Thursday, March 06, 2008

World Bank Gives Loan for Outsourcing

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The World Bank has approved a $200-million loan to support the Housing Utilities Reform project and the development of a competitive mechanism for housing utilities reform in ten cities within five years. Only cities that actively use market mechanisms will receive the money and 90 percent of the buildings in winning cities should be managed by private companies and 70 percent of the investment in housing utilities should be from private funds.

The government program for housing utilities reform is worth $10 billion, most of which will be used for investment in housing and infrastructure construction. The effectiveness of the program leaves something to be desired, however. "Our function is not simply to give $200 million to support housing utilities reform, but to outsource the reform," Russian World Bank representative Samir Suleimanov told Kommersant. That is the largest investment in the reform so far.

The money will be used for capital repairs to reduce operating costs (the reduction of operational losses from their current 60 percent to 10 percent), losses from systems failures and water leakage. Cities with populations between 90,000 and 600,000 are eligible to participate, if their reform programs are 80 percent complete, with legislation and market mechanisms already in place. Utility companies should cover 90 percent of their costs through utilities payments and there are a number of financial parameters that are necessary as well.

After five years, the effectiveness of the program will be judged by a commission from Washington and members of an interagency commission made up of officials from the Ministry of Economic Development and Trade, the Ministry of Regional Development and Rosstroi.