Are Housing Utilities about to Become Market-Based?
On 14 August the Belarusian government approved a plan to increase tariffs on housing utilities to their full market cost. The state wants Belarusians to live under market conditions in five years time, which means tripling utility bills by 2020.
Housing utility reform features among the main conditions under discussion between Minsk and international financial institutions for the introduction of a new stabilisation programme. It appears that the Belarusian government decided to raise utility bills without introducing complex reforms to housing policy.
But will introducing market prices for housing services alone fix the problem?
Three Fold Increase in Expenditure on Housing Utilities in 2020
Belarusian households spend on housing services 5.3% of their total expenditures, Poles pay over 20% Read more
Belarusians pay significantly less for housing services than they would under market conditions. In 2014 households spent on housing and utilities 5.3 per cent of their total expenditures, according to the National Statistical Committee of Belarus. That is close to the lowest level of the past 20 years. For comparison, Poles paid 20.1 per cent of their total spending for housing utilities in 2014. Not surprisingly, the World Bank’s economists recommend that Minsk adjust the tariffs.
In mid-August the Belarusian government accepted a plan to raise drastically tariffs on housing services in 2016-2020. Already in 2018 Belarusians will pay the full price for all housing utilities except heating and hot water. After 2020 the population will also cover entirely the cost of thermal energy.
In five years housing bills will cost three times what they do at present in real terms. The authorities' plan will see the population cover 62.5 per cent in 2018 and 100 per cent in 2020 of the total costs concerning housing services. This year, households pay less than a third.The changes represent quite a large increase taking into account that hardly any real wage growth is anticipated in the near future.
Ineffective Housing Utilities in Belarus
Since the collapse of the USSR, Belarus has never tried to modernise the housing utilities system. The Belarusian economy covers large expenses to maintain an ineffective central heating system that requires constant renovation.
For example, each year Belarusians experience the hot water and heating being switched off from mid-May till October or November. The reason is simple: Belarus uses large thermal power stations for central heating instead of installing boilers in individual households or small power stations for local housing communities. Huge pipes in the ground pump boiling hot water to millions of houses. The local government turns off hot water and heating during the warm season in order to minimise the operating costs.
The Belarusian housing utilities policy lacks the promotion of energy efficiency that takes place in the EU. Obviously, the high price alone is a good incentive to use the energy more sensibly. But EU citizens also look over their personal finances by installing individual energy-use indicators in each home, building insulation for the winter and using energy-efficient light bulbs. Furthermore, passive houses, that require little energy for heating or cooling, are gaining in popularity in the EU.
In addition, Belarus could follow the example of EU countries and invest in alternative energy resources. The EU encourages households to become prosumers. Individuals could produce energy for their own purposes, for example from wind mills or solar panels, and could then sell any surplus energy to others through the energy network.
Creditors Require Reforms in Housing Utilities…
On 31 August the Eurasian Development Bank announced that it may grant the first tranche of a new stabilisation loan to Belarus before the end of this year. Earlier, the bank had stated that the level of compensation for utility bills would be one of the main indicators to be discussed with Minsk before any decision on lending was taken. Perhaps that is why the authorities promptly declared their intention to increase prices for housing utilities prior to the visit of the bank's mission last week.
Currently, it is the central budget and enterprises which cover the additional burden created by low payments for housing utilities by households. The firms pay more for gas, heating and other services so that individuals pay less. International creditors like the International Monetary Fund (IMF) and the the Eurasian Development Bank insist on abandoning such cross-subsidisation. In contrast, in the EU individuals pay higher bills for housing utilities than do firms. That makes EU firms more competitive on the international market.
Ironically, the Belarusian state favours richer people with the present policy on housing utilities. The same subsidies apply to all households regardless of income level. Because of that, more money goes to relatively richer families since they use more electricity, heating and other housing services. Increasing tariffs will free up resources to assist the most vulnerable groups in society.
…while Other Reforms are More Important
The Belarusian state could benefit from raising the tariffs. Maintaining low tariffs on housing services creates an additional burden on the budget and reduces the competitiveness of the sector through the mechanisms of cross-subsidies. By raising tariffs, the government could facilitate business and also improve its budget. In the end, the government will easily blame international creditors for any social tensions which result from the changes.
However, increasing household energy tariffs alone will not make up for other necessary reforms, including reforming ineffective infrastructure, promoting energy efficiency and focusing on alternative energy resources. Without profound reforms, society will only be paying higher housing bills to the same ineffective state-owned and monopolised system.
The authorities in Minsk have shown willingness to satisfy the creditors' conditions and increase housing bills. Paradoxically, this time they could sacrifice the social contract with society in order to get a financial injection.
Belarusian Roads: Good Quality, Bad Service
At the end of July the Minister of Transport Anatol Sivak reported to Lukashenka on important road projects in Belarus, including a second ring road around Minsk and a road toll system.
Belarusian roads have became a brand in post-Soviet countries and even the EU because of their high quality.
Yet the road service remains poor despite attempts by the government to develop it. Due to confusing rules on toll roads problems have led to outrage among both transportation companies and foreign visitors.
