ISSN 00978078, Water Resources, 2010, Vol. 37, No. 5, pp. 727–732. © Pleiades Publishing, Ltd., 2010.

Original Russian Text © E.D. Kopnova, O.M. Rozental’, 2010, published in Vodnye Resursy, 2010, Vol. 37, No. 5, pp. 633–639.

WATER RESOURCES DEVELOPMENT:

ECONOMIC AND LEGAL ASPECTS

Efficiency Analysis of Investments to the Restoration

of Water Resources in an Industrial Region
E. D. Kopnovaa and O. M. Rozental’b
a
Moscow Financial Academy, ul. Udal’tsova 31A, GSP1, Moscow, 119415 Russia
b
Water Problems Institute, Russian Academy of Sciences, ul. Gubkina 3, Moscow, 119333 Russia
Received April 8, 2009

Abstract—Regression analysis of water quality in the Iset River in an industrial zone of Sverdlovsk province
was carried out. The volume of pollution disposal in industrial wastewaters and water treatment cost are taken
into account. It is shown that water–environmental investments are insufficient and can be used more effi
ciently by using to improve the selfpurification capacity of the water body.

Keywords: hydrochemical index, water selfpurification, investments, integral water quality index.
DOI: 10.1134/S009780781005012X

INTRODUCTION The objective of this study was to develop a method

The correct management of water resources
requires the maintaining of environmental–economic
balance, under which the damage inflicted on natural
objects and their resources is compensated for by
water–environmental investments from the funds
derived from water use [4]. The implementation of
such management regime is hampered by the uncer
tainty of many factors that affect the decisionmaking
and create the risk of ineffective investments in water
protection measures. The improvement of manage
ment efficiency requires studying the relationships
between water quality indices, water use characteris
tics, and the volumes and direction of investments. To
illustrate this approach and demonstrate its efficiency
in terms of optimizing investments in water–environ
mental measures, such relationships were examined in
a 220km reach of the Iset River (Ob basin) within an
industrial zone in the territory of Sverdlovsk province
(Fig. 1).
Monthly data on 52 hydrochemical indices col
lected by Hydrometeoservice at ten gages in 1986–
1987 were used. The period under consideration was
the time of reorganization of Russian economy; there
fore, the obtained results can be of use under current
conditions of economic recession. The technogenic
impact onto the water body was represented by the
volume of annual discharge of pollutants in river
reaches between gages and total annual investments in
water protection measures in prices comparable with
their current values. These data were taken from
reports of large enterprises situated along river channel
(the data were presented by FGU Ural Center for
Standardization and Metrology) and from State
Reports on the State and Use of Water Resources.
for assessing the efficiency of allocated investments
and their optimization based on the criterion of ensur
ing the acceptable naturalwater quality. The main
influence factors were anthropogenic load onto river
water (in this case, water disposal) and the program of
restoration and protection of river waters.
The study involved the formation of an integral
index of river water quality based on hydrochemical
indices and regression analysis of panel data, including
studying the effect of wastewater discharges and
investments in water protection activity on river water
quality;
taking into account the effect of the natural purifi
cation factor to water quality;
analysis of dynamic models.
CHARACTERISTIC OF RIVER WATER
QUALITY
For the formation of an integral index of river water
quality, the data that characterize water pollution at
each gage were subject to factor analysis. The method
of principal components (with varimax rotation of the
correlation matrix) was used to analyze pollution
characteristics and to identify three major factors
accounting for almost half of the total variance. The
results for different gages differed only in the shares of
variance corresponding to those factors. Factor 1 man
ifests itself considerably in organic matter; factor 2, in
mineralization; and factor 3, in nonferrous metals and
suspensions. The latter fact is in agreement with data
on fast absorption of nonferrousmetal ions on the
surface of suspended particles of silicon or alumina
nature. This conclusion allows us to recommend a

727
728 KOPNOVA, ROZENTAL’

Palkino

Ekaterinburg

Bol’shoi Istok
Aramil
Kolyutkino

KamenskUral’skii

Fig. 1. Schematic hydrographic map of the Iset River reach. Circles are hydrochemical gages in operation.

simple method of water cleaning of a considerable
portion of nonferrous metals by filtering suspension.
The study has shown that the concentration of typ
ical representatives of principal components in all
gages features distinct seasonal variations with the
highest concentration corresponding to the spring and
1
9 metals (Ni, Cr, Al), and variations in N concentration
8 2
7
6 3
oncentration
autumn. Figure 2 gives monthly values of time series
for three main pollution indices at a gage over 12 years
of observations. The figure shows that, against the
background of such variations, a positive trend in Cu
pollution of water can be clearly seen, but there is no
appreciable trend in N content and mineralization
characteristics. Cu concentration varies synchro
nously with the concentrations of other nonferrous
are synchronous with those in organic substances,
these regularities being common for all gages. Also dis
tinct is a negative trend in water pollution by nonfer
rous metals in 1989–1990, characterizing the crisis in
production in the region.

