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Excerpts from speech at State Council Presidium meeting

November 23, 2010, Syktyvkar

President of Russia Dmitry Medvedev: Good afternoon, colleagues,

As agreed, we will devote today’s State Council Presidium meeting to housing and utilities development issues.

As you may have noticed, I have been trying to organise my time in such a way as to devote a month or somewhat longer to a single issue. Practice shows that this approach, when everybody’s efforts are coordinated, produces better results.

Therefore, we have already addressed some issues as part of our drive to improve the housing and utilities sector, especially since the quality of public services, the validity of tariff increases and all sorts of problems related to housing are causes of great concern for the public.

This is confirmed by the conversations I have with the people, whether in person during my trips around the country, when I talk with the public in the street, or during videoconferences; for example, yesterday most of the questions asked had to do with utilities. Therefore, complaints abound in this area, there are a lot of problems and a lot of ideas on how to improve performance.

At the October meeting of the Council for Local Self-Government Development, we talked about reforming the system of housing management and the difficulties of establishing managing organisations. Indeed, we have many cases where managing organisations regularly collect the money from consumers but do not timely pay for the utilities supplied. It is imperative to clearly define the standards for their performance and the quality of services provided.

The first step in this direction was the recent approval by the Government of the procedure for disclosing information by such organisations. Today on my request the State Duma will examine in the first reading a bill that deals specifically with the performance standards and accountability of managing organisations. 

Let me remind you that in accordance with Article 161 of the Housing Code, residents of each block of flats have the right to determine independently the way their building is to be managed. Over 80 percent have already made that choice, with some people, about one third of flat owners, opting for direct management, and about 40 percent settling on managing organisations. We can examine once again the advantages and disadvantages of each option.

* * *

Now, another urgent problem is the renovation of the housing stock. Today, more than 4.5 million Russians live in dilapidated or unsafe housing, and we all know that this figure is underestimated for certain very practical reasons. If we name the real figure, the scale of the disaster will be even greater, and in this case, we will have to make a very quick response, for which we are not ready yet, we must admit that much.

Therefore, we must move towards reducing the amount of dilapidated housing and as funds become available begin repairs of other residential buildings as well, which are now officially classified as being in good condition, but in fact they are often in an absolutely terrible state, and Syktyvkar also has such buildings.

The depreciation of housing directly leads to an increase in operating costs and overspending of public resources, not to mention the low quality of life in such buildings. This applies especially to small towns and villages. According to the data we have, 40 percent of residential buildings require overhaul repairs, but again, this figure is not final.

Meanwhile, a lasting solution for the mechanisms of funding overhaul repairs has not been found yet. According to the 2004 Housing Code, this responsibility rests on the property’s owner, which is logical, that is how it’s done all over the world. But it doesn’t say where to get the money because we have different kinds of property owners: there are those who are able to pay but, unfortunately, they are in the minority, and there are those who cannot pay for the building’s overhaul repairs themselves.

As an interim measure the state corporation Housing and Utilities Reform Facilitation Fund was established and I look forward to hearing your proposals on this issue. I have discussed the state corporation performance on numerous occasions with regional governors and all of them commend its activities as a great success – perhaps, one of the few state corporations whose efforts bring tangible results for the public.

Next. Of course, property owners must have a sense of responsibility for the shared infrastructure (this is often sadly lacking, especially in big residential blocks), as well as the understanding that they must bear the costs. This is something that should unite people: the desire to have a clean house entrance, a working lift and pure water. There should be no doubt about it, this really is a common concern.

But at the same time people must be certain that the money they pay is spent on repairs and improvement of their building, and not split to cover housing and utilities expenses in their town or even spent on other needs.

The state of public utility infrastructure is a source of serious concern for all of us. According to expert estimates, over 60 percent of utilities facilities have fully depreciated. If we do not tackle this now, we will have a catastrophe on our hands in five to seven years. Therefore, we must dramatically step up our efforts. We should consider various sources of funding apart from federal and regional budgets by turning to businesses and the public. 

During the meeting of the Commission for Modernisation and Technological Development of Russia’s Economy held in Naberezhnye Chelny, Tatarstan, we declared that raising the energy efficiency of the housing and utilities sector is our priority. The law states that the condition of public infrastructure is the responsibility of the local authorities. In principle, they should deal with the modernisation of municipal infrastructure (but they have very few resources for this), as well as attracting private investors. They must step up these efforts and regional and federal state authorities should actively assist them.