While the roads provide some economic benefits, due to the heavy road traffic they bring environmental problems, particularly in Minsk. The authorities launched the construction of a second ring road to keep lorry traffic away from central Minsk. However, this project will not help to resolve the high number of cars in Minsk. This is in part due to Minsk's enormous role in the Belarusian economy.
The Best Roads in the Region?
According to a Gallup poll of 2012, 52% of Belarusian respondents showed satisfaction with the quality of their country's roads. This was also the highest rate in the region including Belarus's EU neighbours, Poland and Lithuania.
Lorry drivers say Belarusian roads are better than in Poland and Lithuania, and, moreover, they are safer Read more
Belarusian roads have become a Belarusian brand in Russia and other post-Soviet countries along with Belarusian food and cleanliness. Even the former Head of the EU delegation to Belarus, Maira Mora praised the quality of Belarusian roads in an interview with a Belarusian TV channel. Lorry drivers say Belarusian roads are better than in Poland and Lithuania, and, moreover, they are safer. “You can stay there alone at night, while in some EU countries you risk losing your fuel and even tyres while you sleep”, they say.
However, most drivers also note that the quality of services on the roads remain poor. Parking places, motels, cafes, showers and toilets are concentrated near large cities and major highways, while in the regions one can travel upto 100 km before reaching any service.
In 2008 Lukashenka issued a decree to support road service development through tax incentives and other measures. Despite this, Belarusian businessmen keep complaining that the government hardly provides any real help and the business of modernisation involves too much red tape.
But Belarusians also seem to lack the understanding of how to make money on the road. In neighbouring Poland every village near the road offers a bed for the night and lunch, while in Belarus this easy enterprise remains very rare, and there is not a clear reason for this.
Another problem foreigners have faced when driving through Belarus in recent years has come from Belarusian toll system.
Road Toll Problems in Belarus
Belarus currently has around 1,200 km of toll roads and the government plans to reach 2,000 km by 2020. In July 2013, the government introduced an electronic system called BelToll for charging road tolls, which replaced the older system of manual collection. In Belarus the toll is charged for cars registered outside the Customs Union and cars weighing over 3,5 tonnes.
A driver needs to buy and instal an on-board unit on his windshield. When a vehicle passes underneath the special terminals mounted over the toll roads, the system automatically withdraws money from the driver’s user account, so one does not need to stop anywhere to pay the toll. The convenience of the system, however, has proved to be far from promising.
A few months after the introduction of BelToll, it caused outrage among car owners and especially lorry companies. Around 5,000 car owners and firms in Belarus discovered that they have dozens of fines already, some reaching €80,000 in total. Moreover, Belarus's transport inspection can withdraw money from bank accounts without the owners' permission.
Although the authorities claim they carried out a vast information campaign in neighbouring countries, and set the toll in Belarus at the cheapest rates, numerous foreign drivers wrote angry reports about the Belarusian tolling system.
Actually, one cannot find much information about the system on entering Belarus, let alone any foreign language guide on it. Buying an onboard unit turns into a quest, as the operating company only has a few selling places throughout the country.
Some drivers have had to detour onto smaller roads and even rent Belarusian cars to reach one of the points to buy an onboard unit or pay a fine. Generally, the way the authorities implemented the system has made a highly negative impact on Belarus's image as a transit country and tourist destination. Today, before entering Belarus, drivers can check the toll system website, which has many language versions. It can be found at: http://www.beltoll.by/
Interestingly, this August a presidential decree removed the toll payment from cars registered in the Ukrainian separatist regions of Luhansk and Donetsk. Thousands of Ukraine citizens fled to Belarus as the conflict in eastern Ukraine was unfolding, and the Belarusian authorities have decided to support them in such a way.
2nd Minsk Ring Road Will Open in 2017
Despite the poor quality of the road service, Belarus remains a major transit country at a European crossroads, and experiences a growing impact of traffic on its environment. The project of the second ring road around Minsk has been launched to mitigate its negative consequences.
The construction of the first 56-kilometre ring road encircling Minsk started in 1956. Since that time it has transformed from two to a six-lane road in 2002 with a current daily traffic of 90,000 cars and 120,000 at peak hours. Today, it is overloaded with traffic, which heavily damages the city’s environment.
So the authorities decided to build a second ring road in 2010. According to Ministry of Transport officials, it will let all freight transport coming from EU and Kaliningrad pass through to Russia without entering Minsk. The road will stretch 158 km, including the 73 km of existing roads and 85 km of a new one.
Initially the authorities planned it as an asphalt road, but apparently they decided to employ the vast reserves of concrete which Belarusian producers failed to sell abroad. They, however, mention another reason. Concrete roads will serve longer than asphalt.
Despite its importance, the project has not not proceeded smoothly. In 2012 construction froze because of a shortage of funds, and resumed only in 2014. The road is financed largely from a loan from the Belarusian Development Bank, an institution which finances government projects, and national budget.
While the second ring road may reduce international freight traffic near Minsk, it will hardly impact private vehicles coming from other Belarusian regions. Minsk attracts economic migration from the whole country, so the reason for overloaded traffic goes deeper than another ring road. The government should address a complex of issues like economic development of other regions and Minsk's suburbs to reduce the inflow of cars heading for Minsk.