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The need to accomplish urgent refurbishment and upgrades is boosting demand for innovative solutions and enhanced treatment processes in the Russian municipal water and wastewater treatment market. Moreover, increased international investment and financing programs, together with the growing decentralization and privatization of water facilities, are bolstering positive trends in the market.
“Activity in the Russian market is being facilitated by international loans and financing programs amounting to about $1 billion by various International Financing Institutions, including the World Bank and European Bank for Reconstruction and Development, ensuring a steady supply of funds and further encouraging international companies to participate in the market," said Frost & Sullivan industry analyst Suchitra Padmanabhan.
For over a decade, the Russian municipal water and wastewater market has been beset by lack of investment, making the process of refurbishment and upgrades imperative. Treatment plants built earlier are in need of upgrades and have triggered significant demand for innovative treatment processes that can effectively manage the effluents generated.
In particular, the water sector in Russia has been experiencing problems associated with the physical deterioration of systems, inability to effectively devolve responsibility to municipal authorities and weak public finance mechanisms owing to a decade of insufficient investment in water supply and collecting system infrastructures.
The water management systems in over 25,000 municipalities in Russia alone are in urgent need of equipment upgrades and infrastructure renovations. In addition, critical problems lie in low water quality in densely populated regions such as South Urals, the Far East, Down Volga, Kemerovo and Moscow.
The wastewater sector has also suffered 15 years of neglect and under-investment, as it is mainly state-owned and has had to rely on state subsidies. About 60% of the sewage treatment installations in use are overloaded, and 38% have been in use for more than 25 years and require reconstruction.
Wastewater treatment is a relatively new market in Russia, but it is likely to experience increasing investment and strong growth. In this market, the demand is supported by a need for advanced, more efficient treatment technologies such as the membrane treatment process.
With the centralization of power by the government, the water and wastewater treatment market suffered severely from ineffective management, improper budgetary allocations, prolonged under investment and the continued use of obsolete technology.
“However, with the Russian Government’s initiative to decentralize and privatize water bodies, the local dynamics are likely to change and increase competition among the existing suppliers, besides opening up the market for foreign participants,” Padmanabhan said.
The Russian municipal water and wastewater market, which earned revenues of $960 million in 2005, is poised to exceed $1.5 billion in 2012. This includes the total market value from equipment sale to design and civil works in both networks (e.g. pumping stations) and treatment plants.
At present, local manufacturers and suppliers control almost 70% of market share and dominate the market for the water and wastewater treatment equipment as well as networks and pumping stations. There will continue to be apprehensions about foreign operators and investments in Russia until they prove their long-term interest, not just in big cities such as Moscow and Saint Petersburg, but also in middle and small sized cities.
“International companies have found that joint manufacturing is a key strategy for entering into the Russian water markets,” said Padmanabhan. “Alliances with local distributors have also proven largely successful.”