Official website of the President of Russia

Transcripts   /

Vladimir Putin: Good afternoon,

Today we are to discuss the issue which has recently engaged the minds of everyone and which in fact affects everyone. I am referring to the housing and utilities sector. It is important for the country, but it is particularly relevant for such problem regions as Siberia and the Far East.

We must start with a very acute issue because, as we all understand, we are talking about light and heating in the homes of our citizens. This is important not only for Siberia and the Far East, but for Russia as a whole. This is because nearly 70% of the country’s territory lies in northern or remote territories.

The problem is closely linked with another issue, that is, energy, and tariffs for the products and services of natural monopolies. We will discuss these later today when we have a meeting on the issue, and undoubtedly these two problems are inter-related. But to begin with the first part.

As I have said, the future of the fuel and energy complex has recently been a major topic of discussion. As for the problems of the housing and utilities sector, they have been discussed nationwide for several years. In the early 1990s responsibility for the bulk of the sector was put on the local governments in the hope that it would create market conditions. But things ground to a halt. No market conditions have been created at the local level, and financing from the federal Government has been practically cut off. The sector has been deteriorating with every passing year.

Officially, the issues of housing and utilities are within the competence of the local authorities. But the federal Government cannot just sit back and watch the situation deteriorate year in and year out. I think the decision taken some time ago was very simple and very wrong: to pretend that this is none of the Government’s business.

The concept of the housing and utilities reform has existed for more than three years. But this winter has shown what the real situation in the country is, as opposed to what is on paper. The Governor has been speaking about it too. In fact, we slept through the reforms, and when we woke up the housing and utilities sector was on the brink of a disaster.

When the Minister for Emergency Situations has to step in to sort out the situation in a community or a local boiler room, clearly, the Government has a serious problem on its hands. And it is not just about managerial incompetence of certain officials.

So, I would like to warn you from the start that if some officials have been replaced, it does not mean that nothing more needs to be done. It is not the panacea. It won’t solve the problem.

The underlying problem is the general technical degradation of the sector. It cannot be solved by administrative measures. We have many cities where municipal services are effective and experience no seasonal crises. But their capacity is overstretched too. When all these networks were built a certain safety margin was envisaged. But everything has its limits.

The average wear-and-tear of engineering service lines in the country is 60%. About a quarter of the basic assets have outlived their service period. The only real success we can report is that the housing market is emerging. For the rest the housing and utilities sector is one of the few survivals of a non-market economy in our country.

The sector is run in the old way. The laws of the economy of scarcity still operate there. And yet it was clear ten years ago that not only the budget but society as a whole could not afford to have the inefficient, resource-intensive and over-centralised housing and utilities sector. The main problem in the sector is that it cannot pay its way. In fact, the system was consuming all the resources it generated.

An attempt was made to turn the situation around in 1997, when a programme for the housing and utilities reform was adopted. Basically, it envisaged that the consumer pays for the services and the supplier provides quality services at affordable prices. It is a logical scheme, but the trouble is that it is impossible to implement. It ignores the budgetary potential and the level of solvent demand among the population. And it does not differentiate between regions. Because how can you compare Siberia and the Krasnodar Region? But the level of people’s solvency is the same everywhere, perhaps it is even a bit higher in Krasnodar.

The reform does not take into account the budgetary potential. So, the programme did not get off the ground as its authors thought it would. We have many good ideas, but we always forget about the snags.

Let us take the notorious example of the Far East. It has everything, it seems. There is cash the authorities are ready to pay. But what have we discovered? There is nothing to pay for. The coalfaces do not work properly. And even in the places where they do the products could not be delivered because the vehicles broke down. In such a cold climate, nothing functions properly.

Today, many see the reform only as a raise of housing and utilities rates. Indeed, it has come to be called the reform of housing and utilities rates. So, all the transformations have boiled down to an increase in tariffs. And the housing and utilities sector is still waiting for cash to begin flowing.

Even as it waits, the quality of services has hit rock bottom. People don’t understand why they have to pay more and more for deteriorating services: filthy house entrances, rusty old pipes, erratic supplies of heating and water. And the sector itself has no resources for development.

The challenge facing us is to try to break the vicious circle. On the whole, we have everything that is necessary to do that. What is lacking is consistency and commitment to achieving these goals.

What are the possible measures? First of all, we have to solve the problem of arrears. Coherent economic decisions are needed to do that.

Perhaps we should develop a programme for modernising the sector. This is just an idea. We should see whether modernisation should be accompanied by the introduction of new legal entities and the Government should do something to solve the problem of arrears. Consumers owe 170 billion roubles, and almost a third of the debt was built up last year. And the main debtors are not the households, but municipal companies and local budgets.

Second, we must at last ensure that people in the high-income bracket pay the full cost of the utilities services. Let me stress, it should apply only to people with high incomes, not to all people indiscriminately. These measures have to be taken promptly before we can tackle the strategic task of restructuring the entire housing and utilities sector.

The restructuring can be pursued in several areas.

First, demonopolisation of the sector and creation of a competitive environment. The consumer must be able to choose on the basis of quality and cost. Otherwise the situation will be the same as in Primorye, where coal this winter cost three times the country average.

Besides, the market of housing and utilities services should be open to private business. But note that local authorities have a big role to play here.

Second, attracting investments. Which brings me back to what I have already said. We have to put in place a mechanism for attracting cash; we cannot expect cash to start flowing here by itself.

Unpredictable tariff policy is another problem. Actually, I began this meeting by pointing it out. The system of housing and utilities is inherently attractive for investments. But today investors are deterred by the lack of financial transparency and the arrears.

Third is resource-saving. Free flow of gas, water and heating is a reality that has been our scourge for many years. The amount of resources that goes down the drain is impossible to calculate. Obviously, one should invest money and create incentives for resource saving. The Government, of course, has to make its proposals.

Fourth: it is necessary to revise the character of contracts between housing and utilities companies and consumers of their services.

Fifth: adaptation to modern laws.

And finally, I give the Government until the middle of April to develop and submit a programme of modernising the housing and utilities complex in Russia.

And I would like to stress that in spite of the Government’s role in dealing with the problems in the housing and utilities sector, local governments are not relieved of their responsibilities. Meeting federal standards, repaying debts to the sector and proper management – all this should be strictly controlled both at the regional and at the federal level.

Thank you.