investment programme in the water supply and wastewater sector. This reflects the profile of the recurrent expenditure financing gap which falls down to zero in 2005 and from year 2006 and onward there is surplus which allows implementation of new capital investment programme.

The financing gap depicted in Table 10.1 presupposes that environmental targets are to be achieved in 2010 with start-up for water programme in 2006 and the supply of environmental investment finance remains at the baseline level outlined above plus additional funds raised by implementing the policy of gradual tariffs increase to the full cost recovery level by 2005. Background analysis for the regional environmental financing strategy 105 Novgorod region, the Russian Federation

Table 10.1 Realistic scenario expenditure requirements, supply of finance and financing gap

Million of 1999 RUR 2000 2001 2002 2003 2004 2005 2010 2015 2020 "Realistic scenario" expenditure requirements Operational 188 188 188 188 188 188 138 102 102 Sustainable maintenance 435 435 435 435 435 435 416 410 410 Investment expenditure 30 25 20 15 10 352 Total expenditure requirement 623 653 648 643 638 633 907 512 512 "Realistic scenario" supply of finance Public budget 138 138 136 122 108 112 130 150 174 Environmental Funds 333333333 User charges Including households 54 130 205 280 356 435 435 435 435 Including other users 101 107 113 119 125 131 131 131 131 International grants 30 25 20 15 10 International loans 320 Total financing available for 296 408 483 545 607 691 1019 719 743 the water sector Realistic scenario financing 327 245 166 98 31 -57 -112 -207 -231 gap Financing available as % of 48% 62% 75% 85% 95% 109% 112% 140% 145% expenditure requirement User charges as % of opera- 82% 126% 169% 212% 256% 301% 410% 555% 555% tional expenditure User charges as % of total 25% 36% 51% 64% 77% 91% 102% 111% 111% O&M exp requirement Backlog 295 541 707 805 836 779 268 -732 -1,840 Source: Calculated by the Consultant using the Decision Support Tool on the basis of the assumptions presented above.

10.4 What is required in order to bridge the financing gap – the realistic scenario Closing the gap from the supply side might be achieved through implementation of a number of measures.

The required adjustments in key policy variables are described below. As a starting point, the analysis considers required adjustments in each variable. The following policy measures are being proposed: 106 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Increase tax revenues and the ratio Public Own Revenues/GRP The direct effect on the financing gap is limited. Hence, it will not be sufficient to rely entirely on increasing the Public Own Revenues/GRP ratio in order to close the gap. Public expenditure priorities will have to change. The indirect effect through fiscal stabilization may however allow the public budget priorities to be adjusted with more emphasis on capital expenditure in general and environmental investments in particular.

Increase the share of environmental investments Increasing the public environmental capital expenditure budget at the expense of recurrent environmental expenditure could significantly contribute to closing the financing gap. Even if the share of environmental expenditure in public budget is reduced from present 10% to 5% in 2005, but operational subsidies are completely phased out, so that environmental capital expenditure comprise 5% of public own revenues, in combination with other proposed measures that would be sufficient to close the gap. Still, public environmental investments would amount to les than 1% of GRP.

Maintain Tariffs at 2005 peak levels Instead of letting the average tariff follow the operations and maintenance costs downwards, tariffs could be maintained at their peak levels in 2005 for an extended period and the "surplus" be reserved for self-financed capital development by the water and wastewater utilities.

The substantial free cash which is likely to be generated towards the end of the planning period and beyond, if tariffs are maintained at their peak levels, will at least from a financial perspective allow the region to search actively for loan based financing in order to bridge the gap. However, this would require that the water sector in general becomes "creditworthy".

Affordability On average affordability does not appear to constitute a binding constraint for covering total recurrent expenditure and the individual sector gaps. However, this conclusion with respect to affordability should be considered with some caution due to the income distribution and expenditure profiles of households and the likely increase in other municipal service tariffs and user charges in the short to medium term. Increased tariffs most likely will not be affordable at least for households with per capita income lower than minimal living standard. These will demand for targeted transferes to such households from the public budget or social insurance funds.

Increased "cash value" of the user charges collected As was stated above this would require to increase collection rate of non- households user charges and the share of cash revenues by implementing a number of enforcement measures, e.g. cuts off bad debtors and refuse to except other modes of payment than cash. Background analysis for the regional environmental financing strategy 107 Novgorod region, the Russian Federation

It is considered realistic to increase collection rate of non-household tariffs from 70% to 80% and reduce share of non-monetary revenues from 50% to 25% in the period of 2000-2005.

Apply a strict policy on Connection Fees Part of the asset development program relates to network and service coverage expansion. The full capital investment cost of these should be covered by the newly connected households themselves reflecting the higher housing service and asset values in case of private property.

In order to facilitate this with respect to sewerage connections, an option would be to make sure mandatory connection to the sewerage mains in case the households become connected to the centralised water supply system.

Attracting more grants and loans The shape of the investment financing gap presented in Figure 10.2 appeals to attracting loans in the period of 2006-2010 and paying them back in 2010- 2020. It is assumed that foreign donors will continue proveding financial support to the region in 2000-2005 totally amounting to about USD 1 million in 2000-2001 and gradually going down to zero in 2006.

It is also assumed that afterward in 2005-2010 Novgorod Oblast will have access to soft loans at real interest rate of 5% p.a. with 15 year payback and 3 year grace period. To bridge the gap and implement capital investment program needed to reach the targets it is sufficient each year to attract a loan of RUR 300 - 320 million (USD 10-11 million) annually over the five year period 2006- 2010, a total of USD 55 million. The debt service will cost less than RUR 200 million at peak (USD 7 million), which is less than 1% of GRP or 6.5% of public own revenues which is considered affordable. The loans could be guaranteed by the public budget and repaid using free cash can be raised if to keep the increased user charges at peak of households affordability over the period of loans repayment.

Combining the measures No one measure alone but only combination of all the above measures is sufficient to close the financing gap.

The contribution of each specific measure as well as total additional financing are presented in Table 10.2.

Financing gap and maintenance backlog profiles under realistic scenario are presented in Figure 10.2 and Figure 10.3 which show that the gap is closed. It means that there are some realistic scenarios of the established environmental targets achievement. Though the realistic scenario is affordable from economic and social point of view, it is not easy to implement as it requires significant tariff increase and changes in public expenditure priorities which can be a political problem. 108 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Nevertheless it is the opinion of the Consultant that these obstacles can be overcome or eliminated if there is good political will and concordance among oblast stakeholders upon the necessity and ways of the environmental targets achievement, adequate political support and appropriate co-ordination of the strategy implementation. Background analysis for the regional environmental financing strategy 109 Novgorod region, the Russian Federation

Table 10.2 Additional financing attracted in the realistic scenario

Year 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Increased tariff collection 0 0 8,075 17,000 17,850 18,700 18,700 18,700 18,700 18,700 18,700 Increased share of cash revenue 0 3,780 6,413 9,600 12,600 13,200 13,200 13,200 15,840 15,840 15,840 Donors grants 0 30,000 25,000 20,000 15,000 10,000 Loans 000000320,000 300,000 280,000 300,000 320,000

Total additional financing 0 33,780 39,488 46,600 45,450 41,900 351,900 331,900 314,540 334,540 354,540 Debt service / loan repayment00000000041,52080,445

Year 2,011 2,012 2,013 2,014 2,015 2,016 2,017 2,018 2,019 2,020

Increased tariff collection 18,700 18,700 18,700 18,700 18,700 18,700 18,700 18,700 18,700 18,700 Increased share of cash revenue 15,840 15,840 15,840 15,840 15,840 15,840 15,840 15,840 15,840 15,840 Donors grants 00000000 00 Loans 00000000 00

Total additional financing 34,540 34,540 34,540 34,540 34,540 34,540 34,540 34,540 34,540 34,540 Debt service / loan repayment 116,774 155,699 197,219 197,219 197,219 197,219 197,219 197,219 197,219 197,219 Source: Calculated by the Consultant using the Decision Support Tool 110 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Source: Calculated by the Consultant using the Decision Support Tool Figure 10.2 Financing gap (RUR 000)

Source: Calculated by the Consultant using the Decision Support Tool Note: In both Figure 10.2 and Figure 10.3, the thick continuous black line presents the baseline supply of finance plus tariff policy to achieve full recurrent cost recovery by 2005, while another (light blue interrupting) line presents the realistic scenario where all the recommended policy measures are applied.

Figure 10.3 Maintenance backlog (RUR 000) Background analysis for the regional environmental financing strategy 111 Novgorod region, the Russian Federation

10.5 Options to reduce demand for operating and capital expenditure in urban water The present section takes the financing gap established in section 16 as given and assesses the options for generating additional financial resources from the existing operations in order to free resources to cover identified financial gaps.

10.5.1 General Transaction costs are high due to widespread use of local quasi-money (trans- ferable tax allowance papers) without firm rules and legal framework. The En- vironmental Expenditure survey (COWI 2000) for water utilities indicate that transaction cost of non-monetary transactions might be as high as 30%-40%. Identified options for reducing these cost are described in the Environmental Expenditure Survey.

This section focuses on the measures which would reduce demand for environmental expenditure.

10.5.2 Reducing water demand A key issue is how to reduce the presently high water consumption levels, which would assist in reducing electricity costs and stabilize the financial position of the utilities. In addition, it would reduce possible needs for capacity expansion at treatment plants, etc.

A pre-requisite for implementing water demand management policies is that billing is based on actual metered consumption. In the Novgorod oblast, less than 1% of domestic customers have installed individual meters and almost all billing is based on norms.

The adjustment in tariffs suggested above will in itself provide an impetus for domestic customers to begin installing individual meters (at their own expense). Experience from other CIS countries suggests that measured consumption might fall by sometimes up to as much as 50% (compared to norms based reported consumption) for customers who install individual meters.

This is likely only to work to a certain degree. A more fundamental issue is whether a large-scale individual metering program is a sensible option. This requires more in-depth analysis, but it is generally accepted that it is not an economically and technically optimal solution as long as most of the urban population lives in large housing complexes with 3-4 pipes per apartment. Hence, it is better to opt for a system based on block meters, where each apartment block is billed according to the actual meter readings and the bill is divided among the apartments.

Evidence on the impact on consumption patterns from such a move is hard to come by. Obviously, the impact will be much smaller than in case of individual metering. Depending on the configuration of each apartment block, installing 112 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

meters even closer to the actual consumer, such as floor meters, might be possible.

10.5.3 Reducing water losses Reported losses Reported water losses in the distribution network are 20-25%. However, this is likely to be substantially underestimated reflecting the poor information which exists about the present system performance and makes it difficult to establish a reliable water balance.

Lack of information The lack of good system information makes it difficult to identify the source of poor system performance, develop and implement systematic cost-effective leakage, maintenance and capital development strategies.

10.5.4 Reducing operational costs Staff In the water and wastewater sector staff costs amount to about 15% of total operating costs. Hence, from a financial perspective increased efficiency does not appear to constitute an issue, though it might do so from a managerial perspective.

Energy Energy costs account for an estimated 45% of total operating costs and much higher if energy prices reflected world market price levels.

Many measures that are cost-effective at world market prices will not be cost- effective at the current (and forecast future) Russian energy prices. Still, given the potential high return and short payback from undertaking pump replacement and active energy management it is striking that it is not undertaken to a larger extent. Depending on the source of finance, some of these (types of) measures may be included in the strategy.

However, issues such as the replacement of obsolete pumps with smaller more energy efficient pumps have to be developed and detailed at the feasibility study level.

10.5.5 Changing from surface water to groundwater sources There are several cases where surface water intakes are located 10-20 km from urban areas while there are good quality groundwater sources at site. In addition, the high concentration of chlorine-organic matters in drinking water (due to high concentration of organic matter in surface water and chlorination after poor treatment) is a major problem in the region.

Current expenditure would decrease if wells were drilled at site and specific water treatment equipment (ferrous removal, chlorination etc.) installed.

Moreover, substitution of surface water by groundwater would also address the high concentration of chlorine-organic matters, as groundwater contains almost zero organic matter. The Novgorod region has enough groundwater deposits, Background analysis for the regional environmental financing strategy 113 Novgorod region, the Russian Federation

but they are insufficiently utilized. Many water deposits had been identified by the mid 1980s and there was a plan to switch to groundwater sources, but during "perestroika" and the transition period implementation of the plan went very slowly due to lack of financing.The potential for using groundwater deposits is likelier to be viable in conjunction with demand reduction measures.

In order to access the potential for switching to increased usage of groundwater, the following issues have to be considered in more detail:

• Specific feasibility level studies for each relevant location;

• Supply of investment funds.

10.6 Adjusting the targets to the baseline supply of finance The targets for environmental improvements are ambitious and cannot be fully achieved under the baseline finance scenario.

Hence, prioritization is necessary.

Adjusted water To close the financing and affordability gap from the demand side, a substantial supply programme reduction of the environmental targets in the water sector is proposed.

Note that extension of coverage in the water sector has been included in the adjusted investment programmes below. But, this is under the assumption that the capital costs are covered entirely by the newly connected customers.

Though the decision upon which targets, sites and specific investment projects need to be cut is full responcibility of local stakeholders, the Consultant and local experts participating in elaborating the strategy consider as the most prior projects and activities aimed at:

- water and energy saving, which includes replacement of worn out pipes and highly energy consuming pumps;

- conversion from surface water supply to groundwater supply sources; and

- efficient mechnical-biological wastewater treatment (rehabilitation and/or construction of mechnical-biological wastewater treatment facilities).

