Private sector participation in the water and wastewater services industry

• The important part is also to examine whether the most used material of pipes (cast iron) is more prone to damages than other materials. The best indicator for analysis is the amount of damages per one kilometer of pipelines. The analysis was carried out from 2009, the total length of networks was taken as an average in four years - 1190 km. The following results have been got:

· Average amount of accidents on steel pipelines - 0.93 per kilometer;

· Average amount of accidents on cast iron pipelines - 0.34 per kilometer;

· Average amount of accidents on other material pipelines - 0.58 per kilometer;

Therefore, the cast iron is the least emergency material. Hence the argument that high level of accidents in water supply networks are due to "bad" material is erroneous.

The next analysis is about wastewater facilities. The total length of these networks is 1124.24 kilometers. There were revealed two general types of accidents on these facilities: wastewater outputs and damages on pipelines. The amount of emergencies on sanitation networks is much less than on water supply ones: around 240 in total each year. Considering wastewater outputs, the main cause of damages are clogging in the pipelines (88%). As for damages on pipelines, they are generally caused by corrosion (around 60% on average).

Some accidents on water and wastewater facilities cause sinkholes. Over one hundred sinkholes happened annually in last 4 years. The main reason (around 60%) was again a wear and tear of pipelines.

The last point to be analysed is about how many household become disconnected from the water supply network, as a result of miscellaneous damages. The analysis was carried out from 2009 to 2012 years and revealed that over half of all accidents are accompanied with water disconnection. Around 20 thousand households are disconnected from water supply annually. Results of average time of one disconnection are presented on Figure 4.2.

Figure 4.2: Time (in hours) of disconnection from water supply by categories in 2009-2012

As can be seen, the average time of one disconnection is around 15 hours, which brings great inconveniences for citizens and losses for business.

Water and wastewater facilities in Perm have overall a large number of accidents: around 1500 damages annually. The main cause is an extremely high level of wear and tear of networks: 77%. The sub-standard condition of facilities contributes to a large number of sinkholes in roads and pavements, plus frequent disconnection of customers from the water supply system. This suggests a rather persistent and pressing problem of underinvestment in the sector.

