Page 77 - U4SSC Compendium of practices on innovative financing for smart sustainable cities projects
P. 77
3 Expenses related to launch of the new water intake system
4 Expenses related to capital repairs and maintenance
Project financing elements
• Long-term, 13-year loan of approximately USD 160 million equivalent in Russian ruble from the
national development bank, secured by collateral of utility company shares and its assets and
to be used for financing the first two blocks. Repaid from tariff revenue.
• Co-financing the first two and the fourth blocks in the amount of approximately USD 240 million
by the utility company from dedicated part of tariff revenues and own sources during a period
of long-term lease.
• Capital grant of approximately USD 300 million in Russian ruble from the federal government
to finance the third block.
The ownership for new infrastructure is mixed – depending on the source of financing with private
assets to be transferred to the municipality upon expiration of the lease if ongoing financial liabilities
are absent.
Payback terms: The interest rate of the 13-year Russian ruble loan was the inflation rate plus two per
cent. Its repayment installments were included into the regulated cost of the water and wastewater
tariffs, with the loan being repaid from the operational income of utility services.
Observations
• The new wastewater networks resulted in the increase of property and land value, and the
increased presence of retail and other businesses in the area. Local authorities were able to
improve the quality of life for residents, while the private operators succeeded in expanding
their service area and increasing their number of customers.
• The approach and financing mechanisms used can be implemented, not only in Russia, but
worldwide. Combining public and private financing allowed for lower capital cost.
• Private sector participation changed the operational efficiency of the utility company, achieving
a quick and significant reduction of unaccounted-for water and customer debts. An increased
quality of the service (uninterrupted water supply) provided for increased customer satisfaction.
• Outsourcing the management of technically complex issues (e.g., hydraulic modelling and
management, leakage management, laboratory services and control of industrial customer
discharge) to companies with the necessary expertise and equipment allowed for a further
increase in operational efficiency and a reduction of necessary CapEx.
• The project stimulated changes in Russian legislation (i.e., the law governing concession), which
made the concessions model a working option for future projects.
Compendium of practices on innovative financing for SSC projects | January 2023 65