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By Grzegorz Peszko, OECD Environment Directorate Improving water supply and sanitation infrastructure in the NIS must be based on realistic financial strategies which may require "painful" policy choices to be made. During the last decade, funds available to environmental infrastructure in the New Independent States (NIS) have been declining to very low levels. On the other hand, the limited funds that have been available to environmental authorities have not always been best used to maximise quality of infrastructure services and environment. Opportunities to leverage additional financing from public, private, and foreign sources have also been underutilised. This was partly caused by the weak financial underpinning of policy planning and management. While National Environmental Action Programmes (NEAPs), developed in most NIS, have been usually valuable in identifying priority environmental problems, a common weakness was their failure to identify realistic solutions. NEAP targets were not specific, measurable, realistic, or time-bound. Estimates of costs were not made, plans were not linked to finance, and affordability issues were not addressed. NEAPs often present long and prohibitively expensive wish-lists of measures and projects, put together as if budget constraints were "soft" and funds could be stretched almost without limits. This has led to action plans that could not be practically implemented. To check the pragmatism of NEAP implementation, finance strategies are being developed within the framework of the EAP Task Force, with Danish government support. The strategies are powered by a computer model built by Danish consultants from COWI Consulting Engineers and Planners AS to simulate, in quantitative terms, the costs of alternative policy targets and opportunities and to match these costs with financing from different available sources. So far the simulations were applied in Georgia, Moldova and Novgorod Oblast of the Russian Federation. Applications in Kazakhstan, Ukraine and Pskov Oblast in Russia are underway. At this stage, the focus is on municipal water supply and wastewater infrastructure. Preliminary results reveal, in quantitative terms, the painful trade-offs that need to be made in the efforts to prevent urban water systems in NIS from collapsing. The poorest countries in the region cannot even afford to properly operate and maintain existing, ill-designed and inefficient water supply and sanitation infrastructure inherited from the Soviet Union. Continuing deterioration of quality of services seems unavoidable. This may entail discharges of untreated wastewater (even from the largest cities), low water pressures, interrupted supply, and repeated incidences of contaminated drinking water. In this regard, finance strategies help to make pragmatic, although painful choices about directing scarce funds to maintain at least those selected parts of the infrastructure which are essential to protect public health and to reduce operation costs. Rehabilitation investments will be possible only slowly, under the condition that additional finance, such as increasing user charges and enhancing the financial sustainability of water utilities, is secured. User charges, raised gradually at least to the rates afforded by households, will need to be an indispensable element of any sustainable financing scheme. National and local budgets for many years will play a crucial role in financing capital investments and facilitating access to credit. They will have to become, however, narrowly targeted on the rehabilitation of selected parts of infrastructure, instead of being thinly distributed across the whole system. Donor grants will play an important catalytic role, but will always cover only a fraction of required expenditures. And international finance institutions (IFI) and private finance could play an important but limited role in the short term as long as they carefully revise their projects taking into consideration affordability constraints. |
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