When establishing less ambitious environmnetal targets and, hence, reducing the capital investment programme, investment projects of the above types should be kept in the programme and implemented to the extend possible. 114 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation Appendix 1: Overview of roles and responsibilities 5HJLRQDOÃ)LQDQFLQJÃ6WUDWHJ\Ã1RYJRURG

State Committee for Environmental Protection The State Committee for Environmental Protection of Novgorod Oblast (SCEPNO) carries out its activities in accordance with the Statute of the Com- mittee approved by the Novgorod Oblast Administration.

The SCEPNO is an authorized state institution of the Russian Federation in the field of environmental protection and expertise. The 4 interrayon, 13 rayon and 1 City committees, established by the SCEPNO in co-ordination with local administrations are also the specially authorized state’s bodies in the field of environmental protection and expertise at local level.

The SCEPNO carries out its activities under supervision of State Committee for Environment Protection of the Russian Federation (on the issues specified below) and the Oblast’s Administration on issues concerning the approval of regional environment action plans, environmental fund budget approval and budget funding of environment protection activities.

The SCEPNO as any other regional SCEP fulfils the following:

• Participates in development of the state environmental policy, regional programs and environmental projects, forecasts and programs of social- economic development of the Oblast, investment policy; • proposes changes and amendments to environment protection regulations; • provides licensing on waste treatment, certification, training and ecological services (all activities being implemented on the territory of Oblast) and permits for emissions, discharges and waste disposal, co-ordinates and ap- proves regulations on use of specific kinds of natural resources, limits (quotas) for its withdrawal, as well as and regulations for activities impact- ing the environment; • drafts the annual budget of Regional environmental fund and supervises its earmarked use; • carries out state environmental expertise of projects of regional importance; • provides scientific methodical and financial support to the local committees; • provides design and functioning of environmental information systems • carries out other activities

The specialized Inspection of State Environmental Supervision (SISES) acts under the SCEP and undertakes the following main tasks:

• provision of the committee with analytical information to carry out the state environmental supervision of pollution sources and to ensure compliance with environmental laws; • verification of data provided by the industrial laboratories on the chemical content of waste water and waste.

Local and interrayon environmental committees monitor emissions, discharges and waste disposal at enterprises located in their rayons. They also check the 5HJLRQDOÃ)LQDQFLQJÃ6WUDWHJ\Ã1RYJRURG

pollution charges calculations and environmental interventions implemented against pollution charge exemptions provided by local environmental funds.

Hydro-meteorology and environmental monitoring center (HMEMC) The center fulfils the following functions:

• organization and conduction of regular observations and environmental monitoring of ambient air, water and soil quality. (Ambient air monitoring is being carried out in big cities, surface water quality monitoring is done at certain checking posts, soil samples are being taken in different places); • pollution level assessment by chemical and physical indicators by medio (surface waters, atmosphere air, soil precipitation, snow) • calculation of ambient pollution concentrations in the air and surface waters; • maintenance of the information data base; • calculation and justification of hydro-meteorological characteristics for building design.

At local level HMEMC has 8 meteorological stations, 42 hydrological checking points located on basin principle, 8 soil checking points, 6 air quality checking points (4 – in Novgorod City) carrying out monitoring and data for ambient concentration calculations.

The State Center of sanitary-epidemiological supervision The Center's competence covers:

• monitoring and supervision of compliance of water reservoirs, drinking water intakes, soils with sanitary norms and rules, check of harmful substances content in food and drinking water. It can prohibit drinking water intake or bathing in river or pond not meeting sanitary norms; • collection of information on the state of human health and environment • public awareness on sanitary-epidemiological status in Oblast

The center has local affiliates in 21 rayons and 1 city implementing sanitary monitoring and supervision on regular basis.

The Department of Mineral use of the Oblast Administration’s economic committee The Department's competence covers:

• supervision over efficient, integrated and environmentally safe use of underground mineral resources; • supervision over order and conditions of underground mineral resources use; • prospecting and approval of reserves; • monitoring and protection of underground mineral resources and waters; • radiation situation supervision; • check of compliance with safety measures. 5HJLRQDOÃ)LQDQFLQJÃ6WUDWHJ\Ã1RYJRURG

There are no mineral use departments in local administrations.

The Committee of water economy of the Oblast The Committee’s competence covers

• provision of licensees for water intake and discharge to surface waters together with SCEPNO • participation in conclusion of agreements for water bodies use and their registration, issuing of rules on technical conditions and permits on economic activity in rivers and other reservoirs (such as river transport, ship- ping of logs down the river, fish breeding and others); • working out and co-ordination of proposals on limits for water resources use; • supervises geological investigations, efficient use and protection of surface waters and water-protection zones maintenance.

On the local level Committee has 4 inspectors checking the activities in different river basins.

Committee on land resources and land use planning The committee’s competence covers:

• state supervision on land use and protection; • conservation and reproduction of soil fertility; • land privatization management; • lands inventory keeping; • land cadastre (quantity and quality of land); • land use planning.

21 rayon and 1 city committees act at the local level implementing the mentioned above activities and providing data for Oblast land inventory and cadastre.

Department for the Forest Management Department for the Forest Management has the following functions:

• state supervision on forest use and protection; • development of regional programs for forestry development, forecasting of forest reproduction and protection; • assign the forest to group and protection category; • carrying out of activities on preservation and improvement of forests within the Oblast.

Department manages 23 forest enterprises implementing the last mentioned above activity, 1 experimental forest enterprise, research institute "Novgorodlesproyekt", training and certification centers, in total 28 organizations. 5HJLRQDOÃ)LQDQFLQJÃ6WUDWHJ\Ã1RYJRURG

Department for protection, control and regulation of animals hunting The Department has the following functions:

• management of the regional hunting economy; • designing and carrying out of activities on protection, reproduction and efficient use of trade wild animals resources; • supervision over compliance with hunting rules; • development of proposals on creation on hunting reserves.

At the local level hunting supervision services operate in all 21 rayons checking the compliance with hunting rules, proving licenses for hunting imposing fines for non-compliance.

The Inspectorate on protection and reproduction of fish resources and regulation of fishery The Inspectorate undertakes the following activities:

• regulation and use, protection and reproduction of fish resources; • the state control over the commercial and amateur fishing; • licensing of fishing; • control over compliance with norms and rules of fish resources protection; • organization, collection, analysis and dissemination of information on regional fishery.

The Inspectorate has 2 rayon inspections. Appendix 2: Regional environmental action plan 2000-2004

1234 -“- © ª

-“- 2

1234 -“- © ª -“-

12x4 © © ª ±

: ; © ª © ª © © ª ª © © ª ª 4

1234 © ª © ª © © ª ª : © ª © © ª ª © © ª © © ª © © ª © ª ª © © ª © © ª © ª © ª 5

1234 © : © ª © ª © ª ª © © ª ª © © ª ª © ª © ª © ª © ª : © ª © ª © © ª ª 6

1234 © ª © ª

: © ª © ª © ª : © ª © ª © © ª © ª © ª © © ª © © ª © © ª

1234 © © ª ª © © ª © © ª 8

-“-

-“- -“- © ª 17

-“- - 19

-“- © ª

Appendix 3: Maps of WWTP and water supply system

Appendix 4: Municipal solid waste in Novogorod oblast Existing situation - municipal solid waste The tables describe the total solid waste generation in the Novgorod region over the period 1995-1998.

Hazardous waste is classified according to four categories 1-4, where class 1 is the most toxic (mercury, chlor-organic, etc.), while class four encompasses the least toxic hazardous waste like asbestos, phosphor, etc.

Hazardous industrial waste generation has declined by 9% since 1995.

Hazardous Industrial Waste generation 1995-1998, Novgorod Region Tonnes 1995 1996 1997 1998 % change 95-98 Class 11936252635% Class 2 8,230 8,382 8,576 8,538 4% Class 3 10,649 5,434 5,338 9,002 -15% Class 4 1,835,913 2,579,802 1,431,300 1,675,515 -9% Total 1,854,811 2,593,653 1,445,238 1,693,081 -9% Source: "Environment Protection in Novgorod oblast", Novgorod oblstat, 1999.

The industrial waste generated was utilized or disposed of as indicated below.

Disposal of industrial waste 1997-1998 (tonnes) Tonnes 1997 1998 Waste generated 1,445,238 1,693,081 Utilized 289,017 182,243 Disposed at enterprise site or own landfill 1,106,203 1,483,469 Disposed at municipal landfill 28,017 27,189 Source: "Environment Protection in Novgorod oblast", Novgorod oblstat, 1999.

Annual solid and liquid municipal waste generation 1995-1998 is indicated below. It is estimated that 95% of all solid and liquid municipal waste is generated by households. Total annual municipal waste generation increased to more than 1 million m3 in 1998 corresponding to an increase of 49% since 1995. Solid municipal waste increased by 37% over the period 1995-1998 and accounted for 2/3 of all municipal waste.

Solid and Liquid Municipal Waste 1995-1998, Novgorod Region Cubic meters 1995 1996 1997 1998 % change 95-98 Solid Municipal Waste 607,315 695,326 816,162 833,239 37%

Liquid Municipal Waste 218,012 220,465 306,791 397,895 83% Total 825,327 915,791 1,122,953 1,231,135 49% Source : "Environment Protection in Novgorod oblast", Novgorod oblstat, 1999. 10 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Almost 100% of generated solid municipal waste is disposed of at municipal landfills, while less than half the liquid waste is disposed at these sites.

With respect to the accumulated waste at industrial and municipal sites only rough estimates are available. It is reported that 6.8 million tonnes of solid waste was accumulated at enterprises and landfills.

The present document focuses exclusively on municipal solid waste generation, collection and disposal and the status of municipal landfills.

Municipal landfill capacity and operations Status of landfills Historically, the majority of (legal) landfills (poligon or svalka) in the region were established without any investigation of the hydro-geological situation on the selected site nor any design. From 38 operating landfills only 5 have required design documents and/or were properly constructed and only 2-3 operate in compliance with current environmental, sanitary, design and construction regulations. On average, the capacity of municipal landfills is about 50% utilized. Some landfills have exhausted their capacity (Malaya Vishera) or are severely polluting environment, surface or groundwater due to their very bad hydro-geological situation (for example Borovitchi). In five cases a new site for municipal landfill has been identified and in three cases designing of new landfills is implemented or is in the process of being implemented.

Operations Lack of financing results in poor landfills operation and maintenance, which is not in compliance with sanitary norms and rules and other regulations. As a rule waste delivered for disposal is not weighed. Sometimes waste disposal is not even registered. Due to insufficient control very toxic waste could be disposed with municipal waste. Layers of waste are not properly isolated from each other by soil. Liquid waste is often disposed of together with solid waste, thereby causing damage for groundwater, etc.

Key service parameters for solid waste management The table below indicates key numbers on solid waste generation in the ten major cities in the Novgorod oblast.

Coverage Service coverage in the table refers to the number of people served by the municipal waste management enterprise.

For the cities with a population of less than 10,000, very limited information exists about service coverage, but for those where information is available, service coverage ranges between 30% and 70%. For the ten major cities in the region, the average service coverage is 73%, but ranges from 48% in Stataya Russa to 93% in the city of Novgorod. In the city of Novgorod, the total amount of solid waste generated has increased by more than 1/3 since 1996. Solid Municipal Waste generation in selected cities (1999) City Number of Amount of SMW Service cov- inhabitants waste generation erage (m3) (% of pop) Novgorod City 239,047 498,717 93% Borovitchi 61,638 70,916 63% Staraya Russa 39,758 41,692 48% Valday 19,499 27,143 83% Chudovo 17,713 33,879 50%* Okulovka 15,619 13,660 49% Pestovo 16,363 5,548 50%* Soltsy 12,842 7,552 50% Malaya Vishera 14,697 10,355 69% Krestsy 10,601 16,441 75% 11 Rayon centers37 with 49,920 65,839 40%* a population of 1,500-10,000 Source: Novzhilcommunservice, SCEPNO Note: * estimated value

Municipal solid waste separation and recycling is almost zero. The only applied method for disposing of solid municipal waste is through landfills. There is no pressing before waste disposal. This increases demand for landfill capacity. On average municipal landfill capacity is about 50% utilized, but some landfill have exceeded their capacity and are severely polluting the environment.

37 Rayon centers have been used for categorizing municipal solid waste due to the fact that these centers own the landfills and also the municipal waste management companies, which serve the whole rayon. 12 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Number of landfills and qualitative characteristics landfills City Number of Size Start of op- Designed Capacity landfills (Hectare) erations annual ca- utilization (year) pacity (%) (000 m3/year) Novgorod City 1 15.0 1986 450 37% Borovitchi 1 2.6 1976 80 40% Staraya Russa 1 4.2 1982 40 40% Valday 1 5.0 1975 20 60% Chudovo 1 6.6 1988 33 50% Pestovo 1 1.5 1963 5.4 n.a. Okulovka 1 5.2 1955 10 100% Malaya Vishera 2 5.0/3.0 1971/80 12/n.a 100%/n.a Soltsy 1 3.0 1956 7.6 40% Krestsy 1 5 1975 16.4 90% 11 Rayon centers38 with 12 15.9 - 61.5 41% a population of 1,500-10,000 Source: Novzhilcommunservice, SCEPNO.

Only for two of the larger cities has it been possible to obtain information on total storage capacity. In Novgorod, total storage capacity over the life time is 1 million tonnes and in M. Vishera it is 0.5 million tonnes.

Only the municipal solid waste landfill in Novgorod fulfills current regulations (partially) to this type of landfill.

