CC BY
6DOI: 10.12731/2070-7568-2014-5-2 UDC 332
WAYS TO ENCOURAGE FINANCIAL INSTITUTIONS TO ACTIVELY FINANCING OF PUBLIC UTILITIES
Gokzhaeva E.B., Ponomareva M.A.
The article examines the state of most objects of housing and communal sector, which is characterized by serious physical and moral depreciation. In the article the author suggests the ways of attracting private capital in the housing and communal services, on the basis of the analysis of the of European States" experience. The experience of the European countries with respect to the distribution of responsibility in the construction and operation of infrastructure has been systematized. The author proposed to link the growth of infrastructure sectors with projected in the medium term the growth of indicators of socio-economic development of the region, which are defined by strategic goals, simultaneously planning the interventions on the development of the housing sector in the short term. One of the promising tools of financing infra-structural projects are, in our view, infrastructural bonds, which can be used in the utility industry, but only in the framework of concession agreements at the level of Russian Federation subjects. The study showed the features of quasinfrastructural bonds the process of their creation in the Russian Federation.
Keywords: housing and utilities, public-private partnership, concessions infrastructure in the region.
Purpose
The purpose is to determine a system of measures that will attract investment in the housing sector without rising prices for services in the Russian Federation.
Materials and methods of research
The modern economics study based on ideas of Sivaev S.B., Trutnev E.K., Prokofiev V.Y. [6], Glumov E. [4], E. Agitaev [2] etc, The information was gathered from literature, newspapers, the Internet and by interviewing practitioners, official materials like sessions of the Russian Federation State Council Presidium etc. The following methods were used - analysis, analogy, method of aggregating, synthesis.
One of the most important social tasks of the state is to provide all citizens with quality, uninterrupted and affordable services of housing and communal services. Achieving the necessary level of security of citizens is a complex and expensive procedure, since the construction of infrastructure involves large-scale capitalization, a long-engineering period, the long period of investments return.
Currently housing and communal complex of the Russian Federation is a complex part of macroeconomics: housing, 4.2 million of objects of engineering infrastructure, the industry employs about 2.5 million people. However, the majority of the housing and utilities sector is characterized by serious physical and moral depreciation. Sys-
tem industry crisis in the industry has led to accidents on 23 objects of housing and communal services and is already regarded as a threat to national security.
The necessary funds for the modernization of the housing and utilities sector are estimated in the trillions of rubles. At the session of Russian Federation state Council Presidium in Syktyvkar, the restoration of the housing and communal services, or accounting to V. Busar-gin to bring them to the a normative status is required about 6 trillion rubles in the current prices. But funding is only part of the problems, another task is to change the management of the housing and communal services. Developed countries have long been practicing attracting private business to the development and management utilities. The application of the so-called public-private partnership (PPP) in the world practice has established itself as an effective system of solving tasks of innovative development of the economy.
Research results and their interpretation
One should admit that the current negative situation of housing and communal services formed as consequence of a lack of understanding of importance and priority development of the infrastructure in the past. Housing and communal services and associated activities in market conditions subjected to various crises and destructive processes due to the high functional importance for the development of the reproductive socio-economic systems. They require substantial state support in various forms: in the form of direct financing of the construction and repair of infrastructure, and in the form of creation of the enterprises with different fractions of capital from the state.
The accession of Russia to the WTO will further complicate the situation with the calculation of tariffs for housing services. One of the fundamental points of Russian Federation membership in the WTO was the alignment of internal and external energy prices including provided, for the population. In these circumstances stimulation of any financial institutions to invest in housing and communal services is not possible, however, government policy should in our opinion take into account the so-called «molecular marketing», i.e. the maximum stratify the population on the opportunities for recovery utility services. This stratification should be considered when planning the construction of objects of housing and communal services their financing. We offer to link the growth of infrastructure sectors with projected in the medium term the growth of indicators of socio-economic development of the region defined strategic goals, planning the interventions on the development of the housing sector in the short term.
