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Novgorod, Russia Background Analyses for the Environmental Financing Strategy

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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
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