• 4.2 Control Model's Evolution in Perm's Water Supply and Sanitation Industry
• The analysis of accidents of water and sanitation networks has revealed the technical causes of the high level of wear and tear and showed that anthropogenic factor is minimal. Perm's water and wastewater facilities have not been renewed gradually for last two decades, so the main reason for the current sub-standard infrastructure is underinvestment in the sector.
• As investments depend on the model of control in the industry, it is necessary to discuss how the control model has evolved and what were its consequences. The history of Perm's water utilities started in 1886 when water begun to flow through the wooden pipes from Danilikha river to the regional main hospital. Hundreds of kilometers of pipelines have been built from that time. Plumbing and sewerage were combined into common system in 1920. The first water intake was built in early 1930-s followed by building two more in the middle of 1960-s and 1970-s (Official website of LLC Novogor-Prikamye…, 2014).
• Building of water supply and wastewater facilities in Perm was a grand construction lasting more than 50 years. However, the industry was controlled by local authorities from the beginning, and capital expenditures on the networks' renovation were minimal. No one reconstruction took place for the period of more than one century. This has contributed to the fact that the same wooden pipes are still lying in some parts of the city.
• The huge wear and tear of infrastructure, a need of its scale modernization and the government's desire to decrease the budget expenditures contributed to the decision of transferring the management over water and sanitation facilities to the private sector. So, in 2003 the first lease contract was made between Perm's local authorities and LLC Novogor-Prikamye. Later, in 2013, this contract was transformed into concession agreement. In order to reveal consequences of these steps, these two models would be considered more deeply.
• 4.3 Analysis of Lease Contract in Water Supply and Sanitation Industry in Perm
• The lease contract was signed on 1 October in 2003. All assets including the labour force were moved under the jurisdiction of Novogor-Prikamye. The first term of that lease was only one year. The choice of this company as the lessee is still not clear as there is no information about the tender neither in government's official documents, nor in the general media. The formal bidding has been held, yet the information whether there was a real competition is unavailable.
• On 22 February 2005 the new long-term (49 years) lease contract was signed. According to its conditions, the lessee had to pay an annual fee of RUB 80 million and around 60% of this should be spent on the facilities' modernization (Izotov, 2013).
• The main goal of Perm's authorities when entering into the lease contract was the attraction of private investments to develop the water and sanitation industry. Izotov (2013) estimates such investments in 1.8 billion roubles, which had been made until 2013. In order to discuss the input of those resources, a comparative analysis of several regions has been done. Some of Perm's regional competitors were included (Sverdlovsk region, Republic of Tatarstan), other regions with PPP experience (Rostov-on-Don and Krasnodar regions), and St. Petersburg as a benchmark city with one of the most developed water and sanitation industry in Russia. Apart from this, the average indicator in Russia was also included to the analysis. Capital expenditures in the industry per capita have been used as the main indicator. All data and calculations could be found in the Appendix 1, while summary results are shown in the Figure 4.3.
• Figure 4.3: Rouble capital expenditures per capita in water and sanitation industry (2003-2013)
• St. Petersburg's investments are not shown due to being very high (around RUB 1500-2000 per capita). Perm's capital expenditures were not high (around 0.5 billion roubles annually) and were below the Russian average. Sverdlovsk, Rostov-on-Don and Tatarstan had all around RUB 1 billion investments each year.
• The lease contract in water supply and sanitation industry in Perm did not significantly improve the conditions, as the accidents' analysis revealed a large number of damages on the networks and investments remain comparatively low. The lease contract suggests ineffectiveness and lack of investment incentives, as continuous improvements have not been achieved in 10 years.
• 4.4 Description of the Concession Contract for Water Supply and Sanitation Industry in Perm
• Perm's government considered a conversion of the lease contract into concession agreement in 2007, however the decision was taken only in 2013. This was partly connected with legislation issues: the Federal Law "On concession agreements" from 2005 was rather unclear as it did not specify limits, terms of investment, nor policies for long-run tariffs. In 2013 the government decree "On state regulation of tariffs in water and sanitation industry" and the Federal Law "On the alteration in the Federal Law "On concession agreements" were passed and stimulated Perm's authorities to change the control model of water and wastewater facilities.
• The 26 April 2013 Perm's government decree №96-P: "On making a concession agreement with LLC Novogor-Prikamye" was passed (Perm city Administration decree…, 2012) and will remain valid until 22 February 2054. Novogor-Prikamye's lease liabilities were repealed once the concession agreement was passed. No fees were set according to the new contract (Concession agreement…, 2013).
• Regarding the new obligations, the concessionaire has to reconstruct and automate the production mechanisms, modernize and renew the depreciated machinery assets. To achieve this, Novogor-Prikamye has to invest no less than RUB 225.6 million until the year 2022 and no less than RUB 59 million annually until 2054. The company also has to rebuild the networks with an investment of RUB 572.7 million before 2022 and RUB 18 million after it (until 2054). In total the concessionaire has to invest into facilities' development around RUB 15.3 billion over the whole period (RUB 6.8 billion until 2022). The indicators that Novogor-Prikamye has to achieve by 2022 are re presented in Table 4.2.


Table 4.2: Targets to be achieved by 2022 according to the concession agreement Created by the author according to the results of research, as well as the following sources:

Concession agreement in relation to municipal property of water supply and sanitation facilities in Perm from 26.04.2013. Official website of Perm city Administration (Original: Концессионное соглашение в отношении муниципального имущества, представляющего собой объекты системы коммунальной инфраструктуры водоснабжения, водоотведения и очистки сточных вод города Перми от 26.04.2013. Официальный сайт Администрации г. Перми): [Online]. Available through: http://www.gorodperm.ru/ (accessed 1 May 2015).

• Ministry of regional development in Russian Federation decree from 23 August 2010 № 378 “On affirmation of guidance in utilities fees' calculation”. SPS Consultant Plus. (Original: Приказ Министерства регионального развития Российской Федерации от 23 августа 2010 г. № 378 "Об утверждении методических указаний по расчету предельных индексов изменения размера платы граждан за коммунальные услуги". СПС Консультант Плюс.)

