Russian Water Market Outlook: $11 billion Pure Water Program to Fuel

Growth

Paulina Szyplinska, Research AnalystEnvironment & Building Technologies

2

Russian Water

Market Outlook:

$11 billion Pure

Water Program to

Fuel Growth

Market Size and Forecasts

Key End-users

Key Market Forces

Conclusions

Russian Water Strategy

Focus Points

Technology Evolution

Overview of Russian Water Market

3

Overview of Water and Wastewater Market in RussiaThe Market is Set to Witness Growth Addressing Critical Improvements in Deteriorated Infrastructure and High Water Pollution

Population Density (Russia), 2010

Source: Goskomstat Rossii

Water and Wastewater Treatment Market: Coverage of Services (Russia), 2010

Source: Russian Water Association, Frost & Sullivan

41.0 per cent of water supply

networks under urgent need of rehabilitation

29.0 per cent of wastewater discharge networks under urgent need of rehabilitation, 38.0 per cent of WWTP require reconstruction

.

Areas with Heavy Polluted Waters

The most serious water pollution occurs in the most densely populated regions as well as in industrial regions of Krasnodar and Stavropol’ territories in the north of the Caucasus, Rostov and Novosibirsk oblast, the Republic of Chechnya, Vladivostok, Moscow and St. Petersburg.

Russia’s water resources are unevenly distributed in relation to the population.

80.0 per cent of Russian population lives in the western part of the country which has only 8.0 per cent of total river runoff and 10.0 per cent of total renewable annual

groundwater resources.

4

Russian Economic OverviewHit Hard By the Global Financial Crisis Russian Economy is on its Way Toward Recovery

GDP Growth Rates (Russia), 2007- 2011

2007

Source: Trading Economics, Federal Service of Federal Statistics, Frost & Sullivan

2008 2009 2010 2011Years

•Crisis management after the deep collapse in 2009 has been broadly appropriate. The recovery has been supported by

increased oil prices, stronger Russian domestic demand and more flexible exchange rate.

•It is projected that Russia will continue to see positive economic indicators. Growth will be driven predominantly by the

recovery of domestic consumption and increase in industrial production.

•Development of industrial sector will also contribute growth in the water and wastewater market, especially in

highly water related power, oil and gas and mining industries.

5

Water and Wastewater Treatment Market: Key Objectives of Pure Water Federal Target Programme (Russia), 2011-2017

Share of population with access to water supply services

2011

95.0%

Share of population with access to wastewater collection services 84.0%

53.0%Share of wastewater treated according to the standards

Russian Water Strategy The Pure Water Federal Target Program Indicates Ambitious Goals and Mirrors the Scope of the Water And Wastewater Sector Needs

Share of population consuming drinking water that meets safety standards 83.2%

Source: Russian Water Association, Frost & Sullivan

Water and Wastewater Treatment Market: Funding for Pure Water Federal Target Programme (Russia), 2011-2017

$10.92 billion

Regional and Local Budget Funds $0.30 billion

Federal Budget Funds $0.30 billion

Private Investments $10.32 billion Source: Rosvodokanal, Frost & Sullivan

2011

2017

90.0%

54.0%

46.0%

71.0%

6

Situation of Russian ‘Vodokanals’Revenues Generated by Vodokanals are Insufficient to Cover Critical Investments

Water and Wastewater Treatment Market: Management of Water Utilities (Russia), 2010

Source: Rosvodokanal, Frost & Sullivan

Note: CZ- The Czech Republic, SK - Slovakia, EE- Estonia, HU – Hungary, HR – Croatia, PL – Poland, RU – Russia, TR – Turkey, RO – Romania, CS – Serbia. Source: GWVOECD, Frost & Sullivan

The water and wastewater tariffs in Moscow, the most affluent city

in Russia, are approximately 30.0 percent lower than in Bucharest,

nearly three times lower than in Istanbul and more than three and a

half times lower than in Warsaw and Prague

Water and Wastewater Treatment Market: Average Water and Wastewater Tariffs (Europe), 2010

Currently, 84.0 per cent of water utilities are

operated by mostly ineffective municipal

enterprises. The level of private business

participation is low, however the Russian

Government is willing to attract private business

to the industry modernisation

7

Key Market Drivers Strong Market Drivers Enable Investments and Catalyse Growth of the Market

Privatization of Public Water

Utilities

Progressive Environmental Legislation and Improvement of Implementation

Urgent Need to Rehabilitate Aging Infrastructure and

Introduce Advanced Treatment

Technologies

$10.92 billion Pure Water Programme

and Federal Support Attracting Financial

Aid

Source: Frost & Sullivan.Source: Frost & Sullivan.

The Russian water and wastewater market is significantly buoyed by progressive legislation, financing programs of

Russian Government and growing international investment and loans by the World Bank, EBRD and other International

Financing Institutions (IFIs).

8

Corruption and High Levels of Bureaucracy

Limited Financial Resources of Water

Utilities

Lack of Resources and Organizational

Capacity to Address

Environmental Issues

Inefficient System of Water Tariffs

Key Market RestraintsDespite Strong Drivers, Substantial Restraints Continue Hampering Growth of the Market

Source: Frost & Sullivan.Source: Frost & Sullivan.

Limited financial resources of water utilities constitute the main factor which hampers development of the

market.

9

Revenue Forecasts for the Russian Water and Wastewater Treatment Equipment Market

Water and Wastewater Treatment Market: Revenue Forecast for Treatment Equipment (Russia), 2007, 2010 and 2017

Note: All figures are rounded, the base year is 2010. Source: Frost & Sullivan

CAGR (2007-2010): 3.0%

Years

CAGR (2010-2017): 9.2% The total size of the Russian water and

wastewater treatment equipment

market in 2010 was $917.5 million. It

is expected that the market size will

almost double over the forecast period

and reach approximately $1,699.1

million in 2017, growing at a

compound annual growth rate (CAGR)

of 9.2 per cent from 2010 to 2017.