Research results and their interpretation
From the point of view of the territorial development of the region, there is one more requirement - the development of public utilities infrastructure must comply to geographically and in time the processes of the development of other infrastructure sectors and tasks of development of space. The difficult economic nature of the systems of communal infrastructure has a significant impact not only on the organization of their activity, but also to plan their development in the territorial scale.
Persistence and territorial-spatial character of development of housing-and-municipal sphere in the greatest degree requires long-
term planning of their development, coordinated with the General territorial strategic priorities. In connection with the market's conditions economic management requires specific, complementary market-based mechanisms of its development, based on a joint (shared) participation in this process of various stakeholders, which implies the need to develop new approaches to solve these issues.
Housing and communal services - it is a natural monopoly which under the skillful state regulation can and must operate highly effectively.
However, neither due to the tariff component, in other words the money, received from the population and organizations the consuming public services, nor from the Federal and regional budgets to untie the knot of problems that been accumulated in the industry, it is impossible - we need large-scale investments on the part of business. In Europe the sector of housing and communal services is a very attractive sphere of capital, especially for small and medium business. To do this, depending on the purposes and the tasks, which are solved with the help of partnership between the state and the private sector, there are different forms of PPP. In the implementation of PPP projects different mechanisms of cooperation between the state and private business are used, they vary according to the «volume transferred to a private partner, ownership, the investment obligations of the parties, the principles of risk-sharing between partners, the responsibility for carrying out different types of work. You should move on from the standby budget funds to the creation of stable structures of public-private partnership. Agreeing with the specialists of the company «Vegas-Lex», it can be argued that in the sphere of housing and
communal services a more progressive scheme is a «built - own - use - pass», which has been approved in St. Petersburg, the Republic of Altai, Tomsk region and other regions.
Yet the regional and municipal authorities do not pay enough attention to the intensification of concession agreements, while they must perform as their initiators and pursue an active policy of the field of attracting a major private investor to the market of infrastructure services in the form of concession agreements. In our opinion it is necessary to create favorable conditions for attracting investments in the form of concessions, in particular the need to develop the corresponding consistent legal framework of concession agreements. In general, the structure of regional PPP-laws may look as follows:
1) the law of the subject of the Russian Federation on public-private partnership;
2) other acts in the sphere of investment activities, corresponding to the basic law;
3) normative acts of subjects of the Russian Federation adopted on the basis of the provisions of the law in order to define and implement some its provisions.
The basic regulations in the field of PPP, obviously, should be adopted in the form of a law, since such form will ensure the legality of the actions of authorities in the field of PPP, in particular in situations not covered by Federal legislation and public for a legal requirement or the practical implementation of subjects of the Russian Federation, as well as judicial protection of the respective agreements. One should not forget that the civil law is referred to the competence of the Rus-
sian Federation, so the law on PPPs subject of the Russian Federation must comply with Federal civil rights. The content of the PPP law, adopted in the region may be different.
At the level of the regional one should, in consultation with municipalities, define a set of objects, which provide the development of certain infrastructure sectors in those or other areas of the region, reflecting its strategic development priorities for their transfer to concession.
After the determination of such objects it is necessary to carry out an inventory of land and other assets and registration of their rights to immovable property subjected to concession agreements. Moreover, this work should have public response: all the planned measures and directions of development should not only be available to the local community, but also actively covered by the media, with the possibility of a public hearing and the organization of «feedback» with the population. The reforms that will be understandable to the population and take into account the maximum possible wishes of the residents of the region will be the greatest success. Certainly, such work will take time but the time spent will pay off in the future, as they will prevent rejection of changes population, which is currently the most constraining factor ongoing reforms (for example in the sphere of housing sector).
It appears that a key moment in the development of PPP in housing sector is the order of distribution of risks between the public and private sector. The matrix must distribute of responsibility between the public and private sectors in various forms of public-private interaction in management of development of infrastructure sectors.
