Russian industry is ready to flush the environment down the toilet

08.04.2011 — Analysis

The Russian Government is toughening its industrial policy. Officials announced an increase in the fees industries must pay in order to pollute the environment, which the government believes will force companies to modernize their technology. But experts had a very cautious reaction to these plans. They told this columnist for "RusBusinessNews" that the government has been talking for ten years about increasing the fees for excess emissions, but there is still no definite date for when these new rules will go into effect.

Most Russian industries can trace their lineage back to the wave of industrialization that occurred in the 1920's and 1930's. Many of them have been using the same equipment for 40 years, meaning that it is not only technically obsolete but physically decrepit. Hence, the obvious need for Russian industries to improve their environmental policies, especially in older, industrial regions such as the Urals. Most of these polluting businesses would be forced to shut down if they had to comply with modern regulations. The Russian government has tried to play the part of King Solomon and set industry standards on excess emissions. In other words, factories were permitted to ravage nature only to the extent deemed necessary by government officials.

Poisoning the environment beyond these limits results in fees several times higher than those charged for allowable emissions. But these fees are still low by European standards. For example, a company pays 260 rubles ($9) for a ton of excess emissions of nitrogen dioxide, 105 rubles for sulfuric acid, 56 rubles for hydrochloric acid, 1,025 rubles for hydrogen cyanide, and 34,165 rubles for mercury.

Evgeny Tyulkanov, an environmental auditor, claims that industrial companies currently pay less than 1% of their profits for polluting the environment. These fees have not been indexed for over ten years and only 20-30% of all businesses are monitored because oversight is difficult. It's no simple matter for even the environmental prosecutor to just show up at a factory for an unannounced inspection. This situation has forced the authorities to work on developing new environmental protection laws.

Aleksandr Eremin, the deputy minister of natural resources of the Sverdlovsk region, believes that the fees for polluting are too low and thus the new law should include a clear method of obtaining compensation for damage to the environment. It should create an economic incentive to treat waste rather than bury it. But no one is interested in this kind of business today. Cost-effective technologies to process waste still do not exist. These same economic reasons explain why no one in Russia recycles household trash. Only plastic containers, aluminum cans, and steel are collected because their prices have risen significantly in recent years. Thus, we need to either create cost-effective recycling technologies or subsidize the plants that process waste. Aleksandr Eremin hopes that a sharp increase in the fees charged for polluting will finally get this issue off the ground.

According to Yuri Trutnev, the Russian minister of natural resources, these fees will increase 3.4 times by 2016, providing the federal coffers with eight times as much revenue. At that point, businesses will pay an average of 1.1% of their profits for the harm they cause. According to the minister's plans, within five or six years the burden of the environmental fines will force industries that produce harmful emissions to either modernize and buy new equipment or go out of business.

Evgeny Tyulkanov believes that the wastewater treatment facilities and landfills operated by utility companies create most of the problems. According to his calculations, up to 65% of industrial enterprises could be forced into bankruptcy. The public will face new problems as well. The new environmental regulations will lead to an eightfold increase in the fees for garbage collection.

Vadim Kuznetsov, the technical director of Vodokanal in Ekaterinburg, says that the company's investment programs will most likely work with the deadlines that have been agreed upon and will not incur any penalties. Only those utility companies that have no way to finance their modernization and transition to newer technology will face difficulties. The senior manager hopes that the authorities will adopt a separate law for water supply, with less stringent environmental requirements for water and sewage companies.

Aleksandr Shenkman, the president of the ROSVODOKANAL Group, notes that European countries clearly delineate the responsibilities of industrial and utility companies. Each company pays for its own hazardous substances if it was required to process them but failed to do so. The precept that "the polluter is the one who must pay" would create an effective model similar to the one in the EU. Industrial businesses would be forced to invest in methods to treat their wastewater. But Aleksandr Shenkman claims that if the amendments proposed by the Russian Ministry of Natural Resources are adopted without emphasizing the role of water utility companies as agencies responsible for provision of environmental services, then it will deal a serious blow to an industry that is currently in an already wretched condition.

The reopened metallurgical and chemical companies will also face difficulties. They will be forced to make sizeable investments in new technology to satisfy the demands of the new environmental legislation. But although Russian laws may look stringent on paper, they are often lightly enforced.

Evgeny Tyulkanov believes that 25-30% fewer businesses in the Sverdlovsk region actually comply with the environmental regulations than what is reported, because of incorrect and non-transparent calculations. In other words, the factories are doctoring their records. In addition, they are reluctant to include the fees for environmental pollution in their budgets. According to Evgeny Tyulkanov, this debt is close to 70%. Business owners always manage to negotiate an extension with the authorities on the deadline to pay these charges, without incurring late fees. The introduction of new industrial regulations will offer another excuse to try to cut a deal with the government.

This causes Aleksandr Eremin to fear that this plan from the Ministry of Natural Resources may remain only a paper dream. He notes that there has been talk for many years about toughening environmental legislation, and pilot projects have been under development since 2000. But twentieth century laws are still in effect in Russia. Each time the industrialists persuade the government not to rush ahead with any draconian new sanctions against poisoning the public and the environment. It is still not known when the hour of their implementation will be at hand. The Russian Union of Industrialists and Entrepreneurs is fighting any improvements in the system to regulate hazardous emissions.

Vladimir Terletsky