5 It is worth noting that, because of the specific fea

tures of the geochemical province where river water
4 forms, the level of their background pollution by non
3 ferrous metals is increased by nature. To evaluate this
level, it is convenient to use an integral quality index Q
2 as the sum of actual concentrations of the metals Ci in
1 units of maximal allowable concentrations (MAC) of
those substances for water bodies used for fishery,
0 among which is the Iset River
Time, months
Ci
Q = ∑ 
MAC
i
.
i

Fig. 2. Main pollution indices (gage 2, Ekaterinburg) in the Even in the place of public resort (near Palkino Vil.
period from January 1986 to December 1997 (1) Cu con
centration, mg/(l : 100), (2) mg/(l × 100), (3) N concen in the upper reaches of the river), Q exceeds the MAC
tration, mg/l. 25–30 times.

WATER RESOURCES Vol. 37 No. 5 2010

 EFFICIENCY ANALYSIS OF INVESTMENTS
Table 1. Coefficient of correlation between factors and water quality index
Correlation coef
ficient Palkino Ekaterinburg Bol’shoi
Istok
r(Q, TECH) 0.99 0.91 0.84
r(Q, INV) –0.92 –0.82 –0.78
STUDYING THE INFLUENCE
OF WASTEWATER DISCHARGES
AND INVESTMENTS IN WATER PROTECTION
MEASURES ON RIVER WATER QUALITY
The aim was to assess the dependence of Q, reflect
ing the mean annual level of river pollution, on invest
ments in water protection measures INV,
million rub/year, and wastewater discharges TECH,
tens t/year. The scatter of the correlation coefficient
between the target index and each factor (Table 1) sug
gested the need to use regression analysis based on
panel data [6].
To restrict the analysis to balance panels, data on
three gages where observations cover only 7 years were
excluded from consideration.
The most adequate was the regression model with
fixed (deterministic) effects [1, 3]
2
Qit = αi+ λt + β1TECHit + β2INVit + εit, εit ~ iid(0, σ ε ),
i = 1, 2, …, n,t = 1, 2, …, T.
Here, αi, λt are dummy arguments, reflecting the
peculiarities of variations in Qit, determined by the
specific features of the ith gage and the tth year; β1, β2
are regression coefficients; εit are random errors
assumed to be independent random variables with
identical distribution for all i and t, zero expectation
2
and constant variance σ ε .
The calculations were carried out in Eviews 5.0
environment. The random effects were excluded from
consideration after model testing with time effects.
Hausman’s test (used to choose between models with
fixed or random effects) testifies in favor of fixed
effects: χ2(2) = 25.06, Prob = 0.0000. The results of
parameter estimates and model testing are given in
Table 2. The high value of determination coefficient R2
suggests a close correlation between the factors and
results. Darbin–Watson statistics (near two) suggests
the absence of autocorrelation in firstorder remain
ders DW = 1.70. The values of probabilities for Qsta
tistics in Lewing–Box test demonstrate the absence of
autocorrelation of higher order remainders. The
results of testing for the need to use fixed effects (Fixed
Effects Test) confirm this need. Testing for nonlinear
ity (RESETTest) shows the linear model to be
acceptable. Testing for the absence of heteroscedastic
ity of remainders (Breusch–Pagan Test) shows their
absence at the significance level of 0.1. Test for the
WATER RESOURCES Vol. 37 No. 5 2010
729
Gages
Aramil Kolyutkino Upstream of ownstream of
KamenskUral’sk KamenskUral’sk
0.38 0.03 0.24 0.03
–0.95 –0.02 –0.96 –0.81
normal remainders (Jarque–Bera Test) also yields
acceptable results. Therefore, we may conclude that
the model quality is acceptable.
Model interpretation is given in Table 3. The value
of constant С characterizes the level of water back
ground pollution not associated with the factors ana
lyzed. This level is seen to exceed the MAC more than
30 times, the fact that reflects the geochemical fea
tures of the water object (the effect of “copper moun
tain landlady”). The regression coefficient at INV,
equal to 0.78, characterizes the change of water quality
index Q with a unit change in the investments per year
at one gage. Thus, to reduce the pollution level by
~0.1 MAC unit at one gave requires investing of some
what more than 1 million rubles. Therefore, to reduce
the pollution level at all ten gages to the level of eco
logical–fishery MAC (by 30 MAC) would require
3 billion rub/year, while to reduce it to the natural
background level (to 25 MAC) would require ~0.5 bil
lion rub/year. As can be seen from the table, this is ~17
and ~3 times greater than the means actually allo
cated. Therefore, the improvement of water quality to
the “standard” level is practically impossible and
hardly reasonable in the region where aquatic ecosys
tems have traditionally developed under specific con
ditions [5]. However, the investment volume is not
enough to restore water quality to the natural level, at
least if the funds will be invested in the projects of
wastewater treatment facilities “at pipe end.” This
conclusion is in agreement with the results of compar
ison of the mean elasticities given in the table for the
analyzed factors. The allocated funds are enough to
prevent quality deterioration of natural water on the
average only due to 30% of pollutants discharged in it.
The remainder increases the value of Q, aggravating
the “humans’ duty in conscious to the nature” [4].
The study of the effects adequately reflects the
structure of river water pollution and its variations over
time and gages (Table 4). In particular, the relatively
low pollution in the years of economic decay gives
place to higher pollution after 1992, reaching its peak
in the turning point of “wild capitalism” with weaker
environmental control and precedes a period of stabi
lization of quality indices. Overall, for the observation
period, water quality has been most acceptable in the
upper reaches (gage 1) and the worse in the satellite
town Aramil downstream of Ekaterinburg (gage 4).
730 KOPNOVA, ROZENTAL’