Indicator	Target	Today
Accidents on water supply networks (per km)	0,37	1,12
Accidents on wastewater networks (per km)	0,10	0,22
Proportion of utility costs in total income of citizens	2%	Around 9
Proportion of consumers provided with 24-hours water supply	99%	N. A.
Proportion of regulatory effluent in total amount of wastewater	95%	Around 55 in 2007

• The last feature of Perm's concession agreement to be mentioned is that the government also has to invest RUB 3572.7 million into modernization of the sector until 2025.

• 5. Case Study of Control Model in Water Supply and Sanitation Industry in Perm Part 2: Comparative Analysis
• 5.1 Comparison of Concession Contacts Conditions
• After considering the evolution of management in water supply and sanitation industry in Perm and discussing the conditions of current concession agreement, it is possible to compare Perm's contract with selected international experiences described in the second chapter.
• It is early to discuss the results of implementing the concession model in Perm, as it has been put in practice just two years ago. Yet one can compare its conditions with concession agreements in other cities that have achieved successful results. A comparative analysis has been made and results are shown in Appendix 2. Table 5.1 presents the summary results.
• Table 5.1: Conditions of concession agreements in Perm and selected other cities

Criterion	Buenos-Aires	Sofia	Brno	Bucharest	Lugansk	Almaty	Perm
Involvement of international companies	yes	yes	Yes	yes	no	no	no
Contract term	30 years	25 years	25 years	N.A.	N.A.	N.A.	49 years
Influence on tariffs	yes	yes	Yes	yes	yes	N.A.	no
Competition	yes	yes	Yes	yes	no	N.A.	no (?)
Concessionaire	Suez	Sofia's Water	BWK	Apa Nova	Lugansk Water	"J.V."	Novogor-Prikamye
Share of local authorities	0%	23%	51%	16%	0%	48%	0%
Share of private investor	100%	77% (Veolia Water)	49% (Suez)	84% (Veolia Water)	100%	52% (Veolia Water)	100%

Result “+” means that concession agreement in this city contributed to the positive results (lower accident rates, lower tariffs, higher quality of drinking water);

“-“ means that concession agreement in this city contributed to the negative results (higher accident rates, higher tariffs, lower quality of drinking water);

“+/-“ means that concession agreement in this city contributed to both positive and negative results;

