February 1998 | Age 23 | Smolny Institute, St. Petersburg
The February cold had frozen the Neva solid, but the atmosphere in the city council chamber was anything but cold. Thirty council members faced Alexei across a long wooden table, their expressions ranging from curious to hostile. At the center sat Mayor Sobchak, his face etched with the fatigue of a man caught between political survival and financial necessity.
"The issue before us," Sobchak announced, "is the proposed water tariff increase. The concession agreement allows for annual adjustments based on inflation and capital investment. Neva Water is requesting an increase from six rubles to seven rubles per cubic meter—approximately sixteen percent."
A councilman from the northern district raised his hand. "Sixteen percent is outrageous. Our constituents are already struggling. Food prices are up. Heating costs are up. Now water?"
"Water quality is also up," Alexei responded calmly. "Sediment levels have dropped by forty-five percent at Treatment Plant No. 3. Chlorine dosing is now consistent. Backup pumps are operational. Your constituents are getting better service."
"Better service doesn't matter if they can't afford it."
"Our lifeline rate remains unchanged. Two rubles per cubic meter for the first ten cubic meters monthly. That covers basic needs for families below the poverty line. The increase only applies to consumption above ten cubic meters."
A communist council member slammed his fist on the table. "Lifeline rates are a trick! You increase the base rate, then claim you're protecting the poor. But the poor still pay more!"
"The poor pay exactly what they paid before. The increase only affects customers who use more than ten cubic meters monthly—which is most factories, many businesses, and wealthier households."
"You're soaking the rich to protect the poor?"
"I'm charging market rates to those who can afford market rates, while protecting those who can't. That's not socialism. That's economics."
Sobchak raised a hand for silence. "Councilman Belov has the floor."
Belov was a heavyset man with a permanent scowl, the leader of the opposition faction. He'd been looking for a way to embarrass Sobchak, and the water tariff was his chosen weapon.
"Comrades, this isn't about water. This is about privatization. Volkov wants to take a public asset and turn it into his personal piggy bank. First water, then what? Electricity? Heating? Should we privatize the air we breathe?"
No one laughed. The comparison was absurd, but Belov's delivery was passionate.
"The asset remains public," Alexei said. "The city owns the pipes, the pumps, the treatment plants. Neva Water only operates the system under a concession agreement. If the city wants to take back operations in twenty years, it can."
"Twenty years! By then, you'll have extracted every ruble of profit. The system will be worn out again, and the city will be left with the bill."
"Our contract requires us to maintain the system to specified standards. If we fail, the city can terminate the agreement and seize our collateral. That's not extraction. That's accountability."
Belov waved a dismissive hand. "Words. Promises. We've heard them before."
"The city council can verify our performance. Monthly reports. Quarterly inspections. Annual audits. All public. All transparent. If we miss our targets, you'll know."
Boris stepped forward with a set of charts. "Let me explain how the tariff increase is calculated."
He placed the first chart on an easel.
TARIFF COMPONENTS (per cubic meter): Base operating cost: 3.50 rubles
Capital recovery (20-year amortization): 1.50 rubles
Maintenance reserve: 1.00 ruble
Return on invested capital (12%): 1.00 ruble TOTAL: 7.00 rubles
"The base operating cost covers salaries, chemicals, electricity, and routine maintenance. The capital recovery pays back our fifty million dollar investment over twenty years. The maintenance reserve funds future repairs. And the return on invested capital is the profit that makes this investment worthwhile."
Belov pointed at the last line. "There. Profit. You're profiting from people's need for water."
"Without profit, there's no investment. Without investment, the pipes continue to leak. Without investment, people continue to get sick. Profit isn't the enemy. Neglect is."
A moderate council member spoke up. "What's the return on investment as a percentage?"
"Approximately twelve percent annually. Comparable to utility returns in Western Europe. Far below what we earn from oil or banking."
"Then why are you in the water business?"
"Because water is essential. Because people need it. And because I can provide it more efficiently than the state."
After three hours of debate, the council was deadlocked. Six votes for the increase. Six votes against. Eight abstentions. No majority.
Sobchak called a recess. In his private office, he met with Alexei and the council leaders.
"Sixteen percent is too high," Sobchak said. "The politics won't support it. What can you offer?"
Alexei had anticipated this. "Ten percent. Six rubles sixty kopecks per cubic meter. But I want faster approval for industrial connections. No more six-month waiting periods for pipeline permits."
