Russia Improves Housing and Communal Services
Contacts:
In Russia: Marina Vasilieva, (7-495) 745-7000 ext. 2045
 mvasilieva@worldbank.org
In Washington: Michael Jones (202) 473-2588
mjones2@worldbank.org

WASHINGTON, February 26, 2008 – Russian consumers in at least 10 cities will benefit from a pilot program to improve housing and communal
services due to a partnership between the Russian Federation and the World Bank, which today approved a US$200 million loan for a Housing and
Communal Services (HCS) Project in Russia.

The project will test a competitive grant mechanism to cities that increase market mechanisms in housing and communal services (heating, power,
water, sewage and sanitation) and also strengthen social protection of vulnerable consumer groups. Lessons from the project would be studied and
adapted by the Russian Government for use in federally-funded infrastructure projects, including the housing and communal service reform program,
which is one of the four country’s socio-economic priorities.

The Housing and Communal Services Project will help the Government scale up the quality of housing and communal services in part based on the
Bank’s global knowledge and experience in designing and implementing similar projects around the world.

Investment needs in the Russian housing and communal service sector are substantial, both to rehabilitation deteriorating stock and to increase access
to services. The sector is also inefficient. Providers of communal services in a number of regions run at a loss due to inadequate tariffs and managerial
shortcomings. The heat efficiency rate of some service providers is as low as 30 percent due to the deterioration of assets.

The Russian Government has enacted a wide array of legal and regulatory reforms to improve the situation in the sector. It has also allocated over $10
billion to related housing and infrastructure investments. Together with the World Bank, it aims to test a more comprehensive reform strategy that would
focus on implementation at the local level.

“By bringing global knowledge to local reform efforts, the World Bank is essentially supporting innovation,” said Klaus Rohland, Director and
Resident Representative of the World Bank in the Russian Federation. “The monitoring and evaluation framework will help the Government
determine what approaches are most successful for scaling up in federal and regional programs.”

The competition to participate in the pilot program will be open to cities ranging in population from 90,000-600,000 people and that meet minimum criteria
of financial performance by the municipal administration and communal service providers. Participating cities need to implement a reform program
successfully before gaining access to grants for investments. The loan, which represents and compliments only a small share of the larger Government
program, will initially finance technical support and advise for the design and implementation of reforms, including improvements in the financial viability of
communal service providers, strengthened social protection of consumers, and creating market competition in housing management and maintenance.
After delivering results on reforms, cities will receive grants for modernizing and rehabilitating existing infrastructure. The two step process is important
since the political willingness and capacity of local authorities is essential to reforms in this sector. Knowledge-sharing among cities to share
experience will also be a key feature of the project.

The loan will also finance technical support to design capital investment programs for measurable improvements in reducing operating losses, pipe
breaks, water leakage, or energy inefficiency, while increasing the share of private investment in the sector and private management of facilities. The
monitoring and evaluation framework will enable the Government to assess the value of public investments through a physical audit (to confirm that
rehabilitated stock is performing as expected) and a consumer satisfaction survey. The project will help increase public acceptance of reforms by
providing tangible benefits through infrastructure investments.

The five-year project will be financed by a variable spread loan denominated in US dollars with a repayment period of 15 years, including a 5 year grace
period.

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Additional information about the World Bank activities in the Russian Federation is available at http://www.worldbank.org.ru