• The conditions in Perm differ from other cities in the following key points. The first criterion shows whether the contract has been developed with help of international organisations (such as the World Bank, European Bank for Reconstruction and Development, or consulting firms such as PwC, Ernest and Young).
• When Perm's authorities were working out the agreement, such companies were not attracted. When looking at this criterion and the results, almost direct relation could be noted. This means that if international companies are involved into a contract working out, the possibility of successful results increase. As for unsuccessful cases, the PPP in Almaty failed because of a poor quality of the contract. Therefore, not involving of international companies in making the agreement in Perm is a disadvantage for the city.
• The contract term in Perm is the longest one - 49 years. On the one hand, such a long period of the agreement should stimulate the concessionaire to invest more money, because they will be paid back with a higher probability. On the other hand, a long term means that the nearest bidding will be in a far feature, so the concessionaire could work not very effectively in a short run. Thus, it is impossible to make definite conclusions about this criterion.
• The next points are influence on tariffs (when concessionaire could affect prices) and competition (during bidding). According to these criteria, Perm's contract also differs from those, which eventually have contributed to the successful results. Influence on tariffs means either setting prices by concessionaire, or defining future tariffs in a contract. Absence of these tools could cause bad forecasts of cash flows in the company. As a result, the company could be not able to invest the defined amounts of money. Nonetheless, we have to remember Lugansk case when the concessionaire doubled tariffs immediately after its appointment, while it failed to perform its part of the contract. Concerning a competition criterion, it also has a positive correlation with the results. In all considered examples, competitive bidding was won by the most effective company, which was a key factor of success in some cases. To sum up, these criteria also characterize drawbacks of concession agreement in Perm.
• Another criterion is government's participation in equity of a company-concessionaire. As could be seen, in some cases a joint venture was founded, the shares of which were divided between authorities and private business. Among the successful cases, only Buenos-Aries authorities did not have a share in the joint venture. It is important that in all considered countries with transition economies, which have achieved good results in concession, local authorities had a share in a company's equity (Czech Republic, Romania, Bulgaria). For instance, this factor played a key role in Brno. As was revealed, there was not created any joint venture in Perm, so Novogor-Prikamye is fully owned by a private business. However, it would be incorrectly to consider this fact as a definite disadvantage, because there are some negative consequences when government participates in a joint venture foundation as well. The main of them is a decrease of investment attraction as authorities could influence the company's strategic decisions, while government and business interests usually vary.
• All criteria considered, the conditions of Perm's concession agreement have several drawbacks in comparison with some foreign experiences. Such examples as Lugansk or Almaty have shown that concession model could cause negative consequences if the contract's conditions do not meet appropriate requirements, such as involvement of international companies or competitive bidding. Therefore, Perm's government should be aware of existence of revealed problems in the concession agreement. However, it would be incorrectly to make conclusions on the basis of just comparison of the contracts' conditions. An essential step is to analyse the company-concessionaire.
• 5.2 Financial Analysis of LLC Novogor-Prikamye
• LLC Novogor-Prikamye has been operating since 2003 on the territory of Perm region only. It is a subsidiary of OJSC Russian Communal Systems (RCS). RCS owns a full equity of Novogor-Prikamye in ?200 million.
• The financial analysis characterizes the company's activity in the period from 2003 to 2013. The main results of balance sheet and income and loss statement are shown in Appendix 3. Let us briefly discuss the results.
• One of the bright features is a surge of company's assets in 2013. This is a consequence of entering into concession agreement when all facilities were transferred on the company's balance (around ?3 billion). This sum is also displayed in long-run liabilities, as it will be written off in 2054.
• An unsuspected fact was detection of very high receivables in the company. It takes a major part of all current assets (shown on Figure 5.1).
• Figure 5.1: The dynamics of current assets and receivables in Novogor-Prikamye in 2003-2013 in thousands of roubles
• This feature could be caused by high consumers' debts. In 2013, the clients' debts fell. So, if this trend continue, it will be a positive fact for the concessionaire. However, today it is a problem.
• The next bright moment in the analysis was a very high level of retained earnings. From 2003 to 2013, its average proportion in the group "capital and reserves" was 90%. More than 80% of net income is retained annually. The main cause is that concessionaires in water and wastewater industry must distribute their incomes by a very restricted list of expenditures (Obukhova, 2014:20). From the investors' point of view, this is a drawback in this sector because investors always want to command their finances on their own.
• The further analysis was dedicated to Novogor-Prikamye's financial characteristic. It was a crucial step, because financial results of concessionaire's activity influence its investment attraction. The analysis was held in comparison of Perm's company with such regions as Rostov-on-Don, Ekaterinburg and St Petersburg. Average indicators of all Russian regions were used as well. Apart from this, such famous international company as Veolia Water was considered. The analysis period was set from 2010 to 2013 in order to avoid the world financial crisis years. The data about Ekaterinburg's and St Petersburg's companies' activity in 2013 was not accessed.
• All data and results are presented in Appendix 4; the most important of them are shown on Figures 5.2 and 5.3.
• Figure 5.2: Dynamics of return on assets in Novogor-Prikamye and other companies in 2010-2013
• Figure 5.3: Dynamics of return on equity in Novogor-Prikamye and other companies in 2010-2013
• As could be noticed, Novogor-Prikamye is in groups of leaders by both indicators. The huge decline of assets return in 2013 was connected with a surge of assets (as all facilities were transferred on the balance), but not with a decline of profits. As for return on equity, the Perm's concessionaire is a leader. Obviously, it is an advantage of the current situation in Perm's water and sanitation industry, as such return is a good incentive for investors. Average returns on assets and equity in Russia have a negative trend; they were 0.5 and 0.7% in 2013 respectively (while Novogor-Prikamye had 7 and 10% in turn).
• Comparison of these indicators with other industries' ones was not held. Some could argue that returns on assets and equity in other sectors could be much higher than Novogor-Prikamye has, so an investment attraction of Perm's water market is low. However, they seem to forget that risks in those sectors are also much higher, while water and sanitation industry has low risks due to inelastic demand.
• The last feature that should be emphasized is connected with long-run loans attraction. The point is that the amount of long-run liabilities of Novogor-Prikamye is very low (Appendix 3). Water and wastewater sector has a very long-term investment projects (15-20 years) (Obukhova, 2014:21), so private investors are not eager to enter the industry. However, this sector is beneficial for banks because of permanent payments. Nonetheless, it is a lack of borrowed funds in Perm today. This could be proved by not only Novogor-Prikamye's statements, but also by Figure 5.4, which shows the amount of bank loans in such economic activity as "Collection, treatment and distribution of water" per capita in Perm and some other regions.
• Figure 5.4: Average annual amount of bank loans per capita from 2003 to 2013 in roubles
• Therefore, a low level of bank loans attraction should be considered as a disadvantage of current situation in Perm's water supply and sanitation industry.

