10 january 2013

Video conference on tariffs and prices in the housing and utilities sector


Dmitry Medvedev: Good afternoon, colleagues. A new year has begun and we are meeting today to discuss prices in the housing and utilities sector. Everyone attending this video conference knows that this is a delicate issue, first of all for the people, for our citizens. Electricity, heating and other housing comforts are what people need every day. Their mood and ultimately their assessment of the performance of the authorities, both federal and regional, depend on the efficiency of the utility services. This is the most relevant issue. According to polls, over 50% of people said that housing and utilities are the most important issues for them. These are the most pressing concerns. Everything else that is described as relevant in the media and on the Internet pales into insignificance compared with housing and utilities. I’d like our officials to remember this.

Let’s get down to the issues on our agenda today. What issues are of concern to people? People are above all concerned about the rise in tariffs and the discrepancy between the quality of services and what they cost. Of course, people also complain about the negligent attitude of the municipal authorities with regard to these issues.

Today, we are talking about prices and rates. Nevertheless, considering the number of Russian regions which are communicating with us, there have recently been several outrageous cases when entire towns, communities and residential buildings simply froze, and were left without heat and water. This happened recently in Tuva and in several other Russian regions. I will not name all of them because everyone knows what I am talking about. These incidents are still being investigated, and those who are responsible must be punished accordingly.

And now I would like to say a few words about prices and rates. Obviously, rising prices for housing/municipal utilities services are not always motivated by objective factors. Only some prices, including water, heat, gas and electricity prices, are regulated at the state level. Contractual municipal utilities prices are stipulated. Prices tend to increase most of all in this sector. As a rule, people believe these price hikes are unfair. At any rate, these increases need to be checked. Obviously, people should not suffer from this. We should not just leave people to deal with this themselves, and at the mercy of housing/municipal utilities companies.

The Government is supposed to provide the necessary utility networks and to ensure the transparent work of managing companies and home owners’ partnerships. Of course, we talk about this every day. A lot of issues remain here, including the system for managing multi-storey blocks of flats. I will not repeat all existing problems. But anyway, we must combat crime in this area, including fraud, which, unfortunately, are quite frequent in these companies. And, of course, law enforcement agencies must do this. But regional authorities and administrative agencies should not forget about these tasks either. I would like to ask all of you to remember this.

January is always a complicated month, in part because of the introduction of new prices, in addition to weather conditions. Frankly speaking, this is the reason why I have called this teleconference. Price increases, if any, should be cost-effective. And, most importantly, the people should comprehend the allocation of extra revenues being derived through price hikes, and they should be able to see that housing/municipal utilities services have started functioning better. And the people should also know how this will influence their neighbourhoods and residential areas. This is perhaps the most important thing, and this is our common goal.

Colleagues, I am calling on all of you, including federal officials and regional leaders. You must monitor the state of all payments, and you must prevent price hikes in excess of preset standards. Moreover, you must prevent unjustified differentiation in districts and municipal entities, unless this is stipulated by regulations, and unless this is motivated by current conditions. This is inadmissible, and this is especially irritating to our people. Let’s discuss precisely this issue. First, I would like the heads of departments to say a few words. Mr Slunyayev (Addressing Minister of Regional Development Igor Slunyayev), you have the floor.

Igor Slunyayev: Mr Medvedev, colleagues. The multi-faceted problem of municipal utilities prices and services has four aspects which have a significant impact on society's attitude towards municipal utilities companies.

First, of course, it is the quality of utility management, second, it is the cost and quality of public utilities, third, the condition of the fixed assets and fourth, measures of social support, which should smooth over our decisions on rates and budget. 

