2024 (21), №2

Connection Fees as the Best Way to Finance the Development of the Utility Infrastructure of Russian Cities

For citation: 

Smirnov, O. O. (2024). Connection Fees as the Best Way to Finance the Development of the Utility Infrastructure of Russian Cities. AlterEconomics, 21(2), 345–362. https://doi.org/10.31063/AlterEconomics/2024.21-2.10

Abstract:

The article analyzes methods of financing utility infrastructure development, typically limited to tariff revenue from existing consumers, connection fees (for technological connection) or payments from future consumers, and funding from the budget or taxpayers’ fees. The study aims to determine which method yields the greatest improvement in social welfare, defined here as the consumer surplus of utility service users. Changes in consumer surplus are modeled in both the short and long terms, emphasizing the need to align financing methods with the interests of infrastructure beneficiaries. Initial data for modeling were drawn from analyses of investment programs and financial statements of water utilities in 164 cities with populations exceeding 100,000 people, focusing on the water supply sector. The findings indicate that incorporating an investment component into utility tariffs is the least preferable method for infrastructure development. Similarly, financing through budgetary funds is deemed ineffective as it does not directly benefit final beneficiaries. The most promising strategy for infrastructure development seems to be leveraging connection fees. This method fosters long-term growth in consumer surplus for both current and future users without exacerbating short-term consumer challenges. Financing through connection fees directly involves and benefits the end consumers of utility services. These results are valuable for reforming financial plans, performance indicators, and enterprise programs in the housing and communal services sector.

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Oleg O. Smirnov — PhD Student, National Research University “Higher School of Economics”; https://orcid.org/0000-0003-2684-2217 (20, Myasnitskaya St., Moscow, 101000, Russian Federation; e-mail: olegsmirnov54@gmail.com).

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