• 6. Discussion
• The study has shown that in different cities and countries water supply and sanitation sector is controlled in various ways. Russian water market has some distinctive features from abroad practice.
• First of all, according to Russian legislation, companies are not able to influence tariffs. This is a crucial distinctive feature of Russian water and sanitation market. As was revealed, just the capacity to influence prices and their long-run plan defined in the contract were key factors of success in some cases of using concession.
• The next distinctive feature of Russian market is that lease contracts are mainly used on it instead of concession. Practically, the difference is that in Europe, private investor usually has a full or a partial share in joint company which manages facilities. In Russia, the ownership of networks is kept by authorities. Among the studied examples, the investor had a share only in Rostov-on-Don (actually, the joint venture was created only in this city). Unsurprisingly that this city shows one of the most successful experiences of PPP in Russia.
• It is also essential to notice that despite the existence of several major players on water and wastewater market (RCS, Rosvodokanal, Eurasian), competitive bidding when choosing a concessionaire is still weakness of Russian practice. Obviously, formal tenders present, however due to corruption problems they are usually fictitious. As an approval, there are some cases of trials because of this: in Volgograd, the results of tender from 2008 were cancelled, in Samara, trials have been proceeding since 2009 (Public-private partnership…, 2010).
• To sum up, the agreements in water supply and sanitation industry in Russia and abroad have some vital distinctions. Taking into account that the condition of water and sanitation facilities in Russia are worse than abroad, several aspects of successful experiences from the abroad could be implemented in Russia.
• The study has also shown that there is no undeniable model of control in water supply and sanitation industry that would inevitably contribute to an effective management of facilities. In different cities, the sector is managed rather by authorities or by private company. In some cases, a joint venture is created. The research has shown that all these types of control could cause both positive and negative consequences. This depends not only on country's legislation and some local circumstances, but also on the conditions of a contract, according to which the company manages facilities. The cases of two main types of contracts - lease and concession - have been considered. The successful concession experiences had some common features:

· The contracts had been worked out with an involvement of international companies, such as World Bank and EBRD, as well as consulting firms.

· The concessionaire could influence tariffs on the services.

· The concessionaire was chosen in a competitive bidding.

· The company had an effective management and used innovative technologies.

Therefore, if all these conditions are met, it seems that a concession model is the beneficial one. It is important that all these conditions should be met simultaneously. For instance, if there is no competitive bidding but the company could influence tariffs, it might behave opportunistic (as was in Lugansk), or if the company is effective but could not affect tariffs, it could become unprofitable.

The case study of Perm has shown the ineffectiveness of lease contract. This conclusion was made due to two reasons: level of investments was low and accident rates remained high. As for current concession agreement, it was revealed that the first three conditions were not met. Nonetheless, the targets in the Table 4.2 are rather ambitious. If they are accomplished, the concession agreement will be considered as a successful example. However, in order to achieve them, the concessionaire should not only formally invest the defined amounts of money, it has to be properly motivated to accomplish the goals.

For one thing, such motivation could be caused by some penalties for the company's default on its obligations. Nonetheless, according to the contract's conditions, these measures could be hardly considered as severe: in the case of violation of investments plan, the company would just have to invest the appropriate amounts in future periods. In the extreme cases, the agreement could be repealed.

On the other hand, there are some other points, which could increase the concessionaire's motivation. For instance, according to the contract's conditions, not only Novogor-Prikamye has to make the investments, but also Perm's government. In particular, the grantor has to invest RUB 3572.7 million into modernization of the sector until 2025.

