Environment in emerging and transition economies

Environmental Financing Strategies - Country Studies


Five EECCA countries (ArmeniaGeorgiaKazakhstanMoldova and Ukraine) and six regions (Kaliningrad, NovgorodPskovRostov and Yaroslavl in Russia, and Eastern Kazakhstan) have for the first time systematically calculated expenditure needed to operate, maintain, rehabilitate and develop urban water, sanitation and municipal waste infrastructure. Using the FEASIBLE model, these expenditure requirements were systematically compared with available sources of financing. Additional financial needs were quantified, and realistic, affordable measures to mobilize necessary finance were identified.


In Armenia
, the analysis of the financing strategy for urban wastewater collection and treatment showed the poor status of wastewater treatment facilities in the country. While until recently, the Armenian government has been focusing on rehabilitating water supply infrastructure and gradual recovery of 24-hour water supply, it is now developing a rehabilitation programme for sanitation. To support this effort a Financing strategy for urban sanitation in Armenia was developed. The strategy envisages that by 2015 effective mechanical treatment of all collected wastewater will have been provided in the 19 biggest cities and towns (with population amounting to 1.7 million people, i.e. some 60% of the total population), and the sanitation coverage will have been substantially increased. The financing strategy assessed related expenditure needs, finance available and the respective financial deficit. A package of policy measures which would allow to close the financial gap was developed. This package envisages that financing of the water supply and sanitation sector will require significant support by the public budget as well as a gradual increase in water tariffs to affordability limits (4% of average per capita income). Affordability constraints were carefully analysed and a realistic scenario for achieving the targets in the sector by 2015 was proposed.

A policy dialogue on the implementation of the finance strategy for water supply and sanitation was in the focus of a follw-up project. The main objective of the dialogue was to support Armenian stakeholders in: integrating the financial projections into budgetary decision making at the national level (Task 1); increasing the reliability of investment needs assessment, using robust methods to assess, manage and forecast demand for water supply and sanitation services (Task 2); and ensuring that tariff policies are sustainable from an economic and social point of view (Task 3). Respectively, the report consits of 3 volumes. The lessons learnt from this project, on policy and method, are relevant to most EECCA countries and beyond.

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In Georgia
, the analysis of the financing strategy for the urban water and wastewater sector showed the dramatic state of the wastewater treatment infrastructure, extremely weak fiscal position of the government and hence, the low financing and borrowing capacity of the public sector. Unlike in Moldova, for example, the low liquidity of the government has not been compensated by higher rates of recovering infrastructure costs from users. Water tariffs are low compared to other EECCA countries and many households seem to be able to afford to pay more.

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In Kazakhstan
, the analysis for the financing strategy for the urban water and wastewater sector revealed one of the highest cost-recovery and water tariff levels in the EECCA region. There are also relative enabling conditions for debt financing and private sector participation. However, ambitious plans for the development of infrastructure, especially in the rapidly growing new capital city of Astana, would require a higher level of support from public budgets for capital investments. The main bottleneck to increased public sector financing seems to be the low capacity of water and environmental authorities to make effective proposals to exiting public finance instruments, such as the Public Investment Programme and the state budget. In addition, a financing strategy for the urban water and wastewater sector was conducted for the Eastern Kazakhstan Oblast, where special attention was given to the financial capacity of and enabling conditions for private sector participation and foreign loans.

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In Moldova
, the analysis for the financing strategy for the urban water and wastewater sector showed a very high rate of deterioration and inefficient design of urban infrastructure, dramatic financial constraints in the public sector, exhausted borrowing capacity and the highest cost recovery rate among the EECCA countries, undermined, however, by a low collection of tariffs. The existing infrastructure development plans were found unrealistic. The analysis demonstrated that wastewater effluent standards for urban wastewater treatment were so stringent that it would be impossible to finance related investments for decades to come. This has triggered the Ministry of Environment and Territorial Development to draft a government resolution relaxing the effluent standards to the levels of the European Union. More details can be found in the attached reports.

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1. Novgorod Oblast

In the Novgorod Oblast of the Russian Federation, the analysis for the financing strategy for the urban water and wastewater sector showed very low cost-recovery levels, even if the Oblast is relatively rich and most households could afford higher water tariffs. The regional administration and the Regional Committee for Environment Protection (Goscomecologiya) have become owners of the Strategy. Priority investment projects contributing significantly to achieving the established strategic targets were included in the regional “Action Plan on Environmental Protection and Effective Nature Use for 2001-2004”.

The financing strategy for municipal solid waste has facilitated a substantial revision of regional waste management plans and revealed many options for consolidation of the planned landfills and waste processing facilities to reduce costs by achieving economy of scale. The analysis has also identified a package of policies that can help reduce the demand for landfills and identified three priority capital investment projects, all involving inter-municipal cooperation.

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2. Pskov Oblast

In the Pskov Oblast of the Russian Federation, the analysis for the financing strategy for the urban water and wastewater sector revealed that the original government plans for infrastructure development were excessively ambitious and impossible to finance. At the same time, cost-recovery and tariff levels were very low compared with other EECCA countries. The regional administration has introduced recommendations on procedures for calculation and approval of municipal services tariffs and has improved many existing weak points of the tariff policies currently applied in the region. Furthermore, it is recommended that that the local administrations follow more firmly the schedule for achieving full cost-recovery through household tariffs for municipal services.

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3. Rostov Oblast

In the Rostov Oblast of the Russian Federation, the regional environmental committee is trying to use the financing strategy for municipal solid waste to strengthen its position in the negotiations with the regional finance administration over the annual budget and to argue for cooperation between local governments in developing regional, cheaper solutions. The scenario analysis for the financing strategy for urban water supply and sanitation services identifies policy options for the sector development, each with a set of policy measures that lead to attracting additional funds for closing or decreasing the financing deficit. These two financing strategies were financially supported by the EU and the EAP Task Force and implemented within the TACIS NEAP2 project.

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4. Yaroslavl Oblast

In the Yaroslavl Oblast of the Russian Federation, the financing strategy for municipal solid waste was used to identify cost-effective waste management development options and has triggered a debate on restructuring the waste management company. Work on the Financing Strategy has coincided with the creation of a special Unit responsible for municipal solid waste management at the Department of Housing and Municipal Economy of the Regional Administration. The Financing Strategy analysis has found that the waste management systems in the large cities of the Yaroslavl region already generate financial surplus even at the current, affordable level of tariffs. The final report on the Financing Strategy was delivered and discussed with the major project partners in November 2002. In addition, a financing strategy for municipal water supply and sanitation services was developed and disseminated (along with the strategy on municipal waste) at the 2003 Kiev “Environment for Europe” Ministerial Conference. These projects were financially supported by the EU and the EAP Task Force and implemented within the TACIS NEAP2 project.

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In Ukraine, the national financing strategy for the municipal water and wastewater sector confirmed the very poor level of water and wastewater services (in most cities water is supplied only for a few hours a day) and the relatively low levels of tariffs despite a higher ability to pay. The analysis considered the costs of convergence with the service levels and environmental standards of the European Union and identified where the major financing bottlenecks lay. The Strategy was used to support the financial analysis of the wider water sector strategy of the Government, thus becoming an essential part of a comprehensive water sector plan adopted by the Government.

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