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. Last Updated: 07/27/2016

Putin Orders $20Bln Housing Reform

President Vladimir Putin ordered the government Tuesday to draw up a $20 billion plan to overhaul the country's rusting housing sector by July 1, a move that will force households to foot the entire bill for housing expenses for the first time since 1917.

Government officials agreed at a round-table meeting that the reforms to curb widespread municipal and state subsidies for expenses such as heating, electricity and water should be spread out over nine years. During that time companies offering housing services would upgrade to become more competitive.

"We should admit that the multiple accidents in utilities are not the result of an extraordinary event," Putin said in televised remarks, referring to frequent water and heating shortages. "They are the result not only of poor management, but primarily of our habit of putting things off until later."

The housing sector must "be awakened from hibernation," Putin was quoted by Interfax as saying. "By July 1, the government will have to complete the final details of the project and present it to the president."

The housing sector involves a large number of services including utilities and building repair. Besides water, electricity and heating, housing expenses include garbage disposal, maintenance, sewage, gas and access to buildings' television and radio antennae.

Maintenance and replacement costs are built into the gross — thus subsidized — bill. However, much of the funding that comes from the federal and municipal budgets is delayed, leaving services with growing debts and insufficient cash to cover replacement costs.

As a result, 60 percent of the housing infrastructure is worn down, according to a report presented at the government meeting Tuesday. One-third of all water pipes and 17 percent of sewage pipes urgently need to be replaced. Waste is exceeding the capacity of sewage pipes by 60 percent, and 40 percent of those pipes have been in use for 25 years or more.

Housing sector reform is likely to become Putin's first across-the-board unpopular move. Regardless of how gradually the reform would be implemented, it will lead to a noticeable drop in disposable incomes.

Fear of nationwide protests have prevented previous governments from taking any serious steps to reform the creaking sector. Housing costs were frozen for the first few years after the collapse of the Soviet Union in 1991, forcing the government to pick up nearly 100 percent of all expenses. A very mild growth in utilities prices began only in the mid-1990s.

"People today treat housing reforms as yet another threatened hike in housing expenses," Putin was quoted by Interfax as saying. "We all have to understand that solving the problem at the expense of worsening the quality of life is not possible and no one has the right to do it that way."

Putin said 120 billion rubles ($4.1 billion) a year is spent by the federal and municipal budgets in housing subsidies. Some 3 billion rubles ($102.5 million) actually end up in the form of discounts on household bills, while the rest is consumed by the enterprises that provide housing services.

"The main portion of the subsidies should go to citizens' personal accounts, then their rights will be maintained," Putin said.

Households would have to apply for subsidies after the reforms are implemented.

Deputy Prime Minister Viktor Khristenko said the government is planning to work out a system to assess individuals' wealth and thereby select those most eligible for subsidies, Interfax reported.

Khristenko also said the federal government was ready to help regions organize subsidies during the nine-year transition.

The transition will take place in three phases.

From this year to 2003, legislation supporting the reforms will be hammered out, State Council Chairman Leonid Polezhayev told Interfax. Also during this period, debts currently owed to the housing sector by the state and municipal budgets would have to be repaid and equipment upgraded.

During the second phase, from 2004 to 2005, companies that offer housing services would be privatized in order to boost competition on the market.

The sector should be ready to operate on its own by 2010.

Some 600 billion to 700 billion rubles ($20.5 billion to $24 billion) would be needed to carry out the reforms, Polezhayev said.

He did not say in what phase all households would have to pay their housing expenses in full.

Subsidized housing was introduced by the Soviet government after the 1917 Revolution and considered one of the main achievements of the communist economy.

While the government hemmed and hawed over housing, several regions have already begun to tackle the issue. Moscow City Hall said earlier this month that under its subsidy-cutting program Muscovites will see housing costs shoot up at least 50 percent next year. In 2003, Moscow households will be required to cover 59 percent of all expenses.