10

Market Attractiveness and Growth by Key SegmentsConsiderable Potential Exists in Both Municipal and Industrial Segment with Significant Need of Large-scale Infrastructure Development

Water and Wastewater Treatment Market: Market Attractiveness by Segments (Russia), 2010-2017

Note: Size of the bubble corresponds to the segments’ market size in 2010. The base year is 2010. Source: Frost & Sullivan

11

Treatment Technology Trends Tangible Shift Toward Advanced Treatment Technologies is Expected Over the Coming Years

Source: Mosvodokanal, Frost & Sullivan

Water and Wastewater Treatment Market: Development of Nutrients Removal (Russia), 2010 and 2020

Water and Wastewater Treatment Market: Development of UV Disinfection (Russia), 2010 and 2010

Source: Mosvodokanal, Frost & Sullivan

2010 2020 2010 2020

Key Objectives of Sludge

Management in Russia

Maximal reduction of volumes

Preparation for further safe recovery

Environmentally safe temporary storage or

incineration

Water and Wastewater Treatment Market: Key Objectives of Sludge Management (Russia), 2010

Source: International Water Association, Frost & Sullivan

At present the incineration of sludge is not widely applied method in Russia but it is expected that it will become more

important, mainly for large metropolises dealing with disposal problems

The main direction of development of the metropolitan sewage treatment facilities is their reconstruction with the transition to modern technology for nitrogen and

phosphorus removal and the introduction of UV disinfection

12

Key Municipal End-user AnalysisThe Government’s Aim is to Finance Modernisation of Water Systems in Small Cities but Private Investors are Mainly Investing in Bigger Cities

Water and Wastewater Treatment Market: Key Municipal End-users Trend (Russia), 2011-2017

Short-term Perspective

Over 500,000

Long-term Perspective

100,000 – 500,000

Below 100,000

Cities with Population

TrendTrendSource: Frost & Sullivan GrowthGrowth StableStable DeclineDecline

Main interest of private investors. Development of water and wastewater sector connected with large-

scale modernisation of ageing infrastructure. Development in long-term perspective connected with expansion of the cities, construction of new

facilities and increasing treatment capacities

Not included in the Government’s funding programme and less attractive for private operators.

The development of treatment technologies is expected to increase as the number of private operators interested in PPPs will grow in the

Russian market

Stable opportunities while the investment is supported by federal and regional budgets. In the

long-term perspective the opportunities are projected to grow, as the this segment will attract

investments once the large and medium sized cities are covered

13

Key Industrial End-user AnalysisIt is Expected That the Global Demand for Power and Oil & Gas will Entail Demand for Water and Wastewater Treatment Solutions

Short-term Perspective

Long-term Perspective

TrendTrend

Source: Frost & SullivanGrowthGrowth StableStable DeclineDecline

Mainly due to expansion of the Russian thermal and nuclear power capacity and introduction of Zero

Liquid Discharge and Best available Technologies

The global demand for oil and gas from Russia is expected to continue driving the demand for water

and wastewater treatment solutions. The increase in oil catalyses focus on more energy efficient,

compact treatment solutions

Increasing demand for quality products is expected to continue growing in line with rising demand for

advanced and high-end water and wastewater technologies to improve the treatment efficiency

By 2013, Russia is targeting an increase in coal production that will drive the demand of minimizing the impact of large runoff streams and metals-laden

wastewater on the local environment

Water and Wastewater Treatment Market: Key Industrial End-users Trend (Russia), 2011-2017

Power

Oil & Gas

Food & Beverage

Mining

Pulp & Paper

Expected demonstration of new trends of development, in water and wastewater treatment in the long term perspective, including application of

Zero Liquid Discharge Technologies

Industrial Sectors

14

Summary of Key OpportunitiesGrowth Opportunities are Related Mainly to Nutrient Removal and Application of Membranes, UV and Ozone Treatment

Key Opportunities in the Russian

Water and Wastewater Market

Development of membrane, UV and ozone treatment in the municipal

and industrial sectors

Development of membrane, UV and ozone treatment in the municipal

and industrial sectors

Urgent need to upgrade depreciated water and

wastewater infrastructure

Urgent need to upgrade depreciated water and

wastewater infrastructure

Application of zero discharge technologies to reduce water consumption

Application of zero discharge technologies to reduce water consumption

Development of nutrient removal technologies in the

municipal wastewater treatment

Development of nutrient removal technologies in the

municipal wastewater treatment

Increasing private business involvement in

the public sector

Increasing private business involvement in

the public sector

Source: Frost & Sullivan

Water and Wastewater Treatment Market: Key Opportunities (Russia), 2010

15

http://twitter.com/frost_sullivan

Follow Frost & Sullivan on Facebook, LinkedIn, SlideShare, and Twitter

http://www.facebook.com/FrostandSullivan

http://www.linkedin.com/companies/4506

http://www.slideshare.net/FrostandSullivan

16

Chiara CarellaHead of Corporate CommunicationsEurope, Israel, Africa+44 (0) 207 343 8314chiara.carella@frost.com

For Additional Information

Paulina SzyplinskaResearch AnalystEnvironmental & Building Technologies+48 (0) 22 398 9122paulina.szyplinska@frost.com

Fredrick Harry RoyanGlobal Research DirectorEnvironment (Water) Markets+44 (0) 207 343 8353froyan@frost.com

Archana ChauhanResearch ManagerCEE Operations+48 (0) 22 390 4152archana.chauhan@frost.com