One of the best motivation tools in such agreements is capacity to affect the tariffs on utilities. However, in Perm's case the concessionaire does not have such capacity. Despite the fact, that the authorities should consider the amount of investments when defining the prices on services, the correlation of this amount and tariffs is not determined in the contract. Thus, this is a crucial distinctive feature of Perm's agreement from others, which were analysed in this research. The concessionaire could influence the tariffs in those international examples.

However, some advantages were revealed as well. In order to sum up all characteristics of Perm's model of control in water supply and sanitation industry, let us introduce the results in a form of SWOT-matrix.

Table 6.1: SWOT-matrix of the current control over water supply and sanitation industry in Perm

Strengths · Stable and attractive financial condition of the concessionaire (high returns on assets and equity in comparison with other cities) · Tariffs are set by the government (it is an advantage for the community)	Weaknesses · High accident rates on water and wastewater networks · Low investments into the sector in last years · High consumers' debts (high concessionaire's receivables) · High proportion of net profit is retained due to legislative restrictions · Low level of bank loans' attraction into the water and sanitation facilities' development
Opportunities · Opportunity of investments attraction due to long-term contract, low risks and high profitability · Achievement of targets that were defined in the agreement (decrease of accident rates, better water quality, low utilities' expenditures for the citizens)	Threats · The concessionaire could not influence tariffs (which could contribute to the poor forecasts, low cash flows and thus, losses) · Threat of a default from obligations by both sides and cancellation of the agreement (international companies were not involved into contract's working out, so it might be imperfect) · Absence of competitive bidding when choosing the concessionaire (there is a probability of the collusion between authorities and business, which would contribute to even worse facilities' condition) · Possibility of the concessionaire's opportunistic behavior (due to long-term contract and insignificant penalties for the contract's breach)

Therefore, the current situation in Perm's water supply and sanitation industry has advantages and disadvantages. According to its strengths and opportunities, the concession agreement could contribute to the positive results. Indeed, high returns on assets and equity mean an effectiveness of Novogor-Prikamye's management, thus, these indicators could attract private investments into the sector, which would solve the problem of high wear and tear. However, the concessionaire is not an open stock company, so this might restrict the amount of investments if company does not like to share its equity.

According to the analysed international practice, Perm's concession agreement might not contribute to the successful results. As was revealed, its conditions do not fulfill the common features of the best experiences, for instance, the concessionaire was not chosen in a competitive bidding and it could not influence tariffs.

Therefore, it seems difficult to predict whether advantages or disadvantages will overweigh in the future. Nonetheless, it is obvious that current model of control has some problems, the main of which are presented in Table 6.1 in columns "weaknesses" and "threats". Some of them could not be eliminated, because they had place in the past. However, these problems could be avoided by Perm's authorities in the future projects in other industries. For instance, when Perm's government decide to implement concession model in any other sector, it should conduct competitive bidding and attract international companies in working out the agreement. This would allow authorities to avoid mistakes, which it has made in water supply and sanitation industry.

Considering other problems that are presented in Table 6.1, some of them could be solved. Let us offer some possible ways of solution of them based on the conducted research.

One recommendation concerns the investments in water supply and sanitation industry in Perm. As was revealed, the investments in the sector were very low in last years. The current concession contract includes some quantitative characteristics of future investments, but Perm's model does not have qualitative points of them. The first such point is absence of concessionaire's capacity to affect tariffs. According to the successful practices, tariffs should be either clearly specified in the agreement, or set by concessionaire. None of these characteristics are presented in Perm's contract. Therefore, the one solution is to give Novogor-Prikamye the capacity to affect prices on the utilities. This step could significantly increase the company's desire to invest into the facilities. However, this decision has negative consequences as well. The most important of them is possible disturbance of citizens, as they have got used to low tariffs. Apart from these, in order to give the company capacity to affect tariffs, some legal acts should be changed. In particular, these are Federal law from 7 December 2011 №416-FL "On water supply and wastewater facilities" and Russian's government decree from 13 May 2013 №406 "On government's regulation of tariffs in water supply and sanitation industry". Some steps have already been made by Russian government to make tariffs policy more attractive for investors. For instance, it was revealed in the study that new principle of setting tariffs on the period of more than one year (3-5 years) was conducted in the last act. However, it is too little to attract necessary investments.