Belov snorted. "You're bargaining over a public utility like it's a used car."
"It's a business. Businesses negotiate."
Sobchak raised a hand. "Ten percent increase. Expedited industrial permits. And a public commitment from Volkov that there will be no further increases for twelve months."
Alexei did the math. Ten percent was less than he wanted, but the expedited permits would unlock millions in industrial revenue. The trade-off was acceptable.
"Agreed. No further increases for twelve months. But I want the council's commitment to support the next increase based on actual inflation, not politics."
"You have my word," Sobchak said.
The next day, the council held a public hearing. Fifty residents filled the gallery, many of them holding signs protesting the increase.
Alexei spoke directly to them.
"I understand your anger. Water is essential. You shouldn't have to pay more for something you need to live."
A woman shouted, "Then don't raise the price!"
"I wish I didn't have to. But the alternative is worse. Without investment, the pipes will continue to leak. Without investment, the treatment plants will continue to fail. Without investment, people will continue to get sick."
He pointed to a chart showing the decline in water quality since 1990.
"In 1991, forty people were hospitalized with waterborne illnesses. In 1997, that number was four hundred. A tenfold increase. Those are your neighbors. Your children. Your parents."
The room grew quiet.
"The increase is ten percent. For a typical family using fifteen cubic meters monthly, that's an additional one ruble fifty kopecks per month—about three cents. That's the cost of clean water. That's the cost of preventing another four hundred hospitalizations."
A man in the back stood up. "And if we say no?"
"Then the pipes continue to leak. The treatment plants continue to fail. And next year, four hundred hospitalizations becomes eight hundred. The year after, sixteen hundred. Until the system collapses completely."
He paused.
"I don't want your money. I want your health. But I need your money to protect your health. That's the choice."
The council reconvened after the public hearing. The mood had shifted. Several members who had abstained now seemed willing to support the increase.
Belov made one final attempt to derail the vote. "Comrades, this is extortion. 'Pay me or your children will get sick.' That's not negotiation. That's blackmail."
"It's reality," Alexei said. "The system is failing. I can fix it. But fixing it costs money. If you have a cheaper solution, I'm happy to step aside."
No one spoke.
"Then let's vote."
The roll call was tense. Sobchak voted yes. Three of his allies voted yes. Two moderates who had previously abstained voted yes.
"Nine in favor, six opposed, three abstentions. The increase is approved."
Alexei allowed himself a small smile. The battle was won.
That evening, Tretiak called with news. "Industrial permit applications are already being expedited. Three factories submitted requests within hours of the vote. They knew the increase was coming, and they wanted to lock in their connections."
"Approve them all. I want those pipelines built by summer."
"The first one will be operational in March. The chemical plant—they need fifteen million cubic meters annually. That's two million dollars in revenue at fifteen cents per cubic meter."
"Excellent."
"There's more. The oil division wants to expand their water injection program. They're asking for an additional ten million cubic meters annually. Can we supply it?"
"From which plant?"
"Nizhnevartovsk. The modernization is ahead of schedule. We'll have spare capacity by April."
"Approved. Charge them the same rate—fifteen cents."
"And the pipeline?"
"The pipeline is on track. January 1999, as planned."
Alexei hung up and stared at the ceiling. The water business was becoming a real enterprise—not just a political necessity, but a profit center.
That night, Alexei wrote:
February 15, 1998
The tariff battle is over. Ten percent increase. Expedited industrial permits. No further increases for twelve months.
The communists fought hard. Belov is a genuine believer—he thinks privatization is theft. He's wrong, but he's not corrupt. That's rare in Russian politics.
The residents were angry, but they understood when I explained the alternative. Clean water costs money. Dirty water costs lives. That's not politics. That's physics.
Industrial water is the real prize. Fifteen million cubic meters for the chemical plant. Ten million for the oil fields. Twenty-five million annually at fifteen cents is almost four million dollars.
Not huge compared to oil. But growing. And recession-proof.
Next year, we'll expand to other cities. Moscow. Nizhny Novgorod. Kazan. The template works: acquire distressed assets, invest capital, improve service, raise tariffs gradually, capture industrial customers.
Water is the long game. Ten years. Twenty years. Fifty years.
I have time.
A/N:
Was busy with planning the next volumes and was managing IRL.
Extremely soory for all the delay