The federal executive bodies have been conducting a huge amount of work in all areas. In 2012, we raised rates twice, from July 1 and from September 1. From July 1, we raised the gas rate by 15%, the electricity rate by 10%, heating, water supply and wastewater discharge rates by 6%. From September 1, heating and wastewater discharge rates grew by additional 6%. The prices for housing services grew in general by 7.7% between January 1, 2012 and January 1, 2013. Meanwhile housing services’ rates decreased in 14 Russian regions. The Republic of Kabardino-Balkaria saw the biggest decrease of these rates, at 7%. So in general, in December 2012, utilities rates grew by 9.4% against December 2011; and on average, the rates grew by 4.8% in 2012. This is lower than the rate of inflation, which stood at 6.6%. We expect that from July 1, 2013, utility rates will grow by 12%, including heating and electricity rates will increase by 10.5–12.2%, water supply and wastewater discharge rates will grow by 10%, and electricity and gas rates will increase by 15%. The structure of payments for utilities has changed too. From September 1, 2012, a new rule for extending public utility services came into effect (Resolution No.354 On Offering Public Utilities Services to Landlords and Tenants). Under the new regulations, the consumer shall pay separately for utility services extended to his/her flat and separately for the services rendered in utilising the community property in the block of flats. These community expenses had existed earlier as well but they had not been included in the overall payment. These expenses were part of overall consumption standards; and this did not motivate residents to efficient power consumption and did not encourage them to install gas and water metres. Although the new rules were not expected to affect the utility rates, these rates have grown considerably in some regions. Thus, the utility rates have grown 15% in municipalities of the Republic of Bashkortostan, the Republic of Mordovia, in the Primorye Territory, the Stavropol Territory, in the Vologda, Volgograd, Kurgan, Kursk, Moscow, Novosibirsk, Omsk, Orenburg and Yaroslavl regions as well as in the Jewish Autonomous Region. The community expenses are often included simultaneously in the payment for utilities and in the payment for maintenance of community property.

Dmitry Medvedev: Is this happening already? Or are we expecting this on February 1?

Igor Slyunyayev: Unfortunately we have not fully prepared for the application of the new rules on using community property, on division of this payment. Sixty regions are facing problems with applying Resolution No.354. Local governments and regions are not fully prepared. Currently we are conducting explanatory work. Moreover…  

Dmitry Medvedev: Does the bill include it, or not?

Igor Slyunyayev: The bill includes it as of January 1.

Dmitry Medvedev: Will people get these bills only in February, as usual? Is that right?

Igor Slyunyayev: No.

Dmitry Medvedev: Or have they received their bills already?

Igor Slyunyayev: They received their bills in October. So they received their October, November, December and January bills. 

According to the Government’s decision, by January 1, 2015, the regions will be able to continue to use the former procedure for calculating the payment within a transitional period. The regions themselves will take a decision on the new rules for utility payments.

On September 1, the new requirements for payment splitting came into effect, as you rightly said, and people have received such bills as of October 1. We think that this measure makes calculations more transparent and minimises utility debts.  

In late 2012, the Government approved standard contracts for hot and cold running water supply; the Ministry of Regional Development approved uniform contracts for utilities supply. On the whole, the work is dynamic but I’d like to highlight a point… On January 1, 2012, federal law No.184 was repealed; this law introduced amendments to federal law No.210, under which the federal authorities established an aggregate payment for utilities. Based on this aggregate payment, the level of accessibility of utilities was calculated and Government Resolution No.761 was in effect.  

I think it will be advisable to give instruction at the current meeting to the Ministry of Regional Development, the Ministry of Energy and the Federal Tariff Service to go back to this practice – it justified its efficiency, there was no misunderstanding and no excessive accruals by utility suppliers.

Dmitry Medvedev: And did it happen afterwards?

Igor Slyunyayev: It happened afterwards because we replaced the mechanism and took new decisions on regulating relations in the area of utilities. Resolution No.354 is one such instrument which in general has a positive influence on the quality of utilities and on determining their rates. Meanwhile we do not have enough regulatory functions to make this impact less harsh… 

Dmitry Medvedev: Who approves this methodology?

Igor Slyunyayev: The Government of the Russian Federation does.

Dmitry Medvedev: So this is the governmental methodology, not departmental, right?

Igor Slyunyayev: No, it is not departmental.

Dmitry Medvedev: Good, we will check up on this. Please, go on. Or is that all?

Igor Slyunyayev: For the sake of brevity, that is all.