Solid waste The oblast has established the medium term targets for solid waste in terms of two specific measures:

• The share of the population covered by the municipal solid waste collection system; and • The number of landfills complying with sanitary and environmental safety standards;

In terms of the second specific target, only Novgorod city landfill currently fulfils the normative sanitary and environmental standards.

The oblast targets the closure of four municipal landfills with a capacity utilisation amounting to 90% or higher, construction of 4 new landfills in compliance with EU standards, and the design of a rehabilitation programme for other existing landfills.

38 Rayon centers have been used for categorizing municipal solid waste due to the fact that these centers own the landfills and also the municipal waste management companies, which serves the whole rayon. Appendix 5: Definition of the "Baseline Scenario" 1 Definition of baseline scenario This annex is a result of discussions held during the workshop on the use of the decision support tool held in Moscow June 21 - 23.

Supply of finance, public budgets Supply of finance from the general government budget should be determined in the following way in the environmental financing strategies. General government expenditures (both capital and recurrent) for water services are determined as a share of total general government expenditure. Total general government expenditures are determined by total general government revenues and the policy target for the overall general government deficit. Total general government revenues are determined as a share of GDP.

For the baseline scenario the following assumptions shall be made: The ratios of total public revenues, overall deficit and total public expenditures to GDP are all determined by the Government's published macro-economic forecast (if available) for those years for which a forecast is available. For later years and if no forecast is available, the ratios should be assumed to be unchanged relative to the base year / latest year for which a published macro-economic forecast was available. This procedure is used both for federal, regional and municipal budgets.

Supply of finance from environmental funds in the baseline scenario should be assumed to be constant in real terms (inflation adjusted prices) relative to the base year. Baseline supply of finance from environmental funds is not expected to grow in line with GDP. This reflects the historical difficulties faced by environmental funds in the CIS of maintaining their revenues in the face of GDP growth. In many cases even inflation adjustment of environmental funds' revenues has not been achieved.

Supply of finance, user charges It is suggested that in the baseline supply of finance total revenues from user charges are kept constant at the current level in real terms. Many CIS countries have stated their intention to increase user charges to full cost recovery levels within a given timeframe. However, considering the historic dynamics of these policies, it is suggested that such increases are included in the policy scenarios, not in the baseline scenario. We have considered how to deal with a forecast population increase. An increase in population will affect expenditure needs (need to expand coverage to additional persons) and revenues (additional revenues from the additional persons served). However, it is suggested that both the additional infrastructure (and resulting expenditures) and the additional revenues are dealt with under the policy scenarios.

Loan financing Whether a loan shall be included or not should be determined on a loan by loan basis. It is suggested that the following loan financing in future years in the baseline are included:

• Committed loans for infrastructure which is under construction and for which there is a high likelihood that the infrastructure will be completed and commissioned (parallel to inclusion of the infrastructure under expenditure needs).

• Non-project related loans that have been firmly committed and for which all covenants have been met. Such loans are likely to be rare and specific justification for their inclusion must be given.

Grant financing (international donors) Only committed grants for infrastructure which is under construction and for which there is a high likelihood that the infrastructure will be completed and commissioned (parallel to inclusion of the infrastructure under expenditure needs) should be included in the baseline supply of finance.

Expenditure needs The baseline includes the cost of operation and maintenance of all infrastructure, which is presently in operation.

For infrastructure which has been constructed and commissioned, but is not operated presently, the question of why the infrastructure is not operated presently needs to be considered.

If the infrastructure is not operated solely due to lack of finance to pay for essential inputs (like power) or due to circumstances not related to the water utility and its infrastructure (like power cuts) then the cost of operating and maintaining the infrastructure should be included in the baseline. The presumption is that the design service level can be offered without incurring any capital expenditures once the temporary constraint (like lack of power) has been removed.

If the infrastructure is not operated due to poor maintenance including lack of essential components it has three effects1.

1 It should be noted that infrastructure which has not been in (full) use for some time typically falls into a state of disrepair. Thus infrastructure which has not been in use for some years should as a rule be considered to need capital repairs. Thus operation and maintenance of such infrastructure should not be included in baseline expenditure needs and First, the cost of operation and maintenance of the infrastructure should not be included in the baseline.

Second, the design service level is not provided presently. The service level that is actually provided must be established "after" the model, since the model does not provide service levels as one of its outputs.

Third, since the design service level can only be offered in the future if capital costs are incurred to rehabilitate / reconstruct the infrastructure, these rehabilitation capital costs must be established and included in the policy scenario. Here, we assume that achievement of design service levels is included as part of the targets of the policy scenario. Technically these capital costs are established by entering information in the model on the value of the needed reconstruction relative to the value of the capital assets2.

If a water treatment plant or a wastewater treatment plant are operated below its capacity, it is treated in the following manner in the baseline scenario. The level of operational and maintenance costs are determined by water production / water received by the wastewater treatment plant and by the type of plant. For networks, the costs are determined by population covered, service area (in hectares) and water demand. If the policy scenario implies an increase in water production / wastewater collection, the model generates capital costs required to expand the capacity3.

Therefore in the baseline it is important to consider to provide a good estimate of water production / collection of wastewater volumes.

Infrastructure that can provide more than one service level depending on the state of maintenance and operation should be treated in a similar manner. Such infrastructure includes mechanical - biological wastewater treatment plants (that may function as mechanical plants) and water treatment plants with advanced treatment (for example ozonation and filtration in a GAC-filter) that may function as traditional water treatment plants. In these cases the operation

should not be considered to provide service. Conversely, the policy scenarios will need to include (capital) costs of rehabilitating such infrastructure. 2 Formally, the value of the capital assets to be used here are those capital assets that are generated by the cost function. To establish these require an insight into the cost function. In many cases an assessment of the share of rehabilitation relative to replacement value of the existing system will be a good approximation. However, this approximation does not work if the existing system has large over capacity. 3 Following the argument made above, infrastructure which has not been in full use for some time falls into a state of disrepair. It thus seems to be a good approximation for water treatment and wastewater treatment plants. For water distribution networks the key variables are population and water demand. Here it is comforting to note that a reduction of water demand from 400 lcd to 200 lcd only lowers investment (and thus maintenance) costs by 10% - 20% (depending on population size). Similarly, the cost of wastewater collection is dominated by population and acreage covered. and maintenance expenditures and the service level may be that of the "lower" level4.

For infrastructure, which is still under construction, a case by case assessment will be necessary. If there is a high likelihood that the infrastructure will be completed and commissioned, the cost of operation and maintenance should be included from the day of commissioning. The investment costs until that date should be included as capital costs.5 However, in many cases in the CIS infrastructure is under construction in principle, but in practice construction is not moving ahead due to lack of finance or otherwise. Such

4 For example, many mechanical - biological (MB) wastewater treatment plants can be operated providing mechanical treatment (M) only. Again the cause hereof shall be analysed. For example, if frequent power cuts cause the biological processes to be disrupted, but the plant would function (as MB) if power supply was regular, then the cost of operating and maintaining a mechanical - biological wastewater treatment plant should be included. De- scription of the resulting service level is done "after" the model. In this case the baseline service level is M until the date when the cause of the disruption is believed to be removed. From that date the service level is MB. However, if it is believed that capital repairs will be needed to re-establish the mechanical - biological service level, then only the cost of operating and maintaining a mechanical wastewater treatment plant should be included. Corre- spondingly the service level provided in the baseline is only mechanical treatment (M). 5 An example hereof is the ongoing extension of the wastewater treatment plant in Chisinau which is carried out as part of a EBRD funded project Appendix 6: Baseline scenario Decision Support Tool Page 1 of 12

Ã Ã Ã RUR Ã Constant 1999

Ã Ã Ã Ã

2000 2001 2002 2003 2004 2005 2006 2007 2008 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515 296.271 312.222 316.831 334.118 339.384 344.809 350.396 356.150 362.078

302.244 286.294 281.684 264.397 259.131 253.707 248.119 242.365 236.437 295.102 574.253 848.795 1.106.050 1.358.039 1.604.603 1.845.580 2.080.803 2.310.098

2000 2001 2002 2003 2004 2005 2006 2007 2008 0 00 000000 0 00 000000 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 0 00 000000 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515

2000 2001 2002 2003 2004 2005 2006 2007 2008

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 2 of 12

2000 2001 2002 2003 2004 2005 2006 2007 2008 54.421 54.421 54.421 54.421 54.421 54.421 54.421 54.421 54.421 101.150 101.150 101.150 101.150 101.150 101.150 101.150 101.150 101.150 137.700 153.650 158.260 175.547 180.813 186.237 191.825 197.579 203.507 0 00 000000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 0 00 000000 296.271 312.222 316.831 334.118 339.384 344.809 350.396 356.150 362.078

, 7.142 7.142 7.142 7.142 7.142 7.142 7.142 7.142 7.142 ,, 442.944 442.944 442.944 442.944 442.944 442.944 442.944 442.944 442.944 ,,, 305.244 289.294 284.684 267.397 262.131 256.707 251.119 245.365 239.437 295.102 279.151 274.542 257.255 251.989 246.564 240.977 235.222 229.295 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000

, ,, ,,,

2000 2001 2002 2003 2004 2005 2006 2007 2008

0 00 000000 0 00 000000 204.883 204.883 204.883 204.883 204.883 204.883 204.883 204.883 204.883 132.326 132.326 132.326 132.326 132.326 132.326 132.326 132.326 132.326

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 3 of 12

2000 2001 2002 2003 2004 2005 2006 2007 2008 0 00 000000 0 00 000000 230.918 230.918 230.918 230.918 230.918 230.918 230.918 230.918 230.918 30.387 30.387 30.387 30.387 30.387 30.387 30.387 30.387 30.387 0 00 000000 0 00 000000 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 0 00 000000 125.209 125.209 125.209 125.209 125.209 125.209 125.209 125.209 125.209 0 00 000000 0 00 000000 0 00 000000 0 00 000000

2000 2001 2002 2003 2004 2005 2006 2007 2008

54.421 54.421 54.421 54.421 54.421 54.421 54.421 54.421 54.421 8.373 8.373 8.373 8.373 8.373 8.373 8.373 8.373 8.373 101.150 101.150 101.150 101.150 101.150 101.150 101.150 101.150 101.150 19.338 19.338 19.338 19.338 19.338 19.338 19.338 19.338 19.338

137.700 153.650 158.260 175.547 180.813 186.237 191.825 197.579 203.507 18.360 20.487 21.101 23.406 24.108 24.832 25.577 26.344 27.134 0 00 000000 0 00 000000 0 00 000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 4 of 12

2000 2001 2002 2003 2004 2005 2006 2007 2008 0 00 000000 0 00 000000 0 00 000000 0 00 000000 0 00 000000 3000 3000 3000 3000 3000 3000 3000 3000 3000 0 00 000000

0 00 000000 0 00 000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 5 of 12

2009 2010 2011 2012 2013 2014 2015 2016 2017 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515 368.183 374.471 380.948 387.620 394.491 401.569 408.859 416.367 424.101

230.332 224.044 217.567 210.895 204.024 196.946 189.657 182.148 174.414 2.533.288 2.750.189 2.960.613 3.164.367 3.361.248 3.551.053 3.733.567 3.908.572 4.075.844

2009 2010 2011 2012 2013 2014 2015 2016 2017 000000000 000000000 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 000000000 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515 598.515

2009 2010 2011 2012 2013 2014 2015 2016 2017

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 6 of 12

2009 2010 2011 2012 2013 2014 2015 2016 2017 54.421 54.421 54.421 54.421 54.421 54.421 54.421 54.421 54.421 101.150 101.150 101.150 101.150 101.150 101.150 101.150 101.150 101.150 209.612 215.900 222.377 229.048 235.920 242.998 250.287 257.796 265.530 000000000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 000000000 368.183 374.471 380.948 387.620 394.491 401.569 408.859 416.367 424.101

, 7.142 7.142 7.142 7.142 7.142 7.142 7.142 7.142 7.142 ,, 442.944 442.944 442.944 442.944 442.944 442.944 442.944 442.944 442.944 ,,, 233.332 227.044 220.567 213.895 207.024 199.946 192.657 185.148 177.414 223.190 216.901 210.424 203.753 196.882 189.804 182.514 175.006 167.272 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000 -3.000

, ,, ,,,

2009 2010 2011 2012 2013 2014 2015 2016 2017

000000000 000000000 204.883 204.883 204.883 204.883 204.883 204.883 204.883 204.883 204.883 132.326 132.326 132.326 132.326 132.326 132.326 132.326 132.326 132.326

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 7 of 12

2009 2010 2011 2012 2013 2014 2015 2016 2017 000000000 000000000 230.918 230.918 230.918 230.918 230.918 230.918 230.918 230.918 230.918 30.387 30.387 30.387 30.387 30.387 30.387 30.387 30.387 30.387 000000000 000000000 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 435.802 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 162.714 000000000 125.209 125.209 125.209 125.209 125.209 125.209 125.209 125.209 125.209 000000000 000000000 000000000 000000000

2009 2010 2011 2012 2013 2014 2015 2016 2017

209.612 215.900 222.377 229.048 235.920 242.998 250.287 257.796 265.530 27.948 28.787 29.650 30.540 31.456 32.400 33.372 34.373 35.404 000000000 000000000 000000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 8 of 12

2009 2010 2011 2012 2013 2014 2015 2016 2017 000000000 000000000 000000000 000000000 000000000 3000 3000 3000 3000 3000 3000 3000 3000 3000 000000000

000000000 000000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 9 of 12

2018 2019 2020 Total 598.515 598.515 598.515 12.568.820 432.067 440.272 448.723 7.889.931