The second point concerns the sources of investments. The successful practices had good sources of investments, such as World Bank and EBRD, which were ready to invest projects in water supply and sanitation industry because of its inelastic demand. Perm's authorities could consider these organizations as possible lenders. Moreover, big Russian banks such as VTB and Sberbank have also started to participate in such projects. The Rostov-on-Don case has shown good example of this. Banks could offer very long-term loans in this sector, which is an attractive solution of the problem.

Another recommendation concerns the motivation of Perm's concessionaire to fulfill the agreement's obligations. The current model and contract in Perm allow Novogor-Prikamye to behave opportunistic. According to the conducted research, this problem could be solved by two ways. For one thing, the joint venture could be created by Perm's government and Novogor-Prikamye. This joint venture would be a concessionaire, and its equity would be divided between these two sides. The analysis has shown that this model allowed several cities to achieve successful results in managing water supply and sanitation facilities. Indeed, when government has a share in company-concessionaire, it could influence the strategic decisions and protect community's interests. In this case, the probability of opportunistic behavior of private company reduces. On the other hand, this could decrease private investor's motivation to participate in the project, as its interests usually differ from authorities' ones. This solution is also more difficult to implement in Perm's case than others are, because the concession contract has already been signed on a period of 49 years and its full reconsideration would require a lot of time and money.

The second way to solve the defined problem is to implement more serious penalties for the contract breach than existing ones. As was revealed, Novogor-Prikamye could violate the agreement's obligations without any serious penalties, so it could probably behave opportunistic. Therefore, it is vital for Perm's authorities to add some punishments in the case when the company does not invest appropriate amounts of money in certain periods of time.

To sum up, the future of Perm's water supply and sanitation industry depends on government's decisions. If it does not make any steps, the problem of high wear and tear of networks would be hardly solved. The concession agreement as a model of control seems to be appropriate one, as the state control and lease contract proved their imperfection. However, the study has shown that concession model works only in some appropriate circumstances. If concession agreement is implemented without following the revealed features of success, it might not work. Therefore, Perm's authorities have two possible ways of solution. The first is cancellation of current contract and creating the new one. This new one should be worked out with involvement of international companies and accompanied with a competitive bidding. Other features should be observed as well. However, this is rather long and expensive solution. The second one is following those recommendations that were offered earlier. This way seems to be the best option of future government's decisions. If it does not pay attention on the revealed problems, Perm's water supply and sanitation industry may not recover.

• 7. Conclusion
• 7.1 Results and Findings

From recent time, some changes have occurred in sectors of economy, which had been traditionally controlled by government. One of these sectors is water supply and sanitation industry. Authorities meet permanently rising budget expenditures (including crisis years when incomes fall) and extreme wear and tear of water supply and sanitation facilities, while an effective management and modernization of the sector require huge amount of investments. One of solutions of this contradiction is transferring management and control over water and wastewater facilities to the private business. This solution was implemented by local authorities in Perm, when its water networks were passed under LLC Novogor-Prikamye's jurisdiction on the basis of concession agreement. However, disputes about the effectiveness of this model continue. Therefore, the main purpose of this research was to define the ways of perfection in a control model over water supply and sanitation systems in a municipality.

The following steps have been made in order to achieve the goal:

· Key features and some specific characteristics of water supply and sanitation sector have been studied;

· Existing models of control in the sector have been examined;

· Examples of concession model of control in water and wastewater industry in the international practice have been analysed;

· Models of control in water supply and sanitation industry in Russia have been considered;

· The condition of water and wastewater facilities in Perm has been characterized;

· The evolution of control model in Perm has been analysed;

· Advantages and disadvantages of existing model of control in Perm have been revealed via comparison of Perm's agreement with other cities' ones and financial characteristic of concessionaire.

· Possible ways of solution of revealed problems were defined on the basis of the research results.

The study has shown that transferring of control over water supply and wastewater facilities from government to private sector has both benefits and risks either for authorities or for business. In support of this there have been revealed successful and failed experiences of PPP implementation in this sector in international practice and in Russia. The crucial finding was detection of some common features in examples with positive results.

First of all, this was a capacity to influence a tariff policy. In countries with successful experiences either the private investor could set the tariffs or the prices' dynamics was defined in a concession agreement. Apart from this, the contracts were worked out with the help of international companies and consulting firms. This caused a higher quality of the agreement and reduced the possibility of their cancellation. Moreover, the vital feature was competitive bidding when choosing the concessionaire, which allowed authorities to select the most effective company.