Table 2. Results of estimation and testing of the main model

Dependent variable Q
Method List of panel analysis
Correlation Coefficient Standard error Probability
C* 31.8364 1.7372 0.0000
TECH 0.7818 0.0695 0.0000
INV –0.0830 0.0486 0.0926
R2 = 0.91 DW = 1.70
Lewis–Box test
QStat 0.31 1.88 2.58 2.79 3.85 4.49 4.73 7.50 8.04 8.13 8.14
Prob 0.57 0.38 0.46 0.59 0.57 0.61 0.69 0.48 0.53 0.61 0.70
Fixed effects test χ2(17) = 166.08 Prob = 0.0000
Nonlinearity test χ2(1) = 2.07 Prob = 0.1505
Breusch – Pagan test χ2(2) = 1.40 Prob > 0.1000
Jarque–Bera test χ2(2) = 1.41 Prob = 0.4939
* The models were estimated with a constant C so that the sums of effects over gages and time are zero: ∑N α i = 0, ∑T λ = 0.
i=1 t=1 t

Table 3. Interpretation of results (total investments, million rub/year)

Variable Regression coefficient Elasticity;
C 31.84
TECH 0.78 0.18
INV –0.08 –0.06
The sum modeled
Coefficient of ecological–
Investments Mean actual sum for ensuring MAC for water for cleaning to natural economic disbalance [2]
bodies used for fishery background level
180 3000 530 3

Table 4. Fixed effects in time and for gages

TAKING INTO ACCOUNT THE EFFECT
Fixed effects in
Fixed effects for gages OF SELFPURIFICATION ON WATER
time QUALITY
years λt gages αi The main objective of water quality control in the
1986 –3.68 Palkino –13.74 Iset River’s reach under consideration is to reduce
1987 –5.77 Ekaterinburg 1.57 nonferrous metal concentrations. The depositing of
suspended particles would be advantageous in this case
1988 –9.72 Bol’shoi Istok 8.99 as ions of these metals are readily absorbed on their
1989 –9.54 Aramil 13.97 surface, as mentioned above. The selfpurification
1990 –9.74 Kolyutkino –3.15 factor (LAND, tens of tons) was taken into account in
1991 –2.66 Upstream of KamenskUral’sk –5.33 this problem as additional. Its values were calculated
taking into account the difference between suspension
1992 7.37 Downstream of KamenskUral’sk –2.31 concentration at adjacent gages and flow velocity. A
1993 9.72 model of constant selfpurification rate was accepted,
1994 5.95 in which the mass of pollutants deposited between
1995 4.83 gages is proportional to the distance between them. A
regression model, which was constructed based on
1996 6.44 panel data, included, in addition to the regressors
1997 6.80 mentioned above, a third factor—the selfpurification