166.448 158.243 149.792 4.678.889 4.235.150 4.386.251 4.528.901

2018 2019 2020 Total 0000 0000 435.802 435.802 435.802 9.151.835 162.714 162.714 162.714 3.416.985 0000 598.515 598.515 598.515 12.568.820

2018 2019 2020 Total

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 10 of 12

2018 2019 2020 Total 54.421 54.421 54.421 1.142.846 101.150 101.150 101.150 2.124.150 273.496 281.701 290.152 4.559.934 0000 3.000 3.000 3.000 63.000 0000 432.067 440.272 448.723 7.889.931

, 7.142 7.142 7.142 149.989 ,, 442.944 442.944 442.944 9.301.824 ,,, 169.448 161.243 152.792 4.741.889 159.306 151.101 142.650 4.528.901 -3.000 -3.000 -3.000 -63.000

, ,, ,,,

2018 2019 2020

000 000 204.883 204.883 204.883 132.326 132.326 132.326

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 11 of 12

2018 2019 2020 Total 000 000 230.918 230.918 230.918 30.387 30.387 30.387 000 000 435.802 435.802 435.802 162.714 162.714 162.714 000 125.209 125.209 0 000 000 000 000

2018 2019 2020

54.421 54.421 54.421 8.373 8.373 8.373 101.150 101.150 101.150 19.338 19.338 19.338

273.496 281.701 290.152 36.466 37.560 38.687 000 000 000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Decision Support Tool Page 12 of 12

2018 2019 2020 Total 000 000 000 000 000 3000 3000 3000 000

000 000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:04 COWI Appendix 7: Miscellaneous data 18 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Household incomes and expenditure pattern, RUR per capita per month, 199839

Decile12345678 9 10 Number of household members 3.49 3.00 2.68 2.52 2.33 2.51 2.61 2.88 2.16 1.82 Disposal resources40 163 256 320 380 469 583 708 978 1,279 2,348 Cash income 129 209 255 308 382 483 612 887 1,148 1,541 Expenditure for final consumption 152 233 286 341 415 501 583 720 1,007 1,548 Expenses on food products 110 162 203 237 284 353 346 437 602 858 - in % 72% 70% 71% 70% 68% 70% 59% 61% 60% 55% Expenses on services 19 35 35 41 53 60 94 85 123 104 - in % 13% 15% 12% 12% 7% Source: "Living standard in Novgorod oblast in 1998", Novgorod oblstat, 1999.

39 Group number 1 refers to the 10% of the population with the lowest income etc. 40 Households disposable income is the sum of disposable cash income and non-cash (in kind) income Installed and used water abstraction/intake and treatment capacity in towns and urban settlements of the Novgorod oblast, 2000

Category name Total annual Total annual Installed Utilised ca- Installed Utilised ca- water supply water pro- capacity for pacity of capacity for pacity of from vodo- duction at groundwater groundwater traditional traditional kanals treatment abstrac- abstraction/ surface wa- surface wa- plants* tion/treatme treatment ter intake & ter intake & nt treatment treatment Units m3/year m3/year m3/year m3/year m3/year m3/year Novgorod 52,854,000 - - 52,854,000 66,576,000 52,852,000 Borovitchi 8,759,000 9,149,000 2,698,000** 2,698,000 6,061,000 6,062,000 Staraya Russa 4,455,000 - - 4,629,000 4,455,000 4,455,000 Valday 1,824,000 - - 1,824,000 1,824,000 1,824,000 Chudovo 3,835,000 347,000 347,000 3,835,000 6,205,000 3,551,000 Okulovka 2,099,000 - - 2,099,000 3,723,000 2,099,000 Pestovo 349,000 349,000 349,000 349,000 - - Soltsy 570,000 570,000 5,000 5,000 566,000 1,168,000 M. Vishera 1,093,000 144,000 144,000 949,000 580,000 1,491,000 Krestsi 220,000 220,000 220,000 220,000 - - Town settlements, 315,000 315,000 52,923 52,923 457,654 269,077 average Source: Novzhilcommunservice * used in the model for annual water production ** only in Borovitchi groundwater capacity stands for treatment capacity, for the other towns with groundwater supply it stands for abstraction capacity 20 Background analysis for the regional environmental financing strategy Novgorod region, the Russian Federation

Final water consumption and water losses in towns and urban settlements of the Novgorod oblast, 2000

Town Total annual Used and lost Losses in dis- Water Consumption (excl. losses) water produc- in treatment tribution tion Total Industry House- Institu- holds tions Units 000 m3 000 m3 000 m3 year 000 m3 000 m3 000 m3 000 m3 year year year year year year Novgorod 52,854 5,720 10,846 36,288 5,243 25,296 5,749 Borovitchi 8,759 1,056 901 6,802 697 5,132 973 Staraya Russa 4,455 - 459 3,996 1,653 2,166 177 Valday 1,824 56 256 1,512 79 1,041 392 Chudovo 3,835 768 516 2,551 - 1,610 941 Okulovka 2,099 445 838 816 35 572 209 Pestovo 349 2 35 312 11 257 44 Soltsy 570 65 111 394 29 175 190 M. Vishera 1,093 - 50 1,043 245 645 153 Krestsy 220 - 27 193 11 149 33 Town settlements 4,095 212 1,210 2,673 150 1,748 775 Source: based on data from Novzhilcommunsrvice.

Amount of wastewater collected and treated, and wastewater treatment capacity in cities and urban settlements (1,000m3/day), 1999

City Wastewater col- Installed wastewater Amount of waste- lected by sewerage treatment capacity water treated Novgorod 166.2 220.0 166.2 Borovitchi 18.5 55.0 18.5 Staraya Russa 15.9 20.4 15.9 Valday 5.7 17.0 5.7 Chudovo 5.8 6.5 5.8 Pestovo 1.4 2.7 1.4 Okulovka 1.5 1.4 0.8 Malaya Vishera 2.4 1.9 0.9 Soltsy 0.6 0.7 0.6 Krestsy 0.8 1.8 0.7 Cities with a population of 1,500-10,000 0-4.3 0-6.6 0-4.3 Source: Novzilkommunservice. In Novgorod, the industrial enterprise Akron is undertaking wastewater treatment at facilities leased by the municipality Appendix 8: Realistic scenario Decision Support Tool Page 1 of 12

Ã Ã Ã RUR Ã Constant 1999

Ã Ã Ã Ã

2000 2001 2002 2003 2004 2005 2006 2007 2008 623.640 623.640 623.640 623.640 623.640 623.640 975.888 958.699 941.511 296.271 378.159 457.523 525.361 592.269 681.012 684.365 687.818 691.374

327.368 245.481 166.117 98.278 31.371 -57.373 291.523 270.882 250.137 295.236 540.716 706.833 805.111 836.482 779.109 718.384 637.017 534.906

2000 2001 2002 2003 2004 2005 2006 2007 2008 0 0 0 0 0 0 103.259 103.259 103.259 0 0 0 0 0 0 248.989 248.989 248.989 435.936 435.936 435.936 435.936 435.936 435.936 435.936 431.067 426.198 187.704 187.704 187.704 187.704 187.704 187.704 187.704 175.384 163.064 0 00 000000 623.640 623.640 623.640 623.640 623.640 623.640 975.888 958.699 941.511

2000 2001 2002 2003 2004 2005 2006 2007 2008

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 2 of 12

54.421 129.774 205.126 280.479 355.831 435.370 435.370 435.370 435.370 101.150 107.100 113.050 119.000 124.950 130.900 130.900 130.900 130.900 137.700 138.285 136.347 122.883 108.488 111.742 115.095 118.548 122.104 0 00 000000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 0 00 000000 296.271 378.159 457.523 525.361 592.269 681.012 684.365 687.818 691.374

, 32.133 -49.170 -130.472 -211.775 -293.077 -378.566 -378.566 -390.886 -403.206 ,, 468.068 386.766 305.463 224.161 142.858 57.370 57.370 40.181 22.993 ,,, 330.368 248.481 169.117 101.278 34.371 -54.373 -57.725 -78.366 -99.111 295.236 245.481 166.117 98.278 31.371 -57.373 -60.725 -81.366 -102.111 -3.000 -3.000 -3.000 -3.000 -3.000 -57.373 291.523 270.882 250.137

, ,, ,,,

2000 2001 2002 2003 2004 2005 2006 2007 2008

0 0 0 0 0 0 103.259 103.259 103.259 0 0 0 0 0 0 194.324 194.324 194.324 205.017 205.017 205.017 205.017 205.017 205.017 205.017 200.149 195.280 132.424 132.424 132.424 132.424 132.424 132.424 132.424 120.104 107.784

0 00 000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 3 of 12

0 0 0 0 0 0 54.665 54.665 54.665 230.918 230.918 230.918 230.918 230.918 230.918 230.918 230.918 230.918 55.281 55.281 55.281 55.281 55.281 55.281 55.281 55.281 55.281 0 0 0 0 0 0 103.259 103.259 103.259 0 0 0 0 0 0 248.989 248.989 248.989 435.936 435.936 435.936 435.936 435.936 435.936 435.936 431.067 426.198 187.704 187.704 187.704 187.704 187.704 187.704 187.704 175.384 163.064 18.394 18.394 18.394 18.394 18.394 18.394 18.394 18.394 18.394 125.209 126.700 128.191 129.682 131.173 132.663 134.154 135.645 137.136 0 00 000000 0 00 000000 0 00 000000 0 00 000000

2000 2001 2002 2003 2004 2005 2006 2007 2008

54.421 129.774 205.126 280.479 355.831 435.370 435.370 435.370 435.370 8.373 16.745 16.745 16.745 16.745 16.745 16.745 16.745 16.745 101.150 107.100 113.050 119.000 124.950 130.900 130.900 130.900 130.900 60.964 63.920 63.920 63.920 63.920 63.920 63.920 63.920 63.920

137.700 138.285 136.347 122.883 108.488 111.742 115.095 118.548 122.104 18.360 18.438 18.180 16.384 14.465 14.899 15.346 15.806 16.281 0 00 000000 0 00 000000 0 00 000000 0 00 000000 0 00 000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 4 of 12

0 00 000000 0 00 000000 0 00 000000 3000 3000 3000 3000 3000 3000 3000 3000 3000 0 00 000000

0 00 000000 0 00 000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 5 of 12

2009 2010 2011 2012 2013 2014 2015 2016 2017 924.322 907.134 506.259 512.009 512.009 512.009 512.009 512.009 512.009 695.037 698.810 702.696 706.699 710.822 715.069 719.442 723.948 728.588

229.285 208.323 -196.438 -194.690 -198.813 -203.060 -207.434 -211.939 -216.579 411.943 268.019 71.581 -123.109 -321.922 -524.982 -732.415 -944.354 -1.160.933

2009 2010 2011 2012 2013 2014 2015 2016 2017 103.259 103.259 0000000 248.989 248.989 0000000 421.330 416.461 406.567 410.208 410.208 410.208 410.208 410.208 410.208 150.744 138.424 99.692 101.801 101.801 101.801 101.801 101.801 101.801 000000000 924.322 907.134 506.259 512.009 512.009 512.009 512.009 512.009 512.009

2009 2010 2011 2012 2013 2014 2015 2016 2017

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 6 of 12

435.370 435.370 435.370 435.370 435.370 435.370 435.370 435.370 435.370 130.900 130.900 130.900 130.900 130.900 130.900 130.900 130.900 130.900 125.767 129.540 133.426 137.429 141.552 145.799 150.172 154.678 159.318 000000000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 3.000 000000000 695.037 698.810 702.696 706.699 710.822 715.069 719.442 723.948 728.588

, -415.526 -427.846 -466.578 -464.469 -464.469 -464.469 -464.469 -464.469 -464.469 ,, 5.804 -11.384 -60.011 -54.261 -54.261 -54.261 -54.261 -54.261 -54.261 ,,, -119.963 -140.924 -193.438 -191.690 -195.813 -200.060 -204.434 -208.939 -213.579 -122.963 -143.924 -196.438 -194.690 -198.813 -203.060 -207.434 -211.939 -216.579 229.285 208.323 -196.438 -194.690 -198.813 -203.060 -207.434 -211.939 -216.579

, ,, ,,,

2009 2010 2011 2012 2013 2014 2015 2016 2017

103.259 103.259 0000000 194.324 194.324 0000000 190.411 185.543 180.674 184.315 184.315 184.315 184.315 184.315 184.315 95.464 83.144 70.824 72.933 72.933 72.933 72.933 72.933 72.933

000000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 7 of 12

54.665 54.665 0000000 230.918 230.918 225.893 225.893 225.893 225.893 225.893 225.893 225.893 55.281 55.281 28.868 28.868 28.868 28.868 28.868 28.868 28.868 103.259 103.259 0000000 248.989 248.989 0000000 421.330 416.461 406.567 410.208 410.208 410.208 410.208 410.208 410.208 150.744 138.424 99.692 101.801 101.801 101.801 101.801 101.801 101.801 18.394 18.394 0000000 138.627 140.117 141.608 141.608 141.608 141.608 141.608 141.608 141.608 000000000 000000000 000000000 000000000

2009 2010 2011 2012 2013 2014 2015 2016 2017

435.370 435.370 435.370 435.370 435.370 435.370 435.370 435.370 435.370 16.745 16.745 16.745 16.745 16.745 16.745 16.745 16.745 16.745 130.900 130.900 130.900 130.900 130.900 130.900 130.900 130.900 130.900 63.920 63.920 63.920 63.920 63.920 63.920 63.920 63.920 63.920

