Экономические науки / 13. Региональная экономика

Cherednichenko I.G.

Public institution “Institute of environmental economics and sustainable development of national academy of sciences of Ukraine”, Ukraine

Classification of Water-Economic Complex Financing Systems

The purpose of our study was a classification of the water-economic complex financing systems which would take into account all specificities of the application, investment and appropriation of funds to address key problems related to the rational use of the water resources in the Dnieper river basin, self repayment of measures aimed at reconstruction of destroyed water management facilities and construction of new facilities, as well as a social factor that provides for the access to the water sources and services even for the poorest segments of the population.

Thus, we have distributed the WEC financing systems by two features – the geographical location and the way to attract funds into the hydro-economic sphere (table 1). In our opinion, this is the approach that highlights all distinctive features of the financial support of the modernization of the water-economic complex.

The influence of the country’s geographical location, which, in turn, determines the respective level of solution of the problem relating to the financing of the modernization of a certain facility, is of interstate, state and local nature. As to the interstate one, an example may be the European Union which seeks to jointly resolve the water problems on the basis of the existing legislation. A new country can joint the community only having secured the adoption of all norms and laws of the EU’s water legislation. A state influence takes place in case when a basin of a water body is located completely within one country. In such a case, the government can use direct subventions from state budgets, or attract funds under state guarantees, depending on the approaches during distribution of funds. A local influence can be applied only to small water bodies as lakes, ponds etc., located within one territorial unit – a village, town, district. It offers opportunities to resolve a broad range of issues related to improvement of quality of life of the population by providing opportunities for a community to attract, use and distribute funds in the framework of projects that do not require coordination with the central state bodies.

Table 1

Classification of Water-Economic Complex Financing Systems

Territorial location	Interstate (basin-related)	Countries unite to address common problems as to improvement of the state of a water body. An example may be seen in the European Union which seeks to jointly resolve the water problems on the basis of the existing legislation.
	State	Takes place in case when a basin of a water body is located completely within one country. In such a case, governments can use direct subventions from state budgets, or attract funds under state guarantees.
	Local	Is characteristic for small water bodies as lakes, ponds etc., located within one territorial unit – a village, town and district. It offers opportunities to resolve a broad range of issues related to improvement of quality of life of the population by providing opportunities for a community to attract, use and distribute funds in the framework of projects coordinated with the central state bodies.
Financing method	“Water markets”	A financing system involving use of the market component when water resources are sold at the markets as a commodity under the supervision of the public authorities.
	“Cross-subsidization”	The system provides for the redistribution of expenditures by the state authorities, or, in other words, some consumers pay for the other ones, and not always rich consumers pay for the poor ones.
	“Proportional”	Payment for services is proportional to the income, moreover, a minimum level of service provision has been established which is accessible to all, even for the poorest segments of the population.

Source [formulation of the author]

Approach to the financing determines the strategy for the implementation of a rational water utilization; as we see in the case of the “water markets”, the modernization is financed, on the one hand, by the desire of an individual to obtain better, more modern services (a contact -free tap, jacuzzi), on the other hand – parsimony, or reluctance to pay more, rationality (installation of consumption metering equipment, replacing old pipes with new ones). Conversely, the “cross-subsidization” adds a speculative component to the water use in such a way that the state budget can cover all shortages, i.e., some people will pay for the other, consequently, for a part of water users it is disadvantageous to use water rationally since there are no economic incentives for rationalization. That is to say, a source of funds for the modernization can only be the budget which is filled at the expense of all business entities; in fact, the country’s government assumes all responsibility for the modernization of the water-economic complex.

In our opinion, a winning scheme of financing the water-economic complex modernization in terms of a rational water use is the “proportional” one, which contains both the desire of a person to have better services, subject to the availability of funds, and the possibility of financing from the budget when the resources of the community are not sufficient, thus ensuring the social equity in the distribution of water resources. Furthermore, it provides for transparency in decision making, which invalidates the speculative component of the budget funds distribution.

The classification of the systems of financing the water-economic complex can be used in the teaching and learning process of higher education institutions with the objective of an integrated understanding of contemporary processes of the water sector development in the countries of the Dnieper basin in the teaching of professional disciplines and as a theoretical substantiation by the state government bodies of the activities aimed at a systemic reorganization of financing measures of the state targeted programmes as to development of the WEC by the state government bodies.