One of the promising tools for financing infra-structural projects are, in our view, infrastructure bonds, which can also be used in the utility sector, but only in the framework of concession agreements at the level of subjects of the Russian Federation. The concept of the Federal law on infrastructural bonds treats them as bonds issued by a special-project company, which has a specific purpose (creation and/ or reconstruction of the object infrastructure), are fully state (municipal) the guarantee and/ or the pledge of the future cash requirements, comprising of anticipated revenues or cash flows from the operation of the infrastructure.
Conservative investors (non-state pension funds, insurance companies) that have generated substantial stocks of reserve funds and thus having serious regulatory restrictions on the distribution of free shares, are deprived of traditional sources of investments in the stock market. However, the availability of government guarantees should not be a mandatory condition for the issue of infrastructure bonds.
Implementation of pilot projects using quasinfrastructural bonds showed that the application of this instrument is not the exclusive prerogative of the largest natural monopolies. One can say that the financing of investment projects with the use quasinfrastructural bonds is the demand both at the level of Federal projects (in particular in the transport sector), and at the level of regional projects in various sectors.
The use of quasinfrastructural bonds as an investment of investment is possible practically in any infrastructure project with a long payback period and low interest rate but with a stable cash flow and governments participation in this project. In addition to pilot projects active work is conducted of the Institute of quasinfrastructural bonds,
in particular on the development of a special law regulating the circulation of «real» infrastructure bonds.
Today we can consider two main areas of the opportunities for implementation of infrastructure projects with the involvement of institutional investors:
1. Implementation of investment projects through the issue quasinfrastructural bonds in the framework of the current legislation on the securities market.
2. Attraction of investments to infrastructure projects under development in a number of Federal agencies, especially the Federal service for financial markets of the draft law «On the peculiarities of investment in infrastructure with the use of infrastructure bonds».
Since the development of the institution of infrastructure bonds is also directed on attraction of means of pension funds, it is necessary to expand the list of objects of investment funds, as reflected in the accounts of persons who do not pension Fund. In addition, it is necessary to revise the requirements to the structure of the pension savings' portfolio. At the same time it could solve the problem of inconsistency of the volume of pension savings, which are under the management of the state company, the volume of issued state securities, bearing themselves the danger of a reduction in the effectiveness of data management tools.
In December 2012 the draft law, allowing to invest Pension Fund in infrastructure, passed the stage of final approval, but has not yet been adopted. Attraction of pension funds should, in our view, be ac-
companied by a number of benefits. Strangely enough, but the representatives of the authorities and analysts give little attention to the most important issue for some reasons. After all, preferential taxation is one of the main features which make infrastructure bonds as effective and attractive mechanism, if we take into account the fact that the rates are usually significantly (2-4%) lower than the usual corporate ones.
In Europian practice of exemption from federal and local taxes under certain conditions, as well as interest paid by the bondholders has been adopted. As a rule, the tax treatment of income derived from the mentioned securities, depends on the type of project, funded by them. Generally income from the bonds free from federal taxes, with the involvement of socially important projects, as well as the objects are financed, investments for which are hard to draw any other way (for example, the construction of housing for the poor).
We believe that a similar schemes could be developed and in Russian law, especially considering that the current legislation provides the reduction of the rate of the profit tax for investment projects subjected to deduction and transfer into the budget of the subject. Accordingly, we do not see reasons for which the required changes could not be made to the tax code of the Russian Federation with the purpose of exemption from taxation the income on infrastructure bonds. In the future a change in the tax code in the direction of the zero rate on the Federal level would be a progressive step.
Private form of support financial institutions could be the insurance by Vnesheconombank project risks. However, the active involvement of the VEB in the development of the institution of infrastruc-
ture bonds is primarily the current version of the Law «On concession agreements». This edition provides the right of state ownership of the object of concession immediately after completion of construction, the ban on bail, with the absence of clear contractual mechanism of regulation of activities of the concessionaire by concedents, increasing the risks of the concedents to the extent when they can be covered only with a budget guarantee.
The market potential of such projects is huge, since most of the projects receive the support of the public entity in the form of guarantees, market-based tariffs, payment of services.