125.767 129.540 133.426 137.429 141.552 145.799 150.172 154.678 159.318 16.769 17.272 17.790 18.324 18.874 19.440 20.023 20.624 21.242 000000000 000000000 000000000 000000000 000000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 8 of 12

000000000 000000000 000000000 3000 3000 3000 3000 3000 3000 3000 3000 3000 000000000

000000000 000000000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 9 of 12

2018 2019 2020 Total 512.009 512.009 512.009 13.563.729 733.368 738.290 743.361 13.610.283

-221.359 -226.282 -231.352 -46.554 -1.382.292 -1.608.574 -1.839.926

2018 2019 2020 Total 000516.296 0001.244.943 410.208 410.208 410.208 8.845.043 101.801 101.801 101.801 2.957.446 000 0 512.009 512.009 512.009 13.563.729

2018 2019 2020 Total

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 10 of 12

435.370 435.370 435.370 7.991.551 130.900 130.900 130.900 2.659.650 164.098 169.020 174.091 2.896.081 000 0 3.000 3.000 3.000 63.000 000 0 733.368 738.290 743.361 13.610.283

, -464.469 -464.469 -464.469 -7.693.755 ,, -54.261 -54.261 -54.261 1.151.288 ,,, -218.359 -223.282 -228.352 -1.744.793 -221.359 -226.282 -231.352 -1.807.793 -221.359 -226.282 -231.352 -930.168

, ,, ,,,

2018 2019 2020

000 000 184.315 184.315 184.315 72.933 72.933 72.933

000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 11 of 12

000 225.893 225.893 225.893 28.868 28.868 28.868 000 000 410.208 410.208 410.208 101.801 101.801 101.801 000 141.608 141.608 141.608 000 000 000 000

2018 2019 2020

435.370 435.370 435.370 16.745 16.745 16.745 130.900 130.900 130.900 63.920 63.920 63.920

164.098 169.020 174.091 21.880 22.536 23.212 000 000 000 000 000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Decision Support Tool Page 12 of 12

000 000 000 3000 3000 3000 000

000 000

C:\Tool\Gap assessment.xls Sheet: Financing gap Printed 01-10-2000 19:14 COWI Appendix 9: Applied assumptions for costing environmental plan 1 Wastewater sewerage network

The target for wastewater sewerage is to increase the percentage of the population connected to the municipal wastewater sewerage systems. This target is achieved by (i) renovating the existing municipal wastewater sewerage systems, and (ii) connecting additional households to the municipal wastewater sewerage systems by extending the existing networks.

Table 1 illustrates the percentage of households connected to the wastewater sewerage systems in the basis and target year. The average extension of the wastewater sewerage networks is rather moderate amounting to 1.6% of the existing networks. The wastewater sewerage networks are extended in the cities Borovichi, Staraya Russa, Okulovka, Pestovo, Soltsy, Malaya Vishera, and Krestsi. Table 1 also illustrates that the renovation rates for the wastewater sewerage networks are equal to 5% for all the cities.

Table 1. Percentage of households connected to the wastewater sewerage system in the basis and target year, and renovation rates for the wastewater sewerage system

Town Percentage of households Percentage of households Renovation rates connected to the waste- connected to the waste- for the wastewater water sewerage system in water sewerage system in sewerage system the basis year (%) the target year (%) (%)

Novgorod 98 98 5 Borovichi 79 80 5 Staraya Russa 80 82 5 Valday 82 82 5 Chudovo 86 86 5 Okulovka 69 72 5 Pestovo 48 72 5 Soltsy 70 72 5 Malaya Vishera 62 72 5 Krestsi 60 62 5 Town settlements 66 66 5 For the wastewater sewerage network it was additionally assumed: • The size (in hectares) of the wastewater sewerage network is equal to the total area of the city times the percentage share of the city area occupied by housing (equal to 50%) times the percentage share of the households connected to the wastewater sewerage system (see Table 1). • Wastewater sewerage network shares for the existing and new networks in Novgorod: Single Pipe Separate System (70%), Single Pipe Open Channel (10%), Combined System (10%), and Double Pipe Separate System (10%).

• Wastewater sewerage network shares for the existing and new networks in all cities except Novgorod: Single Pipe Separate System (100%).

• Wastewater discharges from households decrease proportional to household water demand for the period 2000-2010.

• Wastewater discharges from industries decrease proportional to industrial water demand for the period 2000-2010.

1.1 Wastewater treatment plants

The target for wastewater treatment plants is to ensure proper treatment of the collected wastewater and reduce the amount of collected wastewater discharged without mechanical-biological treatment. This target is achieved by (i) renovating the existing municipal wastewater treatment plants, including upgrading the wastewater treatment technology in Okulovka to mechanical-biological treatment standard, and (ii) construct a new wastewater treatment plant in Soltsy where the existing wastewater treatment plant is in extremely poor condition and cannot be upgraded to mechanical-biological treatment standard.

Table 2 illustrates the wastewater treatment capacity in the basis year and the additional wastewater treatment capacity to be constructed by the target year. A new wastewater treatment plant with capacity 1.200 m3/day is to be constructed in Soltsy.

Table 2 also illustrates that the renovation rates for the wastewater treatment plants are equal to 10% for all the cities. Table 2. Wastewater treatment capacity and renovation rates for the wastewater treatment plants

Town Wastewater treatment Additional wastewater treat- Renovation rates for capacity in the basis ment capacity to be con- the wastewater treat- year (m3/day) structed by the target year ment plants (%) (m3/day)

Novgorod 220,000 0 10 Borovichi 55,000 0 10 Staraya Russa 20,400 0 10 Valday 17,000 0 10 Chudovo 6,500 0 10 Okulovka 1,400 0 10 Pestovo 2,700 0 10 Soltsy 700 1,200 10 Malaya Vishera 1,910 0 10 Krestsi 1,830 0 10 Town settlements 13,000 0 10

Total 341,440 1,200

For the wastewater treatment plants is was additionally assumed: • Mechanical-Biological wastewater treatment facilities exist and operate in the cities Novgorod, Borovichi, Staraya Russa, Valday, Chudovo, Pestovo, Malaya Vishera, and Krestsi.

• The municipal wastewater treatment plant in Okulovka operates according to Mechanical wastewater treatment standard and should be upgraded to Mechanical-Biological wastewater treatment standard.

• For town settlements with 1.500-10.000 inhabitants: 70% of the towns are assumed to have Mechanical wastewater treatment facilities and 30% Me- chanical-Biological wastewater treatment facilities.

2 Costing of Environmental Targets: Water

2.1 Costing of targets and measures applied Targets have been formulated in terms of service levels - coverage, regularity, water quality - and reduction of water losses in distribution network.

However, in practice it is rather difficult to cost different service levels separately. Rather, the technical measures, which can help to reach one or several targets, have been costed.

1 Extension of coverage target is achievable solely by new network con- striction; 2 Water quality target is achievable by investment in:

• renovation of intakes/wells, transmission and treatment or/and change to groundwater (mainly addresses raw water problems and secondary contamination in treatment like, for example, chlororganics);

• renovation of the distribution network (addresses secondary network pollution which originates from corroded pipes and low water pressure).

3 Irregular water supply and distribution water losses have been interpreted as the result of a poor condition of the distribution network and low pressure in the pipes.

Therefore, the three following measures have been costed:

1. new network connections;

2. renovation of intakes/ wells, transmission and treatment or/and change to groundwater (with a view to EU water quality standard);

3. renovation of network.

2.2 Renovation/replacement of intake/well and treatment Water intake/abstraction and treatment systems have been divided in two groups: one covered the towns where the share of failed bacteriological and chemical tests is within the targeted limit, another covered those towns and categories where that share is outside the limits.

First group comprised only the towns of Valday and Pestovo. The second group covered all the rest towns and categories, where the problem of water quality is addressed in two different manners:

• existing water intake/abstraction and treatment system is to be renovated/modernised (all towns and categories);

• in line with "Novgorod Drinking Water Programme", good quality groundwater supply is to be extended in Borovichi, Malaya Vishera and town settlements (partially after shutting down some of the existing surface water capacity) to provide for some 50% of water production.

The need for renovation/modernisation of the existing intake/abstraction and treatment system different across towns has been addressed through variable renovation rates. In this case, renovation rate conceptualises the cost share of a new system complying with EU standards which needs to be invested in a given local water plant in order to achieve the required quality targets.

It seems that installed water capacities are enough to provide for the required water production level in the target year, with one exception - Malaya Vishera, where partial change to groundwater is envisaged to compensate for that problem. (see Table 2.1 below) Table 2.1 Investment cost of renovation of intakes/ wells, transmission and treatment or/and change to groundwater, 2000-2010

Category name Share of population Share of population to Capacity for GW ab- Capacity for SW ab- Renovation rate for GW Renovation rate for SW New GW capacity to be supplied with water be supplied with water straction and treatment straction and treatment system system built to comply with of/above standard qual- of/above standard qual- to be renovated to be renovated quality targets ity in the basis year ity in the target year

Units of total population of total population m3/year m3/year % % m3/year

Novgorod 0% 99% - 29,912,161 0% 15% - Borovichi 0% 93% 2,698,000 3,066,068 5% 15% 368,068 Staraya Russa 0% 90% 3,736,410 - 20% 0% - Valday 95% 95% - - 0% 0% - Chudovo 0% 91% 347,000 2,271,062 15% 15% - Okulovka 0% 86% - 1,615,023 0% 20% - Pestovo 79% 86% - - 0% 0% - Soltsy 0% 86% 5,000 477,854 15% 15% - M. Vishera 0% 86% 144,000 552,039 30% 30% 408,039 Krestsi 0% 86% 239,877 - 20% 0% - Townsettlements 0% 80% 52,923 127,784 20% 20% 74,861 Total 6% 86% 7,223,210 38,021,992 14% 15% 850,968 2.3 Renovation of the network Renovation of the network is expected to result in at least two improvements: savings on distribution water losses and reduced secondary pollution in the network. Both are addressed through renovation rate that conceptualises the share of distribution network (including all additional installations and pumps) to be replaced to achieve the targets.

As a result of the suggested cost recovery policy and renovation of the distribution network (see Table 2.2 for renovation rates), total water production is also expected to decrease dramatically by the year 2011 (see Table 2.3).

Table 2.2 Investment cost of renovation of distribution network, 2000-2010

Category Total annual water production Total annual water production Share of distribution network name in the basis year in the target year that will be replaced until the target year Units m3/year/town m3/year %

Novgorod 52,854,000 29,912,161 15% Borovichi 8,759,000 6,132,137 10% Staraya 4,455,000 3,736,410 30% Russa Valday 1,824,000 1,581,602 20% Chudovo 3,835,000 2,618,062 20% Okulovka 2,099,000 1,615,023 20% Pestovo 349,000 379,924 40% Soltsy 570,000 482,854 40% M. Vishera 1,093,000 1,104,078 20% Krestsi 220,000 239,877 40% Townsettle- 315,000 255,568 30% ments Total 76,373,000 48,057,696 18% Table 2.3 Water production profile, 2000-2010

Item Total water production Total water production per connected inhabitant m3/year % of 2000 lcd % of 2000 Year 2000 2010 2010 2000 2010 2010 Novgorod 52,854 29,912 57% 612 346 57% Borovichi 8,759 5,948 68% 432 293 68% Staraya Russa 4,455 3,653 82% 349 286 82% Valday 1,824 1,582 87% 270 234 87% Chudovo 3,835 2,618 68% 652 445 68% Okulovka 2,099 1,333 64% 519 329 64% Pestovo 349 334 96% 74 71 96% Soltsy 570 449 79% 152 120 79% M. Vishera 1,093 912 83% 287 239 83% Krestsi 220 202 92% 78 72 92% Town settlements 4,095 2,949 72% 327 236 72% Average 490 305 62% Appendix 10: Members of advisory committee Appendix 10: Advisory committee

BOYTSOV Alexander Sergeevich Deputy Governor of the Oblast Admini- stration – Chairman of the Advisory Committee IVAN’KOV Nikolay Stepanovich Deputy Governor of the Oblast Admini- stration SAVIN Vladimir Alexandrovich Chairman of the Committee for Envi- ronmental Protection of the Novgorod oblast IVANOV Vasily Semenovich Chairman of the Economic Committee of the Novgorod oblast SOLDATOVA Elena Vasilievna Chairman of the Finance Committee of the Novgorod oblast CHERMASHENTSEV Yury Petrovich Deputy Mayor of Great Novgorod PANOV Anatoly Nikolaevich General Director of the Municipal and Housing Committee GRAZHDANKIN Nikolay Ivanovich Chairman of the Committee on the land resources use and planning SLUTSKER Isaak Josephovich Federal Forestry Enterprise – General Director Michael Jacobsen COWI, Denmark

Bo Nielsen COWI, Denmark

Alexander Martusevich COWI, Moscow

Ulrik Dan Weuder DANCEE Appendix 11: Bibliography $SSHQGL[%LEOLRJUDSK\

Alexandra Katalov Tables "Constraction of local cleaning structures of physics-chemical clearing", 06.01.00 & 14.01.99 "Environmental measures to decrease the volume of receipt the waste water and polluting substances in superficial reservoirs of the Baltic sea". 2 versions:

Consultant plus Database contains all regional regulations in the field of environmental man- 30,11,99 agement. Language: Russian.

Ministry of Sewerage services and solid waste management in Novgorod region. Existing Environment, situation, water supply & waste water services / solid waste management de- Finland (Nov 1999) velopment strategy, financing, recommendations.