Dmitry Medvedev: Good. Mr Novikov (addressing Sergei Novikov, Head of the Federal Tariff Service), go ahead, please.

Sergei Novikov: I’ll be brief. Mr Medvedev, colleagues. We have concluded our preliminary monitoring and submitted its materials to the Government in late December, 2012. In general, in the first half-year of 2013 the payment for utilities will increase insignificantly or will not change at all.

There are other factors at play… We expect the main changes from July 1, 2013 – following the implementation of the decisions taken by the President and the Government in the past years. The main factors affecting payment in the autumn of 2012 and in the beginning of 2013 – there are two other components, that is, the payment corresponds to the rate multiplied by the volume and multiplied by a certain coefficient related to targeted social subsidies.  

What is involved in rate formation… In the short term we will implement the decisions taken in terms of Presidential Executive Order No.600 and specified by the federal law, signed on December 30, 2012, instructing us to shift to long-term regulations within a transitional period from 2013 and 2016, to take long-term decisions on rates linked to (a) the specifics of current funding, (b) issues of development and the quality of the utility services. During the first quarter of 2013, following the adopted legal acts, the Government will have to adjust some governmental resolutions in order to partially implement this in 2013.

But let me repeat that the decisions on rates have a negligible impact on citizen’s payments in late 2012 and in 2013.    

The second coefficient, the second multiplier in this formula, concerns the volume of consumed services. It depends considerably on the specific region, on the specific municipality, on the specific infrastructure and on the decisions concerned with the system and structure of payments, in particular, those introduced by Resolution No.354.

We believe – and the Government has issued the corresponding instruction – that a number of changes are required here that would make it possible to fix inaccuracies and mistakes made when issuing this Government resolution. Mr Slyunyayev has already mentioned this. In particular, it would make sense to think about the current mandate which actually obliges each citizen to call the utilities supplier company between the 23rd and 26th of every month and report metered values under penalty of surcharges. Certainly, we believe that such obligations, facilitating the work of supplier and sales organisations, are not reasonable. The standard should be adjusted.

Dmitry Medvedev: What exactly must be done?

Sergei Novikov:  Frankly speaking, it just should be abolished in its current form.

Dmitry Medvedev: To avoid placing such obligations on citizens, right?

Sergei Novikov:  Certainly, it is not their responsibility. This should be done by the supplier and sales organisations, and managing companies. 

Dmitry Medvedev: Should they be in charge of it all?

Sergei Novikov:  Sure.

Dmitry Medvedev: Yes, that’s fair.

Sergei Novikov:  Otherwise it would be unclear why they receive sales mark-ups.

Dmitry Medvedev: Where is this rule stipulated?

Sergei Novikov:  It is stipulated in Government Resolution No.354.  

Dmitry Medvedev: So, it is Resolution No.354 again?

Sergei Novikov:  I am referring to a very small number of shortcomings in this resolution – their actual number is higher, and they should be promptly rectified.

And, finally, the third component of a citizen’s payment is the level of social protection, or the quality of the targeted subsidies system. Today – and Mr Siluanov (Anton Siluanov, Minister of Finance) will correct me if I’m wrong – about 250 billion roubles are allocated through federal subsidies, for benefit recipients and regionally, to subsidise either reduced-price or preferential housing and utilities tariffs. The current system of subsidies should once again be revised, as there are people who live in relatively large homes but the benefit is for a considerably smaller area, the so-called housing social norm, and have no way to optimise their payment due to the lack of a proper housing market in certain areas of the country. This is just one example, but the whole issue should be handled with consideration as, first, the subsidies system is under the authority of regions today, and this cannot be done at the federal level alone. Second, this is a functioning system that needs adjustment. There are three areas of work to be done. The first one is concerned with long-term tariff formation and the efforts to be made under the federal law signed in late 2012. The issues related to arranging the system of relations between resource-supply organisations and consumers and between managing companies and consumers are set forth in such documents as Resolution No. 354. And the third area relates to developing proposals on updating and improving the system of targeted subsidies. That concludes my report.  

Dmitry Medvedev: Thank you. Now, let’s hear from our colleagues from the regions.


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