Currently business has a legal capacity to the limited introduction of quasinfrastructural bonds, including on concessional and quasicon-cessional projects, which are connected with the reconstruction of infrastructure facilities. By russian order the legal basis for the limited introduction of such bonds into circulation was created. These bonds are called quasinfrastructural, as the concept itself of infrastructure bonds legally still has not been fixed. Thus, the institute of quasinfra-structural bonds even in the existing limited regulatory environment allows to structure investment projects in various industries. The main features of infrastructure bonds are1: • use of funds obtained from placement of infrastructure bonds, for the implementation of long-term infrastructure projects (roads, railways, ports, airports, power lines, the public utilities and other);
1 Glumov E. - Mode of access: http://www.vegaslex.ru/data/2009/ 11/27/1234598035.
• ensure of return of investments at the expense of income from the operation of the infrastructure facility, for example in the framework of implementation of the agreements between the state or local authorities and company-Issuer;
• long-term circulation of infrastructure bonds tied to the term of construction or reconstruction of the infrastructure object and the period of its operation (life cycle), the average components 10-25 years;
• ability to ensure bond state guarantees, risk insurance, bank guarantees and sureties, as well as by other guarantees.
Currently a number of agencies are developing the draft law «On the peculiarities of investment in infrastructure with the use of infrastructure bonds». Thus it is necessary to agree with the opinion of specialists of «Vegas-Lex», which consists in the fact that the use of quasinfrastructural bonds as a way of attracting credit «leverage» on favorable terms in such projects makes them very attractive investment instrument. In turn infrastructure bonds can become a full-fledged tool of usage in the normative regulation of the issues of the guarantees, of the format of projects, the status of the issuer and other nuances related with the specifics of the conservative finance.
The creation of a competitive environment by creating public-private partnerships has become the central point of reforms in many developing countries. As practice shows, attraction of the sources of financing for implementation of projects of public-private partnership can be for authorities a small amount of the costs or perhaps all without cost. The costs maintenance of the infrastructure in many cases
can be passed on to users, urging them to pay a price close to actual costs, with the help of campaigns aimed at the support this decision.
So in many U.S. cities, the development of municipal infrastructure, as well as roads and parks are financed by imposing of new consumers as the cause of this development, the payment of the system development (System Development Charge, SDC), which is the common name for disbursements which shall also be collected from users of the system storm water, municipal roads and parks. The fee for the system development is at the same time the payment imposed on new real estate objects. This fee is intended to cover fair part of the cost of the expansion and modernization of the existing communal infrastructure and the planned changes in it necessary for the development of cities. The meaning of collection of SDC is to shift part of the cost incurred by the municipalities in financing development of territories (in relation to the creation of a system of water supply, sewerage and wastewater treatment, storm sewage, roads, and parks), to those persons who either give rise to the need for the existence of these systems, or increase the intensity of use of existing systems.
As the experience of France (as an example we can note Canal du Midi - South channel), some profitable in financial terms, projects may even create new financial resources by means of profit distribution between the operator and the authorities. Thus infrastructure development projects can be realized without additional load on the budget.
France also charged for the system development, and there is a practice of sharing responsibility in the provision of new consumers of public services. So a separate article is devoted to the model concession agreement for water supply of the connection procedure:
«1. When connecting objects to the system of water supply all elbows and connections located between the transmission pipelines and the counter shall be established by the concessionaire. The expenses on the original connection are paid by the subscriber...
... Branches and connections located under the public roads are an integral part of the leased enterprise.
2. If the distance between the transmission pipelines and the boundaries of an object exceeds (n) metres, a subscriber may either at his own choice find a contractor who will perform all excavation works at the site of shut-off between the channel and the counter or request the concessionaire to fulfill the whole scope of works on the device of drainage in accordance with the conditions.
If dredging is performed by third-party contractor, the subscriber must get special permission of local government body, as well as to ensure the observance of technical conditions for production of works at the water supply network»2.