Ministry of the Sewerage services and solid waste management in Novgorod region. Pre- Environment, feasibility study, executive summary (situation, water, waste, financing) Finland (Nov 1999)

Ministry of nature, Instruction and methodology on collection fee of environment pollution. adjusted with the The extraction from the section 7 - procedure of environmental fees reduction Ministry of econ- or exemption of some categories of payers/ Language: Russian omy/finance of the RF. (Nov 1999)

MYA (30.12.99) Environmental Financing Strategies Methodology Paper. Language English and Russian. Digital version

MYA CPH_50540_NATFIN_Standart TOC_02_en 27.12.1999 Language: English. Digital version.

Novgorod & Pskov Data, based upon the form 4-os on Russia total, the Novgorod and Pskov Oblasts. Nov 1999 oblasts. (Current environmental expenditures). Current expenditures: total on the region, capital repair, charge for discharges, resources charges, use of funding on environmental activity. Language: Russian.

Novgorod & Pskov Data, based on the form 18-ks on Russia total, Novgorod and Pskov oblasts. Oblasts. Nov 1999 (Capital environmental expenditures). Capital environmental expenditures: total capital investments, water, air, forest and fish resources. Total through Russia, Novgorod and Pskov oblast for 1995-97. Language: Russian.

Novgorod & Pskov Data, based on the form 18-ks on Russia total, Novgorod and Pskov oblast. Oblasts. Nov 1999 (Capital environmental expenditures) by sources of financing. Capital environmental expenditures: by sources of financing total, separately on water and natural resources protection. Total on Russia, Novgorod and Pskov oblast for 1995-97. Language: Russian.

Novgorod Oblast. Data on the form 4-os for 1995-98 (current environmental expenditures, capital 10.01.2000 repair expenditures) by enterprises of the Novgorod obast. Data on the form 4- os for 1995-98 (current environmental expenditures, capital repair expenditures) by enterprises of the Novgorod obast. Language: Russian.

Novgorod Oblast. List of organizations, reports of which were included in code upon f.18-ks, 18.01.2000 codes 18-ks on Novgorod oblast for 1995-98. "Data on capital investments, directed to environment protection and rational use of natural resources" on Novgorod oblast for 1995-98. Language: Russian.

Novgorod Oblast. List of organizations, reports of which were included in code upon f.4-os, codes 18.01.2000 4-os on Novgorod oblast for 1995-98. "Data on current environmental expenditures, ecological and resources charges through Novgorod oblast for 1995-98. Language: Russian.

Novgorod Oblast. Table 3.2 for 1995-98 on the Novgorod oblast Table 3.2 for 18.01.2000 1995-98: data on expenditures on management of OEC, spending of funding by OEF, financing of investment upon the scheme of reckoning of charges, spending of means of local EF, financing through the scheme of reckonung of charges (local EF), earnings of the Oblast EF, earnings of the local EF, transfer- ring to the FEF. Language: Russian.

Novgorod Oblast. Table 3.3 for 1995-98 by organizations, occupied environmental protection of 18.01.2000 the Novgorod oblast. Water economy committee, Center of hydrometeorology and monitoring of the environment, Administration of hunting,Administration of forests, Committee on land resources, Inspectorate of fishery regulation. Language: Russian.

Novgorod Oblast Detailed description of environmental expenditures. Only water protection and 10.02.00 effective use of water resources. Language: Russian.

Novgorod Oblast Non-monetary forms of financing of the environmental activities in 1995-1998, 10.02.00 Capital and current costs - barter, exchange, debt-swaps, tax exemptions, pollution charges investment credit etc. % of non-monetary transactions. What form is used most often what is their portion, %; how much lower expenditure was if only monetary form of payment had been used. Language: Russian.

Novgorod Oblast Table 3.2 for 1995-98 on the Novgorod oblast. Table 3.2 for 18.01.00 1995-98: data on expenditures on management of OEC, spending of funding by OEF, financing of investment upon the scheme of reckoning of charges, spending of means of local EF, financing through the scheme of reckonung of charges (local EF), earnings of the Oblast EF, earnings of the local EF, transfer- ring to the FEF. Language: Russian

Novgorod Oblast Info on prime cost of waste water treatment, outline of management of water 24-01-00 and waste water economy, projects of construction and rehabilitation of WTF of the Novgorod REODVW 3ULPHFRVWRIZDVWHZDWHUWUHDWPHQWRI Novgorod for 1999, (by expenditure items) separately on industrial waste waters and municipal waste waters.outline of management of water and waste water economy, projects of construction and rehabilitation of WTF of the Novgorod oblast in the current period. Language: Russian.

Novgorod )LOOHGLQWDEOHV IRU0DWHULDOVRQHQYLURQPHQWDOH[SHQGi- spetsavtokhozyay- tures CJSC "Novgorod spetsavtokhozyaystvo". Filled in tables on CJSC stvo. 18.01.2000 "Novgorod VSHWVDYWRNKR]\D\VWYR IRU 'HFRGLQJRILQYHVWPHQW WKURXJKHQYLURQPHQWDOH[SHQGLWXUHV &XUUHQWH[SHQGLWXUHV LQYHVt- PHQWV QRQPRQHWDU\IRUPVRIILQDQFLQJ 5+'/DQJXDJH5XVVLDQ

Novgorod CHPP )LOOHGLQWDEOHV IRU0DWHULDOVRQHQYLURQPHQWDOH[SHQGLWXUHVRI 18.01.2000 Novgorod CHPP JSC "Novgorodenergo"18,01,00. Filled in tables on CHPP for 'HFRGLQJRILQYHVWPHQWWKURXJKHQYLURQPHQWDOH[SHQGLWXUHV &XUUHQWH[SHQGLWXUHV LQYHVWPHQWV QRQPRQHWDU\IRUPVRIIi- QDQFLQJ 5+'/DQJXDJH5XVVLDQ

Administration of the Decree "Concerning activities in the sphere of waste handling" of the 11/06/99 Novgorod region. UJNovgorod. Language: Russian. (Nov 1999)

Administration of the Temporary rules on environment protection from industrial and consumption Novgorod region. wastes in the region (Novgorod, aproved by administrative decree of 16/06/94 (Nov 1999) 1)Environmental requirements for industrial and cunsumtion wastes handling 2) Procedure of permitting for industrial and consumtion wastes disposal and fees calculation 3) terms and definitions 4) List of normative documents at the sphere of handling with industrial and consumption wastes. Language: Russian.

The Environment Circular of the Environment Committee of the Novgorod region "Concerning Committee of the levying of housing enterprises with pollution fees for housing wastes disposal". Novgorod Region Draft decree "Concerning acumulation of financial resources for reconstruction (Nov 1999) of dumps and construction of new landfills of munisipal waste". Language: Russian.

The Environment Letter of the Environment Committee of the Novgorod region "Information on Committee of the inventory of housing and industrial waste disposal places, carried out in 1996 Novgorod Region XQGHU'HFUHHRI$GPLQLVWUDWLRQRIWKHUHJLRQ DWW Information (Nov 1999) on the results of inventory. There is an apendix to the document - see 4-8-Nov. Language: Russian

The Environment Current expenditures for providing environment protection in 1995 (tables. 3.4, Committee of the 2.1). Tables completed by regional committees and COWI by form 4-os, data Novgorod Region. on current expenditures, extraordinary repair, waste fees, natural resources use 28.12.99 payments (1995-1998). The Environment Committee of the Novgorod Region. Language: Russian. The Environment Investment expenditures (table 1.1). Tables completed by regional statistics Committee of the committees and COWI, data on investment expenditures by industries. (1995- Novgorod Region. 98). The Environment Committee of the Novgorod Region. Language: Russian. 28.12.99

The Environment Schedule of enterprises, provided reports by form 4-os and 18-ks in 1995-98. Committee of the Form of ownership index, index of industry, list of companies reported by form Novgorod Region. 4-osand 18-ks in 1995-98. Language: Russian. 28.12.99

The Environment Information concerning current environmental expenditures, ecological fees Committee of the and payments on natural resources use by companies of Novgorod. Stat. tables: Novgorod Region. data on current expenditures in 1995-98 highlighting directions of the expen- 28.12.99 ditures. Ecological fees and payments on natural resources use. Language: Rus- sian.

The Environment Circular of the Environment Committee of the Novgorod region "Concerning Committee of the levying of housing enterprises with pollution fees for housing wastes disposal". Novgorod Region. Draft decree "Concerning acumulation of financial resources for reconstruction Nov 1999 of dumps and construction of new landfills of munisipal waste". Language: Russian.

State environmental Information on environmental fees and charges in the Novgorod region. Lan- committee of the guage: Russian. Novgorod region Nov 1999

Municipal institution &RQWUDFW RQRSHUDWLQJDQGUXQQLQJRIVROLGPXQLFLSDOZDVWHODQGILOO "Service of principal Contract, list of measures for running of the solid municipal landfill, Accep- in the HME sphere", tance report for the SMW landfill, tariff calculating, disclosure, cost calcula- Novgorod. tions. (Nov 1999)

Regional Statistical Information on fixed capital investments, provided for environment protection Department and rational use of natural resources (form 18-ks). Form of state statistical 28. 12. 99 overview on enterprises (Akron, Chudovo-RVS, BKO). Language: Russian.

State Public Budget Capital investments for environment protection and rational use of natural Nov 1999 resources in 1998. Direction of environmental investments, their financial resources in 1998.

State Public Budget Capital investments for environment protection and rational use of natural Nov 1999 resources. Direction of environmental investments in 1990-98. Language: Russian The State Statistical Standard of well-being in the Novgorod region in 1998 (based on household Committee of the income survey). Statistical report contained data on standard of well-being in Novgorod Region. the Novgorod region in 1998. Language: Russian. Nov 1999

The State Statistical Catalogue of economic-statistical materials in 1999. List of published collec- Committee of the tions, statements, reports, supporting information. Language: Russian Novgorod Region. Nov 1999

The State Statistical Information on fixed capital investments provided for environment protection Committee of the and rational use of natural resources owned by companies and organisations of Novgorod Region. Novgorod. Stat. tables: data on investment in 1995-98, directions of environ- 28.12. 99 ment protection, financial resources, capacities putted into operation due all financial resources. Language: Russian.

The State Statistical Social-economic state of the Novgorod region (statistical compendium). Infor- Committee of the mation about social-economic stateof the Novgorod region in 1985, 90-98. Novgorod Region Language: Russian. Nov 1999

The State Statistical Concerning social-economic state of the Novgorod region in Jan.-Sept. of 1999. Committee of the Information about social-economic stateof the Novgorod region in Jan.-Sept. of Novgorod Region 1999. Language: Russian. Nov 1999

The State Statistical Housing Municipal Economy (statistical compendium). Committee of the Data on housing, gasification, water supply (capacity, water output), sewerage Novgorod Region (length of the networks, amount of waste water), heat supply (capacity, energy Nov 1999 consumption), urban accomplashment (cleaning) in 1990-98. Language: Rus- sian.

The State Statistical Catalogue of economic-statistical materials in 1999 Committee of the List of published collections, statements, reports, supporting information. Lan- Novgorod Region guage: Russian. Nov 1999

State report "Con- Air pollution of Novgorod and Pskov region in 1998. Indicators of air pollution cerning the state of and others of Novgorod and Pskov region in 1998 (main pollutors and amounts environment of the of pollution). Language: Russian RF in 1998 (1999)

TACIS Internet Regional Environmental Financing Strategy. Background. Information 15.12.99 TACIS Internet Environmental description of the Novgorod region. Environmental description Information of the Novgorod region, tables and diagramms, translation into English. Lan- 30.12.99 guage: Russian & English.

TACIS Internet Investments in fixed assets with direct assignment to environmental protection Information and/or rational use of natural resources. In 1990,95,96,97,98 Investments in 23.11.99 fixed assets with direct assignment to environmental protection and/or rational use of natural resources (through measures)

TACIS Internet Environmental investments. Investments in fixed assets, directed towards envi- Information ronment protection and rational use of natural resources in 1990, 1995-98, in 23.12.99 1998 by sources of financing

TACIS Internet Statistical tables on environment New environmental protection installation ca- Information pacity. Investments in fixed assets with directed assignment to environmental 01.12.99 protection and rational use of natural resources, by sector of economy split for 1998. Expenditure for protection of the nature. Payment of the enterprises and organisations for use of natural resources. Payment of the enterprises and organisations for normative and above permitted standard pollution of an environment. Structure of ecological funds expenditures. Current expenses for nature protection

TACIS Internet In- Statistical tables on environment. New environmental protection installations formation capacity. Investments in fixed assets with directed assignment to environmental 01.12.99 protection and rational use of natural resources, by sector of economy split for 1998. Environmental expenditures. Charges of enterprises and organisations for use of natural resources. Charges of enterprises and organisations for pollution within limits and above them. Outline of environmental funds expenditures. Current environmental expenses

TACIS Internet In- Statistical tables on environmental protection. Toxic wastes, water contamina- formation tion and air pollution, environmental pollution (see 4-23). Language: Russian. Nov/Dec 1999

TACIS Internet Historic, Environment policy, Institutional, Env. financing & fiscal policy Information Contexts, Evaluation of current Instruments of environment management EIs. (29.12.99) Http\\Tacis6\c\!User\reg_fin_strategy\novgorod\Econ_Instr\Secti2.doc

TACIS Internet List of EIs, pollution charges, fees on natural resources use, - regulation, as- Information sessment basis, pollution norms, data on fees collec- (29.12.99) tion.Http\\Tacis6\c\!User\reg_fin_strategy\novgorod\Econ_Instr\Quest302.doc.

Obstat COWI Tables based on the forms 4-os: table 3.4. Waste and natural resources use fees Novgorod.XLS. and charges. Current environmental expenditures of industries in 1995-98. table 24,12,99 1.1. Investment expenses. Language: Russian.