I would like to draw the attention of regional and municipal leaders to such a mechanism as integrated infrastructure development programmes. Incidentally, this is stipulated by the law on tariff regulation. These integrated programmes should be drafted and linked to long-term development plans of cities and towns. Private utility service providers will be able to plan investments in accordance with these programmes.

So far this mechanism is used in only a few regions. The programmes are being implemented in the Novosibirsk and Orenburg Regions, and practically nowhere else. 

* * *

Rational use of public resources is only possible if proper accounting practices are followed. This is also a subject we have repeatedly raised.

I don’t think that people should pay for the carelessness of utility service providers or the disorganisation in the local government bodies, and to rectify the situation there is a proposal to create integrated municipal databases. Such databases could contain constantly updated information on all aspects of the sector, such as the amount of resources supplied, payment history, who has paid and how, and the problems that have occurred. This should make it easier to monitor the tariffs’ validity. We have already discussed this at the meeting of the Commission for Modernisation and Technological Development of Russia’s Economy.

These smart accounting systems should be implemented everywhere and as soon as possible, but at the same time they should be rational and must reflect practical requirements. They should not, however, lead to an increase in the costs for consumers, because, unfortunately, what could happen is this: the systems will be created, and as a result consumers will have an even greater burden to bear. That would be unacceptable.

Another issue is increasing the skills of housing and utilities sector’s professionals. Everything has become more sophisticated: there is a lot of paperwork, a lot of new technology, many new programmes, so the sector must employ highly competent professionals. Here you need to think about educational courses and various kinds of training programmes.

And last but not least: all the relevant government bodies, federal, regional and municipal, should explain their position and their plans to the public. You should tell people about changes in legislation, the benefits of modern accounting methods and new approaches to energy efficiency because we will not be able to move forward without clarifying these issues.

* * *

Colleagues, let’s sum up. In general, the discussion has been constructive and to the point. I am referring to speeches made by governors, CEOs of utility companies, and the experts who had been invited.

I have a list of instructions on the results of today’s State Council Presidium meeting. I will sign it. They deal with improving the mechanisms for raising funds to finance overhaul repairs, the guaranteed provision of municipal services to individuals and submitting the draft federal law on water supply and discharge in the Russian Federation to the State Duma. This is something that has lacked attention. The draft law must be improved and the deadline for its approval is March 1, 2011. I urge all those present, including the governors and heads of public and private companies, to take part in this process.

There is a number of other proposals, including the revision of the law we discussed today. I hope that everyone will join in.

Another issue related to what we discussed today is the Housing and Utilities Reform Facilitation Fund, which our colleagues spoke about earlier. Once again, I would like to say that the fund has proved its worth. It seems clear that we will decide to extend the fund’s operation. I support what the fund’s head said on providing additional funding for these programmes in 2011 if the financial situation allows because these issues are crucial. We cannot abandon these efforts because as everyone present here knows every locality has its squalid areas that are painful to look at. And this is the only mechanism that has started to operate. Until we create a private investment mechanism, we have to use the Fund. I would also like us to create an effective mechanism that would meet the challenges of buildings’ reconstruction and repairs and replacement of dilapidated housing, and do it routinely and without the involvement of major federal allocations. At present we are still in the process of designing such a mechanism, so we must move in two directions.

* * *

Colleagues, we are facing a major challenge. Our country is enormous and very cold; its territory, which is the largest in the world, is located very far north.

Our financial situation is not brilliant, although we have more extensive resources than, say, in the 1990s, but we must bring the housing and utilities sector into order. I think we will need innovative approaches, we should try to use the wit and ingenuity inherent in our nation, introduce modern management systems, and simply sort things out on the spot. When people put their minds to it, they get results.

* * *

As Gazprom Chairman of the Board, I worked for a long time on the programme of our country’s gasification, and now I continue to monitor the situation. It is an excellent programme but it should not be taken absolutely literally. We have thousands of localities where there is no point to bring gas pipelines. Yes, the gasification rate in rural areas is very low, and I personally made efforts to ensure that all these pipelines went to rural areas first of all, and that is absolutely right. But when we drag pipelines to villages that have two houses, that’s just mismanagement, I’m sure you will agree. So what should be done? Nothing, just change the electricity rates and make sure that the elderly people in those villages get what they need, but by using electricity, not gas. You should subsidise those villages. It is much cheaper than laying the pipeline. Use your brains.

Why do I cite this example? Because this is a fairly common situation in the country. And we have plenty of such problems. What we need is creative and innovative solutions.

I very much hope that the governors and other officials present here will proceed from this.

November 23, 2010, Syktyvkar