An important result was that these features do not take place in Russian practice. Despite it is too early to make any conclusions about concession results in Russia (as they have been implemented just since 2012), conditions of such agreements differ from the best practices. As for lease contracts, there were found a couple of successful experiences in Russia (Rostov-on-Don, Orenburg).

In order to talk about effectiveness of control and managing water supply and sanitation facilities in Perm, the characteristics of networks' condition was given first. The analysis has revealed that the accident rate on the facilities has been permanently high - around 4-5 damages every day. More than a half of these damages are accompanied with disconnection citizens from water supply. The average time of such disconnection is 29 hours. The main cause of this situation is extremely high level of wear and tear of facilities. More than 80% of all accidents happen because of it.

Transferring of control over water supply and sanitation facilities into private sector was made in 2003, when Perm's local authorities signed a lease contract with LLC Novogor-Prikamye. Then the contract was re-signed in 2005 on the period of 49 years. The main objective of the contract was investments' attraction into the sector. However, the conducted research has shown that investment level into facilities' modernization in Perm was rather low in comparison with other regions. Based on a high accident rate and insufficient investment level there was made a conclusion about ineffectiveness of the existed lease contract.

The further study was dedicated to comparison of current control in Perm's water supply and sanitation industry and the ones in foreign cities that were analysed earlier. In particular, conditions of the concession agreements were compared. Perm's concession agreement was implemented in 2013. We have found that common features of successful international practices are not present in Perm's case. These features are competitive bidding, involvement of international companies in working out the contract and concessionaire's capacity to affect tariffs. Apart from this, the financial analysis of Perm's concessionaire in comparison with other similar companies was made. On the basis of this study, the SWOT-matrix of current control in Perm's water supply and sanitation industry was made. Among strengths and opportunities, Novogor-Prikamye's attractive financial condition, social tariffs, future investments and decrease of accident rate should be noted.

However, weaknesses and threats were revealed as well. The most bright are high consumers' debts, low investments level in last years, legal restrictions on concessionaire's incomes distribution, absence of long-term bank loans in the sector. Moreover, threats of default from agreement's obligations by both sides, concessionaire's opportunistic behavior and collusion between authorities and business were revealed.

Finally, the possible ways of solution were discussed. The first one is to cancel the current agreement and make a new one. The new contract should correspond to the revealed features of success: involvement of international consulting firms in working out the agreement, competitive bidding, concessionaire's capacity to affect tariffs. There was also noted that this way of solution requires a lot of time and money. Therefore, the second solution seems to be more appropriate. According to it, Perm's authorities should follow the offered recommendations, which are connected with investments into the sector and concessionaire's motivation to fulfil the agreement's obligations. Particularly, there were offered such steps as giving Novogor-Prikamye the capacity to affect tariffs, attraction of long-term bank loans for facilities' modernization, creating a joint venture of government and business, enhancing penalties for contract breach. Pros and cons of all steps were considered as well.

• 7.2 Research Limitations and Future Research Directions
• The research has some limitations. The first one concerns international practice analysis. Due to difficulty of studying a big sample of cases, only few practices have been considered. Therefore, the revealed common features of successful examples probably do not reflect all aspects of implementing concession model in water supply and sanitation industry. Thus, a wider sample could be analysed in future researches. This might reveal more features to be followed in order to achieve successful results.
• Apart from this, a deeper analysis is required to make recommendations for Perm's local authorities concerning investments into its water supply and sanitation sector. Particularly, the amount of necessary investments could be calculated on the basis of networks' current technical condition. This would allow to compare the required investments with those defined in the contract, and conclude whether the last would be enough for modernization of the sector or not. Moreover, the future incomes and costs of Novogor-Prikamye could be calculated as well. Such business-plan would allow researchers to define whether Perm's concessionaire would be able to invest required amounts of money or not.
• Furthermore, similar researches could be held in other sectors, where concession model and other PPP forms are used. Such studies could reveal common features of the cases that have achieved good results. Based on such features, some general rules could be worked out for all authorities that intend to implement PPP models in any industry.

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