Regional Statistics. Regional statistics. Current environmental expenditures, Extraordinary repair of (4OES, 98) Nov. 99 fixed assets expenditures, Environmental fees and charges, Natural resources payments and a number of reported enterprises - by regions. Language: Russian.

Investment rating of ([SHUW 2FWREHU$VVHVVPHQWRILQYHVWPHQWFOLPDWHSo- regions of the RF. tential and risk of Russian regions, data on real investment (foreign inv., in- 1998-1999. vestment volume, the dynamics of investments), diagrams, maps, tables. Nov 1999

Investment expen- Investment expenditures for 1995-98 (total, on rational use of water resources, ditures for 1995-98 air protection, rational use of land, production wastes treatment). Language: 18.01.2000 Russian.

Environmental ex- 7DEOH Adm.of Solytsy rayon, Adm. Of Borovichi, Adm.of Staraya penditures in Solytsy Russa and Starorusskiy rayon, Adm. of Chudovskiy rayon, City adm. rayon, Borovichi, V.Novgorod. Data on environmental expenditures in Solytsy rayon, Borovichi, Staraya Russa and Staraya Russa and Starorusskiy rayon, Chudovskiy rayon, Velikiy Novgorod in Starorusskiy rayon, 1995-98 (sources of financing, directions of investments) 18,01,00. Language: Chudovskiy rayon, Russian. Velikiy Novgorod in 1995-98

Filled in tables on MAE "Novgorod YRGRNDQDO IRU)LOOHG " in tables on MAE "Novgorod YRGRNDQDO IRU/DQJXDJH Russian. 18.01.2000

Filled in tables on ME "Vodokanal" %RURYLFKL IRU)LOOHG in tables on ME "Vodokanal" %RURYLFKLIRU 'HFRGLQJRILn- 18-01-2000 YHVWPHQWWKURXJKHQYLURQPHQWDOH[SHQGLWXUHV &XUUHQWH[SHQGLWXUHV LQYHVWPHQWV QRQPRQHWDU\IRUPVRIILQDQFLQJ 5+'/DQJXDJH5Xs- sian.

Borovichi centre of )LOOHGLQWDEOHVRQ-6& IRU retractories )LOOHGLQWDEOHVRQ-6& Borovichi center of retrackto- ULHV IRU/DQJXDJH5XVVLDQ

Decoding of investments through environmental expenditures in 1995. Decoding of investments through environmental expenditures in 1996. Decoding of investments through environmental expenditures in 1997. Decoding of investments through environmental expenditures in 1998 Decoding of current environmental expenditures Novgorod 10.02.00. Language: Russian Intermediate data (Zero level expenditures on air protection) on installations capacity. Investments in fixed assets with directed assignment to environmental protection and rational use of natural resources, by sector of economy split for 1998. Environmental expenditures. Charges of enterprises and organizations for use of natural resources. Charges of enterprises and organizations for pollution within limits and above them. Outline of environmental funds expenditures. Current environmental expenses. Language: Russian.

MUE Novgorod MUE "Vodokanal of Novgorod" - inquiry answer. Tariffs by consumers groups Vodokanal in 1993-99, cost structure in 1999. Language: Russian. Nov 1999

Borovichi Accounts of MHE "Vodokanal" Borovichi for 9 months 1999, 1998 .Balance Vodokanal for 1999 (9 months), statement on profit and losses, f.6, inquiry on realization, 24.01.2000 for 1998 - explanatory note, balance etc. Trend of tariffs for 1995-99, costs (prime cost) for 9 month.1999, inquiry on carrying out of plans for 1998-99 (9 month.), analysis of prime cost by items (waterpipe, sewerage), status of accounts receivable and budget assignments. Language: Russian.

MSE Tariffs for water and waste water services, applicated - MSE "Mosvodokanal" "Mosvodokanal" answer on the inquiry. Language: Russian. 25.02.00

Letter from Data on length of heating system pipes, pipes replacment, repair staff, planned NovZhilKhomKhoz capacity of boilers, boiler’s replacement level. Language: Russian. Nov.99

MUE Vodokanal of MUE "Vodokanal of Novgorod" - inquiry answer. Length of pipelines at the 1st Novgorod of the July of 1999, level of depratiation, level of replacement the depreciated Nov 1999 pipelines in the period from 1996 up to 1998, capacity of waste water treatment facilities at the 1st of Sept. 1999. Language: Russian.

Sewage Pumping Technical information on seweage pumping stations. Language: Russian. Station Report Nov 1999

TACIS Internet Statistics on environment protection, on HME of the Novgorod region. Information Use of surface and underground waters for providing towns and urban-type 26.12.99 communities with industrial and drinking water, Sewerage network, Heat supply for settlements, water-supply network, Sewerage in settlements, Heat supply for towns ("NovZhilCommun-Service"), Water supply for settlements. 1997. Language: Russian.

TACIS Internet Statistics on HME of the Novgorod region (statistical compendium). Information Statistics on housing, water supply, sewerage. Language: Russian. 30.12.99

Borovichi Vodo- Accounts of MHE "Vodokanal" Borovichi for 9 months 1999, 1998. Balance kanal 24.01.00 for 1999 (9 months), statement on profit and lossess, f.6, inquiry on realization, for 1998 - explanatory note, balance etc. Trend of tariffs for 1995-99, costs (prime cost) for 9 month.1999, inquiry on carrying out of plans for 1998-99 (9 month.), analysis of prime cost by items (waterpipe, sewerage), status of accounts receivable and budget assignments. Language: Russian.

Info on prime cost of waste water treatment, outline of management of water 24.01.00 and wastewater economy, projects of construction and rehabilitation of WTF of the Novgorod oblast. Prime cost of wastewater treatment of Novgorod for 1999, (by expenditure items) separately on industrial wastewater and municipal waste waters. Outline of management of water and wastewater economy, projects of construction and rehabilitation of WTF of the Novgorod oblast in the current period. Language: Russian.

TACIS Internet Statistics on environmental protection, on the HME of the Novgorod region. Information Data on water-treatment facilities, reqirements of the region for disposal facili- 26.12.99 ties, information related to the municipal solid waste disposal in 1997, to estimated environmental fees, Discription of existent subjects of disposal. Lan- guage: Russian.

TACIS Internet Statistical forms 4-os, 18-ks. Translation of the form 4-os in English. Information 01.11.99

TACIS Internet Statistical tables on environment. New environmental protection installations Information capacity. Investments in fixed assets with directed assignment to environmental 01.12.99 protection and rational use of natural resources, by sector of economy split for 1998. Expenditure for protection of the nature. Payment of the enterprises and organizations for use of natural resources. Payment of the enterprises and organizations for normative and above permitted standard pollution of an environment. Structure of ecological funds expenditures. Current expenses for nature protection. Language: Russian.

TACIS Internet Statistical tables on environmental protection. Investments in fixed capital, di- Information rected to environmental protection and rational use of natural resources by 01.12.99 sectors of economy in 1998, introduction in operation of environmental capacities, current environmental expenditures, expenditures on environmental protection, Charges of enterprises and organizations for natural resources, charges of enterprises and organizations for pollution within limits and out of them, Outline of expenditures of environmental funds. Language: Russian. TACIS Internet Statistical collection on environment protection. Toxic wastes, water contami- Information nation and air pollution, environmental expenditures (see 4-23). Language: .- Russian.

TACIS Internet Statistical collection on environment protection. Major geographical and social Information economical characteristics of the oblast, Population, Labour, Ecology, Produc- 01.12.99 tion potential, Industry, Investment and construction activity, Services, Fi- nances and credit, Prices and tariffs. Language: Russian.

TACIS Internet Statistical tables on environment. New environmental protection installations Information capacity. Investments in fixed assets with directed assignment to environmental 01.12.99 protection and rational use of natural resources, by sector of economy split for 1998. Environmental expenditures. Charges of the enterprises and organizations for use of natural resources. Charges of the enterprises and organizations for pollution within limits and above them. Structure of ecological funds expenditures. Current expenses for nature protection. Language: Russian.

TACIS Internet Statistical tables on environmental protection. Investments in fixed assets with Information directed assignment to environmental protection and rational use of natural re- 02.12.99 sources, by sector of economy split for 1998. Environmental expenditures. Charges of the enterprises and organizations for use of natural resources. Charges of the enterprises and organizations for pollution within limits and above them. Structure of ecological funds expenditures. Current expenses for nature protection. Language: Russian.

TACIS Internet Statistical tables on environmental protection. Toxic wastes, water contamina- Information tion and air pollution, environmental pollution (see 4-23). Language: Russian. .-

The Committee of Information on tax revenues in the regional budget over 10 months of 1999. Finance of the Language: Russian. Region Nov 1999

TACIS Internet Consolidated budget performance in 1995,96,97,98. Consolidated budget per- Information 15.12.99 formance in 1995-98 (items of revenues and expenses planned, actual and % of performance, oblast and local level). Language: Russian.

TACIS Internet Draft project on consolidated budget for the year 2000. Draft project of con- Information 15.12.99 solidated budget performance for the year (items of revenues and expenses planned, actual and % of performance). Language: Russian. TACIS Internet Transferred tax payments to the budget of the Oblast. Language: Russian. Information 15.12.99

The State Statistical Protection of environment in the Novgorod region (statistical compendium). Committee of the Environment protection indicators in 1990-98. Language: Russian. Novgorod Region Nov 1999

The State Statistical Air protection in 1998. Data on the protection of air of the Novgorod region in Committee of the 1998. Language: Russian. Novgorod Region Nov 1999

State report "Con- Air pollution of Novgorod and Pskov region in 1998. Indicators of air pollution cerning the state of and others of Novgorod and Pskov region in 1998. Language: Russian. enveronment of the RF in the 1998" Nov 1999

"Questions of statis- Impact of some industries on the environment. Water pollution, environmental tics" vol. 10/1999 investments, water use, air pollution, land pollution, toxic industrial wastes. Nov 1999 Language: Russian.

State report "Con- Rates of environmental polluion in 1998. Area, population of regions of the RF, cerning the state of air pollution, waste water, toxic solid wastes, specific indicators. Language: enveronment of the Russian. RF in the 1998". Nov 1999

The State Statistical Concerning ecological situation in the Novgorod region. Indicators of pollution, Committee of the PAC investments in 1998 (1990-1998). Language: Russian. Novgorod region. Nov 1999

State environmental State of environment in the Novgorod region in 1997. Overview, statistics committee of the about state of environment in the Novgorod region in 1997. Language: Russian. Novgorod region. Nov 1999

State environmental Overview on the state of environment in the Novgorod region in 1995. committee of the Language: Russian. Novgorod region Nov.99 Administration of the State of environment in the Novgorod region in 1995. Analysis of state of envi- Novgorod region, ronment in the novgorod region in 1995. Language: Russian. State environmental committee of the Novgorod region, Novgorod State Uni- versity. Nov 1999

Goskomstat of the Environmental protection in the Russian Federation in 1994. Data on env. pro- RF. Nov 1999 tection in the RF at whole, in regions of the RF, from the point of view of sectors of the national economy, of ministers, departments, associations. Data on air, water, land, forests protection, on preserves, environmental expenditures and use of EFs means. Language: Russian.

The CIS statistical Environment in the Commonwealth of Independent States (Statistical compen- committee dium). Information on the environmental situation in 1985-95, protection of the environment and rational utilisation of the natural resources, international com- parisons on some indicators with individual countries in Europe, Asia and America; inf. on land, forests, water resources, air, environmental manegement and investments. Language: Russian.

06.03 00 Composite report on water pipes work (separate waterpipes networks) and sewerage (separate sewer networks) for 1999 on the Novgorod oblast. Technical indicators (capacity, water-supply and etc.) on waterpipes and sewerage work in 1999, on the Novgorod oblast, on urban areas. Language: Russian.

06.03 00 Quantity of boilers in the Novgorod oblast, by rayons, type of fuel, used capac. By rayons - quantity of boilers in the Novgorod oblast, type of fuel, used capacity, incl. needing equipping of gas purification facilities. Language: Russian.

10.02.00 R&D for environmental protection. Language: Russian

24.01.00 Financing of SPS-2 construction in Borovichi in prices 1999.Financing of SPS- 2 construction in Borovichi in prices 1999 by sources of financing. Language: Russian.

24.01.99 Data on allocated funds in 1997-1999 on environmental objects. Financing by the programs and LQKDELWDWHGDUHDVILQDQFLQJLQ by sources of funding. Language: Russian.

18.01.2000 )LOOHGLQWDEOHVRQ-6& $&521 IRUPDMRUFKDUDFWHULs- tics of the enterprise, short description of environmental project 18,01,00 " )LOOHGLQWDEOHVRQ-6& $&521 IRUPDMRU characteristics of the enterprise, short description of environmental project. Language: Russian.

18.01.2000 Filled in tables on -6& /DNWLV IRU /DQJXDJH Russian.

18.01.00 Change of pollutants emissions into the atmosphere on the Novgorod oblast from 1994-1998. Language: Russian.

18.01.00 List of enterprises, which are the major sources of air pollution (Novgorod oblast) in 1997, 1998

18.01.00 List of major ocal sources of air pollution. /DQJXDJH5XVVLDQ

18.01.00 Analysis of sources of pollutants emissions through the territory of the Novgorod oblast. Language: Russian.

18.01.00 Pollutants emissions into the atmosphere. The Novgorod oblast. (on chapter 2 f 2-tp air), 1995-1998 (t/year). Language: Russian.

