Being aware of the impeding gas price hike, the Council of Ministers on June 7 adopted a program of the development of the country's housing and utilities sector for the period between 2006 and 2010. For some reasons, the government decided not to publish the text of the program. Let us state what the authorities wanted to conceal from the public in the so important economic matter.
The authors or the program apparently wanted to state the sector's problems mildly, but the bitter truth came to light anyway. "The state the housing and utilities sector of the Republic of Belarus is characterized by an unsatisfactory financial position, relatively high costs of production and services, the lack of economic incentives for reducing the costs, and the lack of competition, which affects the quality and promptness of services provided," the program says.
Now that a considerable rise in the price of gas and, subsequently, the price of heat and electricity is coming, the above-stated description of the state affairs causes concern. The housing and utilities sector has turned out one of the main hostages to the government's dangerous effort to limit prices. Realizing voters' sensitivity to rises in utility rates, the authorities chose to strictly control them but only aggravated the sector's problems while failing to keep the rates down.
In the last four years, housing maintenance services increased in price sixfold, the water supply 5.4 times, sewer service 6.3 times, and the heating 3.6 times. The utility rates, including the heating and gas supply rates, rose 50.7 times from January 2000 two June 2005, whereas consumer prices increased 6.1 times. Nonetheless, this did not help the Belarusian monopolists in the sector to ensure a satisfactory level of operation.
In 2005, the organizations under the authority of the Housing Ministry had a negative profitability rate of three percent. With services provided to legal entities taken into account, the profitability of major utility services exclusive of the gas supply reached a paltry 0.2 percent. Housing maintenance was of a negative profitability of 3.9 percent. The profitability of communal services was 1.8 percent.
The government believes that the main purpose in the development of the housing and utilities sector is to "ensure the financing of its reproduction through, above all, payments by the population at the established rates." "The existing sources are in general insufficient even for simple reproduction," the program says.
Despite the skyrocketing rise in utility rates, the degree of service cost recovery through households' payments remains very low. For a standard two-room apartment, it increased from 12 percent in 2000 to 42.4 percent in 2005. But that was enough for the share of utility bills in the expenses of households to increase from three percent to 9.1 percent. The state of the housing and utilities services is aggravated by a high degree of wear and tear of the infrastructure.
The situation in rural areas is much worse than in cities. Only 29.4 percent of the village houses reportedly have running, 24.9 percent have a sewerage system, and only 9.4 percent have a bath or a shower stall. In the country in general, there is running water in 65.7 percent of all houses and apartments, sewerage in 63.6 percent, central heating in 63.8 percent, a bath or a shower stall in 55.1 percent, and gas or floor electric cookers in 95.4 percent.
As the government's program says, "Transition to economic methods of management is being impeded by the existing management system. The combining by housing and utility services organizations of certain administrative functions and economic activities does not create conditions for efficient operation and the reduction of costs."
The government tried to encourage the establishment of condominium associations, as 80 percent of the total housing stock was privately owned, but households proved to be not enthusiastic about this idea. Only 337 associations were established in the entire country. A condominium remains a risky and expensive venture for people.
The program provides that efforts should be concentrated into the reorganization of the system of housing and utility services, which should envisage the "separation of the functions of the housing stock owner and professional managers and services providers, and the establishment of full-fledged contract relations."
At the initial stage of implementation, the program envisages transition to the distribution of housing renovation and maintenance contracts on a competition basis. As a further step, the government plans to switch over to the professional management of the housing sector with equal access to the sector for enterprises of all forms of ownership. This sounds civilized. But given the previous experience of awarding contracts in the Belarusian economic system, it is very likely that contracts will be massively given to dubious private entities founded by managers of the present housing offices or their relatives.
As for utility rates, the government plans to gradually abolish the practice of cross-subsidizing. The program suggests that the rates will inevitably rise. The cost recovery of services exclusive of the gas and electricity supply is to reach 62 percent by the end of 2010. This wording allows the government to take additional money from households by unlimitedly raising the gas and electricity prices.
Unfortunately, the authors of the program do not offer any system to adjust the utility rates to the forthcoming sharp rise in the prices of natural gas, electricity and fuel. They just note that raising utility bills by four or five dollars will make it possible to reach the projected level. This means that the tenants of a standard apartment would have to pay some $100 in utility bills a month in winter time.
Whatever the developments in the sector, households should expect a rise in the utility rates. On the one hand, this is natural, as it is hardly possible to provide quality services if the costs do not pay off. On the other hand, the government apparently is not going to give up monopoly and political pressure in the sector. If the government makes the sector's managers put the entire burden of the new gas and electricity prices on the shoulders of households, a social explosion may occur. If the government chooses to raise the utility rates for enterprises, this would damage their competitive capacity and affect budget revenues. The government will thus find itself between two fires. P.S. First Deputy Prime Minister Uladzimir Syamashka warned on August 17 that the country's household utility bills would increase by far more than 50 percent if Russia's natural gas giant Gazprom raised its gas price for Belarus to $100 per 1000 cubic meters. The monthly cost of running a two-room apartment is estimated to rise by between $32 and $35 for a family of four, Syamashka said. He did not specify how much households would have to pay for utility and housing maintenance services if the gas price was set at $200. He only reiterated that Gazprom should honor its promise made in 2002 that it would sell gas to Belarus at the price applied to Russia's Smolensk province.

Table 1. Costs of utility services in 2004 in percent of the 2000 level

Table 2. The government's housing major repair and heating modernization targets for the period between 2006 and 2010, in thousands of square meters