Regarding the extension of the network and construction of additional lines in the contract says that the local authority responsible for carrying out all the works on expansion of the network and the construction of additional lines, including the construction of new pipelines and the construction of new facilities to increase the production capacity of the network. The concessionaire participates in the discussion of the preliminary draft of these works, especially those depending on the continuity of the service, or requiring especially careful
2 Sivaev S.B., Trutnev E.K., Prokofiev. Century State support of housing and communal services infrastructure development. - M: Case, 2009.
execution, or those associated with a device connecting to the already working of the network. The payment for works to the concessionaire on the expansion and modernization of the network or the connection of new consumers is carried out on the basis of the price list, which is the annex to the concession contract.
The diversity of the existing forms of public-private partnerships warns against all forms of private sector participation to the one that is carried out under the slogan of privatization. The specific conditions of the private sector's access to the markets of housing and communal services are important on several levels.
The possibility of attracting of investment resources in a decisive degree depends on the efficiency of the use of the resource potential. Modernization of communal infrastructure should lead to a reduction in the consumption of resources and, consequently, to reduce the cost of services. The resulting economic effect will be the main factor of investment attractiveness of housing and communal services.
The potential energy service contracts are not less than 500 billion rubles/year. Convergence with EU environmental legislation acquires a special significance in the frames of the project «Harmonisation of environmental standards II (HES II) EU - Russia». Accordingly upon the achievement of control of the parameters of resource-saving and reducing the financial burden on consumers should be a system of incentives from the state:
• preferential taxation on innovative and environmental activities (tax cuts in this sector to a minimum up to the fact that in the first few (3-5) years of general release of the enterprise from the taxes leaving only social);
• insurance of risks of scientific research and related to the implementation of innovative environmental development (system development of state insurance for such enterprises);
• subsidies and other forms of compensation in the acquisition of research, equipment and facilities;
• preferential crediting system (up to and including termination) of the innovation projects-ecological orientation with government guarantees and surety;
• placement of state orders for the development of the specific problems of ecological - and energyeffektiveness;
• information-consulting support and training programs for companies in the field of innovation and environmental development and other tax benefits, etc.
Conversely if private business has failed to fulfill the specified conditions, it may compensate the damage either at value market (for example the Kyoto Protocol), or be deprived of the right of operation of objects of housing and communal services. The result should creat organizational institutions of open trade in energy resources on the principles of equal access for all suppliers and consumers at preferential terms for obtaining subsequent public contracts for construction and operation of objects of public utilities.
The formation of prices in the implementation of the energy service contracts should, in our view, be based on the RAB method. The principles of regulation using RAB regulation provide for the establishment of tariffs for 3-5 year period on the basis of long-term regulation parameters. The RAB regulation in contrast to the method of
economically reasonable expenses (costs) creates preconditions for creation a favorable investment climate in the energy sphere, since the rules of the game (in this case - the long-term regulation parameters) during the whole period of regulation remain unchanged. The duration of the first long-term regulation period for «running-in» new methodology will be three years, the duration of the same subsequent periods is five years.
Conclusion
The creation of such a financial and economic model of functioning and development of the housing and communal services will allow to provide real benefits for each of its participants: the population will receive high-quality services at stable prices and the opportunity through market mechanisms influence on the quality and price of the services; the state guarantees targeted assistance for the poor.
The housing and utilities reform is urgent and a priority in this process is the financing of the construction and operation of its facilities. We made an attempt to summarize and systematize activities aimed at encouraging financial institutions to invest in housing and communal services.
References
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DATA ABOUT THE AUTHORS
Gokzhaeva Elena Borisovna, Doctor of Economics
Rostov State University of Economics
69, B. Sadovaya st., Rostov-on-Don, Rostovskaya area, 344002, Russia
egokzhaeva@mail.ru
Ponomareva Marina Anatolevna, Doctor of Economics, associate professor of regional economy and nature
Rostov State University of Economics
69, B. Sadovaya st., Rostov-on-Don, Rostovskaya area, 344002, Russia
yuma@list.ru