18.01.00 Pollutants emissions into the atmosphere. The Novgorod oblast. (on chapter 2 f 2-tp air), 1995-1998 (treatment and utilization). Language: Russian.

01.01.2000 Subterranean resources use fees. 1. Fees for use of subterranean resourses. 2.Fees for reproduction of mineral resourses base. 3. Fees for local mineral extraction. 4. Duty for tender participating and for licence. 5. Fees for geological information on mineral resourses. (Regulation, assessment basis, in 1995-99 - collection of revenues) ILOH HFRQRPLFLQVWUuments. Language: Russian.

28.12.99 Information on solid municipal, liquid municipal and industrial waste disposal and landfill in the Novgorod region. Language Russian.

28.12.99 Information related to the municipal solid waste disposal in 1997, and preliminary environmental charges. Amounts of municipal wastes disposal, estimated pollution fees, description of existent disposals, requirements of the region in wastes disposal facilities. Language: Russian.

28.12.99 Summury of inventory data about subjects of disposal in the Novgorod region. (97 enterprises) See doc. 16-7-N. Language: Russian.

28.12.99 List of enterprises, their share at the market. List of enterprises (including enterprises with foreign capital share) provided report by the form 18-ks in 1998. Language: Russian. 28.12.99 Gross regional product in the Novgorod region (table). Gross regional product for each industry in 1995-98. Language: Russian.

28.12.99 Gross industrial product, distribution of the product for every industry. Gross product manufacturing per industries, in %%. Language: Russian.

28.12.99 Proposal for constraction of waste water facilities and lanfill of solid housing wastes in the Novgorod region. Language: Russian.

28.12.99 Assessment of condition surfaces of drinking water resources. Condition of drinking water resources. Language: Russian

28.12.99 Schedule of biological water treatment facilities and the Map. Data on water treatment facilities, map. Language: Russian

28.12.99 List of drinking water sources and the map. Sources of drinking water in settlements, the map (on 2 scales) Language: Russian

28.12.99 Overview (form 2-tp-vodhkoz) of waste water amount and contained pollutants. Waste water Wastewater through years, pollutants in 1998 through industries. Language: Russian

28.12.1999 Proposition of the Novgorod region for co-operation with Sweden undertaking SIDA environmental programs. Description of the environmental program in water sector, tables - investment program (Borovichy, Malaya Vishera, Oku- lovka), Language: Russian.

24.12.1999 General issues related to the use of economic instruments in Russia. Language English. Digital version.

10.12.99 Table "Waste of pollutants" (according to form 2-tp-vodkhoz), The Novgorod region, 1996,97. Waste water in districts of the Novgorod region in 1997,1996 with indication of pollutants. Language: Russian.

10.12.99 Table "Waste of sewerage, mining and drain waters" (according to form 2-tp- vodkhoz) the Novgorod region, 96,97,98. Waste water considering rates of purification from the view of industries and districts in the Novgorod region in 1997,96, and in 98 by industries only. Language: Russian.

10.12.99 Table "Waste of pollutants" (according to form 2-tp-vodkhoz), The Novgorod region, 1995. Waste water by industries with indication of pollutants. Lan- guage: Russian.

10.12.99 Table "Water deversion and use" (by the form 2-tp-vodkhoz), 1996. Fresh water deversion (with indication underground sources), data on direction of use by industries in 1996 in the Novgorod region. Language: Russian.

Dec 1999 Form 2-tp (Toxic wastes) - not filled. Unfilled form 2-tp "Information on toxic industrial and consuming wastes formation, use and disposal" 01.12.99 Statistical tables on environment. New environmental protect

01.12.99 Statistical tables on environment. Investments in fixed assets with directed assignment to environmental protection and rational use of natural resources, by sector of economy split for 1998. Environmental expenditures. Charges of the enterprises and organizations for use of natural resources. Charges of the enterprises and organizations for pollution within limits and above them. Structure of ecological funds expenditures. Current expenses for nature protection. Lan- guage: Russian.

Nov/Dec 1999 Statistical tables on environmental protection. Toxic wastes, water contamination and air pollution, environmental pollution (see 4-23). Language: Russian.

01.11.99 Charges of enterprises for use of natural resources. Charges of enterprises for use of natural resources, outline of earnings of the EF 95-98. Language: Rus- sian.

Nov 1999 Letter from NovZhilKhomKhoz. Approved tariffs on heating energy consumption, level of receivables. Language: Russian.

Nov 1999 /HWWHU DW 'DWDRQ08(Teploenergo". Cost structure, tariffs, collection level, information on maintanace of systems. Language: Rus- sian.

Nov 1999 Summary tables an the base of the form 1-ecofund for 1995-98. Data on EF. Language: Russian

Nov 1999 Structure of expenditures of EFs in 1995-1998

Nov 1999 Data related to the overview of the state of environment in 1998. Economical mechanism of environmental management; revenues of local EFs; media structure of environmental fees, normative and norm exceeding pollution; accounting of environmental expenditures for pollution fees; local EFs expenses from the point of view of measures, periods, districts. Language: Russian

Nov 1999 Information on supporting with finance from the regional EF. Information on supplying with finance from the regional EF, indicating measures, in 1995-98. Language: Russian.

Nov 1999 Data on expenditures from local EFs. Data on direction of expenditures local EF in 1995-98from. Language: Russian. Nov 1999 )RUP ecofund for 9 months of 1999, 1995-98. Reports made by forms of WKH6WDWH6WDWLVWLFDORYHUYLHZ ecofund for 1995 - 9 months of 1999. Lan- guage: Russian.

Nov 1999 Summury tables based on the form 1-ecofund for 1995-99. Data on EF’s expen- dituers (indecated directions), revenues (local and regional level) in 1995-1999. Language: Russian.

Nov 1999 Earnings of the environmental fund, Expenditures of the environmental fund in1995-99 through the Novgorod oblast, the Pskov oblast and total on Russia. Language: Russian.

Nov 1999 Incomes and expenditures of the EF in 1997 on directions, Total on Russia, on Novgorod and Pskov oblast. Language: Russian.

Nov 1999 Resident population of the novgorod region at the 1st of Jan. 99. regarding districts.

Nov 1999 Industrial statistics (table), investment and construction activities. Investment and constraction activities, industrial gross product (85-98). Language: Russian.

Nov 1999 Regional statistics (4OES, 98). Current environmental expenditures, Extraordi- nary repair of fixed assets expenditures, Environmental fees and charges, Natu- ral resources payments and a number of reported enterprises - by regions. Lan- guage: Russian.

Nov 1999 Form of statistical statement 4-os. Translation of statistical statement form 4-os in English.

Nov 1999 Data related to the overview of the state of environment in 1998. Economical mechanism of environmental management; revenues of local EFs; media structure of environmental fees, normative and norm exceeding pollution; accounting of environmental expenditures for pollution fees; local EFs expences from the point of view of measures, periods, districts. Language: Russian.

Nov 1999 The map: landfills and disposals of solid wastes in the Novgorod region. Language Russian.

Nov 1999 Questionnaire on pollution abatement and control expenditure. Language: English and French.

Nov 1999 Draft program for the Baltic Sea basin. Language: Russian. (RFS costing mod- els) Water quality assessment (water quality requirements), waste waters and their purification, (method of purification), water protection measures (including in agriculture), regulation of water use, State management of water use and water resources protection, economy of water use, State control of water use and protection, proposal for monitoring water quality in surface reservoirs, R&D for the project. Language Russian. Nov 1999 Development and implementation of recovery program "Clean water" for Niz- hni Novgorod. Preconditions of development and implementation of the Pro- gram, Earmarked complex medico-ecological program of preservation and recovery health of population, prophylaxis at environmentally depressed areas of N.Novgorod. Language Russian.

Nov 1999 /HWWHU DW 'DWDRQ08(Teploenergo". Cost structure, tariffs, collection level, information on maintanace of systems. Language: Rus- sian.

Nov 1999 Project of the social-economic development of the region in the year 2000 ("Conception 2000"). Priority directions of activities of the Novgorod region authorities in economic and social spheres. Main directions of budget policy in the year 2000. Language Russian.

Nov 1999 Local program for environmental recovery in basin of the Baltic Sea (1995). List of measures: sort of works, their efficiency, control authorities, schedule time, financing sources.

Nov 1999 Summary data concerning number of projects with foreign technical assistance for solving ecological problems, implementation costs, donors, from the point of view of regions of the RF. Summary data concerning number of projects with foreign technical assistance for solving ecological problems, implementation costs, donors, from the point of view of regions of the RF. Language: Russian.

Nov 1999 Capital investments for environment protection and rational use of natural resources in 1998, their financial resources. Direction of environmental investments, their financial resources in 1998. Language: Russian.

Nov 1999 Capital investments for environment protection and rational use of natural resources. Direction of environmental investments in 1990-98. Language: Rus- sian.

Nov 1999 Report on consolidated budget performance for 1995-1998, 10 months of 1999. Consolidated budget revenues and expenditures performance in the Novgorod region (for both local and regional levels) in 1995-1998, 10 months of 1999, calculation of the budget expenditures rate. Language: Russian.

Nov 1999 Infomation on realisation international projects by State Environmental Com- mittee. List of joint international projects realised by the State Environmental Committee. Language: Russian.

Nov 1999 Draft project of consolidated regional budget in 2000 (at the 11 of Nov. and at the 06 of Dec.)Expected performance of consolidated budget of the Novgorod region.

Nov 1999 Consolidated mounthly report on budget performance at the 1-st of Sept. 1999 (Novgorod and Pskov region). Information on Novgorod and Pskov budget revenues at the 1-st of Sept. 1999 (tax, non-tax revenues, state property incomes). Language: Russian.

Nov 1999 Enterprises’ payments on natural resources use. Fees and charges of enterprises on natural resourses use, structure of EFs’ revenues in 1995-98. Language: Rus- sian.

Nov 1999 Structure of expenditures of EFs in 1995-1998. Language: Russian.

Nov 1999 Enterprises’ fees and charges on allowed and over normative pollution. Pollu- tion fees and charges of enterprises in 1995-98 Language: Russian.

Nov 1999 Monthly report on regional budget performance at the 1-st of Nov. 1999 (the Novgorod region). Monthly report on revenues and expences performance of the Novgorod regional budget. Language: Russian.

Nov 1999 Expected revenues and expences performance of the Novgorod regional budget in 2000. Language: Russian.

Goskomstat Macroeconomic indicator on Novgorod & Pskov region. Key Economic Indi- 01.12.99 cators for the Regions, Importance of Industrial Sectors, Fixed Assets, Invest- ment Sources, Investments by Sector, Inflation, Income, Investments in Fixed Capital, Environmental Protection and Rational Use of Natural Resources, Cur- rent Expenditures on Environmental Protection. Language: Russian.

All-Union hygiene, Sanitary code and normatives for protection surface waters.hard copy. Sanitary sanitary and anti- code. Language: Russian. epidemic rules and regulations. Nov 1999

16.11.99 Environmental management in the Novgorod region. List of environmental institutions, their status, responsibilities, functions.

Ministry of nature, Instruction and methodology on collection fee of environment pollution. The adjusted with the extraction from the section 7 - procedure of environmental fees reduction or Minestry of econ- exemption of some categories of payers. Language: Russian. omy/finance of the RF. Nov 1999 Administration of the Decree "Concerning activities in the sphere of waste handling" of the 11/06/99 Novgorod region. UJNovgorod hard copy. Decree "Concerning activities in the sphere of Nov 1999 ZDVWHKDQGOLQJ RIWKH UJNovgorod. Language: Russian.

Administration of the Temporary rules on environment protection from industrial and consumption Novgorod region. wastes in the region (Novgorod, aproved by administrative decree of 16/06/94 Nov 1999 1)Environmental requirements for industrial and cunsumtion wastes handling 2) Procedure of permitting for industrial and consumtion wastes disposal and fees calculation ) terms and definitions 4) List of normative documents at the sphere of handling with industrial and consumption wastes. Language: Russian.

24.01.00 List of pollutants MAC in water bodies of economical water use and pollutants MAC in fishery water bodies. By ingredients - MAC of water bodies of economical water use and MAC of fishery water bodies Language: Russian.

Novgorod news, Project of the Novgorod oblast law "On unified tax on imputed earnings for 25/02/00 specific activities". Language: Russian. DATASHEET

Publisher: Ministry of Environment and Energy, Danish Environmental Protection Agency, Strandgade 29, DK-1401 Copenhagen Telephone int + 45 32660100 Telefax int + 45 32660479 http://www.mst.dk Year of publication: 2000

Title: Novgorod. Background Analyses for the Environmental Financing Strategy

Author(s): Mr Bo Nielsen, Mr Michael Jacobsen and Mr Alexander P. Martussevich

Performing organisation(s): COWI AS in association with COWIconsult International Ltd., Russian Federation

Abstract: The purpose of the municipal water and wastewater financing strategy for Novgorod region of the Russian Federation is to determine a realistic, agreed and affordable service and to demonstrate how environmental expenditure can be financed. The water and wastewater financing strategy has been developed in an iterative process in a dialogue with the finance, environmental and other relevant authorities. This report presents the final background analyses by the consultant.

Terms: Russia, NIS, water utilities; water, wastewater; wastewater treatment; regional environmental action plan (REAP); environmental financing strategy; environmental policy analysis; water tariffs; international finance; debt finance

Edition closed: August 2000

Number of pages: 250 Format: A4

Number of copies: 100 (second impression)

Printed by: Kannike Graphic A/S

Reproduction is authorised provided the source is acknowledged. Printed on 100% recycled paper Ministry of Environment, Denmark