WATER RESOURCES Vol. 37 No. 5 2010

 EFFICIENCY ANALYSIS OF INVESTMENTS 731

index. The gages were conventionally combined into Table 5. Results of model estimation and testing with self
two groups—the “industrial” and the “agricul purification
tural”—the specific features of pollution in which was
Dependent variable Q
accounted for by variables R1 and R2, respectively. The
results of parameter estimation and model testing are Correlation Coefficient Standard error Probability
given in Table 5.
TECH 0.6852 0.0659 0.0000
As can be seen from the table, model quality indi
ces—the determination coefficient R 2 and Darbin– INV –0.1121 0.0424 0.0102
Watson statistics DW—suggest the model to be LAND –1.7379 0.2745 0.0000
acceptable for the interpretation of the results of the R1 27.6067 2.3017 0.0000
study. The estimates of coefficients at factors TECH R2 21.8294 3.2318 0.0000
and INV are close to the respective estimates in the
basic model, while the estimates of coefficients at R1 R2 = 0.88 DW = 1.25
and R2 reasonably reflect the fact of higher water pol
lution at gages of the “industrial” group relative to Table 6. Results of model estimation and testing with a first
gages of the “agricultural” group. The appropriate val order lag
ues of elasticity (ETECH = 0.1445, EINV = –0.2076,
ELAND = –0.2282), derived from these estimates, also Dependent variable Q
suggest selfpurification to be more efficient for Correlation Coefficient Standard error Probability
improving water quality than the treatment of polluted
wastewaters “at the end of the pipe.” This suggests rec C 31.5567 2.1559 0.0000
ommendations for investments. In this case, it would TECH 0.7883 0.0722 0.0000
be more efficient to invest not in wastewater treat
ment, but to measures enhancing the rate of selfpuri INV –0.0707 0.0500 0.1634
fication in the water body, for example, by the devel INV(–1) 0.0084 0.0464 0.8567
opment of the bank zone, the restoration and R2 = 0.92 DW = 1.95
improvement of the hydraulic structures (dams and
dikes) available in the river.
Table 7. Results of autoregression model estimation and testing

DYNAMIC MODELS Dependent variable Q

To elucidate the efficiency of investments in water Method Generalized method of moments

quality in previous years, we used models with distrib Correlation Coefficient Standard error Probability
uted lags. Table 6 gives the results of model estimation
with a firstorder lag INV(–1). Q(–1) –0.1514 0.1880 0.4333
As can be seen from Table 6, the coefficients at the TECH 0.3309 0.1281 0.0208
lagged variables are insignificant. The same result was INV –0.2223 0.0765 0.0109
obtained in the analysis of the effect on Q by invest R2 = 0.78
ments made 2 or 3 years before the year under study. In
all cases, it was found that the investments of past years
have very weak effect in the current period. Waste CONCLUSIONS
treatment “at the end of the pipe” is shown to have but
a shorttime effect on quality after the investment is The analysis of data allowed the authors to identify
made. the major groups of pollutants typical of the water
object under study and to substantiate the choice of
A firstorder autoregression model with major fac the most rational method for the treatment the river
tors was also considered. The model was estimated by water in question; and to evaluate the deficiency of
passing to first differences and using generalized water–ecological investments, reaching several hun
method of moments. The effects in gages and over dreds of millions of rubles for the Iset River; and to
time were taken into account. The instruments for establish that the standard water quality cannot be
assessment were chosen to minimize the standard reached because the natural background level in the
error of regression. river reach is exceeded too much; to substantiate the
The results of assessment (Table 7) show that the need to reorient the investments from “treatment at
effect of pollution level in the preceding year at each the end of pipe” to hydroengineering measures aimed
gage is insignificant. This can be attributed to the nat to restore the water body and improve its selfpurifica
ural pollution transport in river water flow. It can be tion capacity; to demonstrate the predominance of
seen that the effect of investments is better seen in the short investments and the inadequate role of preven
model longterm dynamics than in the static model. tive measures for water treatment.

WATER RESOURCES Vol. 37 No. 5 2010

732 KOPNOVA, ROZENTAL’
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WATER RESOURCES Vol. 37 No. 5 2010