Public-private partnership

PPPs in Eurasia

All Eurasian countries use public-private partnership (PPP) to develop public infrastructure as an instrument of cooperation, which is based on pooling resources and sharing risks between public and private partners. Interest in PPPs is growing. The availability, accessibility, and connectivity of infrastructure impact directly the social and economic development of all EAEU+ states. With the emergence of new logistics chains, the need for more infrastructure has surged. However, most countries simply cannot cover infrastructure gaps with public finance alone.

PPPs MAKE IT POSSIBLE FOR GOVERNMENTS TO:

  • accelerate the commissioning of infrastructure, but postpone related spending – that is, to start construction sooner and pay for it later;
  • provide more and better public services to more consumers; and
  • transfer to the private partner some of the construction, commercial, and financial risks, as well as the provision of services, which it often performs far more efficiently than government agencies.

The number of PPP projects depends directly on their quality and attractiveness to private investors and financial institutions. The necessary minimum conditions for a sustainable PPP project pipeline include a favourable PPP legal framework, well-functioning supporting institutions, and project teams with practical experience in preparing and supporting PPP projects.

PPPs in Eurasia could benefit from the advantages associated with the countries’ membership in the Eurasian Economic Union and the Eurasian Development Bank.

The Eurasian Economic Union, as an international organisation for regional economic integration, could use its bodies such as the Supreme Council, the Intergovernmental Council, and the Eurasian Commission to act as:

  • a platform for cooperation among the member states in developing PPPs in line with current trends and in response to common challenges;
  • a centre for concerted action to promote the advantages of PPPs and implement best practices; and
  • an instrument to foster the convergence of PPP regulations in Eurasia.

as an international financial organisation and development institution:

  • Имеет offers a variety of loan and non-loan products for PPP projects;
  • can secure finance for PPP projects; and
  • provides technical assistance to governments in promoting the reform of PPP regulations, strengthening institutional arrangements, building capacity in structuring bankable PPP projects and preparing all the necessary documents for the PPP projects that are important to EAEU+ integration and sustainable development and are ready to be launched and financed.

PPP-RELATED INSTITUTIONAL ENVIRONMENT IN EURASIA

The success of a PPP depends, to a significant extent, on the efficiency of PPP-related public governance and the institutional environment. All the Eurasian countries have set up PPP governance structures (PPP units) at their ministries of economy or PPP departments, agencies and/or specialised centres.

However, having a PPP governance structure in place is not a success factor per se. At the country level, the building of PPP capacities can only be ensured by the right form of incorporation (selected based on the country’s development objectives and infrastructure needs), functions and powers, staffing and funding, as well as well-established communication with all the stakeholders involved in the development of PPPs and PPP market participants.

PPP centres in EAEU+ countries differ in their form of incorporation – a joint-stock company in Kazakhstan; an autonomous not-for-profit organisation in Russia; government agencies in Kyrgyzstan and Tajikistan; and a division of a government agency in Belarus. They have different functions and powers, with some having the widest possible authority (developing and implementing PPP policies; improving PPP regulations; preparing and assessing project documents; screening PPP projects and private partners; disseminating PPP knowledge and experience; building PPP competencies; ensuring inter-agency coordination; communicating with investors and lenders; maintaining a register of PPP projects and monitoring them – called “full-service PPP agencies ” in international practice), others combining functions and powers that are mainly related to examining PPP project documents and advising PPP decision-makers (“review PPP agencies ”), and some vested with a narrow range of functions such as conducting research, disseminating knowledge, and building PPP competencies (“PPP centres of excellence”). The role and status of PPP centres may change as they develop or if a national PPP programme has been completed or infrastructure needs have been addressed.

PPP GOVERNANCE STRUCTURES:

THE EDB PROMOTES A PPP-RELATED INSTITUTIONAL ENVIRONMENT:

At the country level

By conducting joint events (forums, workshops, road shows) and PPP studies, taking part in project preparation and building the capacity of PPP authorities and centres;

In Eurasia as a whole

By setting up a platform and promoting enabling conditions for interaction between PPP authorities, centres, and the expert community in order to support PPP projects that contribute to the Sustainable Development Goals, promote cross-border PPPs, and create common PPP databases. Greater Eurasian integration requires that PPP activities develop in a coordinated and coherent manner. Avoiding duplication and complementing each other’s efforts will multiply the effect of PPP development in Eurasia.


PPP LEGISLATION IN EURASIAN COUNTRIES

In all the EAEU+ countries, PPPs are regulated by special laws that govern a wide range of related aspects and relations.

EAEU+ states pursue similar legislative approaches to how they define PPPs, the principles of their regulation, the legal status of the public and private partners and lenders, the division of powers among PPP authorities, as well as the terms and conditions of PPP agreements. The differences in the current EAEU+ regulations include the forms of PPPs, the screening procedures for PPP projects and private partners, and state support and dispute settlement mechanisms. These differences are largely due to the varying degrees of the countries’ economic development, the maturity of their PPP markets, private investors’ interest in the development of public infrastructure, disparities in how public partners see their role in PPP projects, as well as varying fiscal capacity. However, these differences are surmountable and PPP laws can be harmonised extensively, as evidenced by the uniformity of the principles that regulate PPP relations in different countries.

The EAEU+ countries’ PPP laws have a varying degree of consistency with international PPP standards (the World Bank and the EBRD conclude that Russia and Kazakhstan’s PPP laws are more consistent with those standards). The EDB believes that each EAEU+ country has certain effective regulations in its PPP law that other Eurasian countries could benefit from when improving their PPP legislation. In Armenia’s PPP law, these include limiting PPP-related contingent liabilities, the types of public assistance in PPP projects (such as grants, subsidies, asset allocation, minimum revenue, and/or consumption guarantees, guaranteed demand, fiscal guarantees, loans, the indemnification of costs and risks under a PPP project), alternative dispute resolution options (including international commercial or investment arbitration) and immunities. Belarus’s PPP law guarantees the rights of public and private partners as well as those of lenders. In Kazakhstan, the PPP law provides for the principle of a PPP’s “value for people” and defines payment mechanisms, sources of finance, as well as sources of revenues for PPP participants. The Kyrgyz Republic’s PPP law subjects cross-country PPP projects to international treaties and introduces the notion of a “project sandbox” – special regulatory treatment for innovative PPP projects. Russia’s PPP law provides detailed definitions, describes elements of PPPs, and makes it possible to involve two or more public partners in a PPP project. In Tajikistan, the PPP law contains detailed regulations on how to submit and evaluate unsolicited proposals, set up and take part in consortia, as well as apply foreign law to a PPP agreement.

THE EDB PROMOTES A FAVOURABLE LEGISLATIVE ENVIRONMENT FOR PPPs:

At the country level

By advising authorities on the implementation of up-to-date regulations in their PPP laws to safeguard partners’ rights and interests, protect their investments, and remove burdensome requirements and restrictions that result in high transaction costs and deter potential private partners from engaging in PPP projects;

In Eurasia as a whole

By creating enabling conditions for the harmonisation of EAEU+ countries’ PPP laws, making them less isolated from each other and promoting uniform approaches to cross-border and other PPPs that contribute to the Sustainable Development Goals


PPP MARKETS IN EURASIAN COUNTRIES

The PPP markets in EAEU+ countries differ quantitatively but are largely similar in terms of sectors and development trends.

PPP MARKETS IN FIGURES

Currently, the top three PPP markets in the number of PPP projects and related investments are Russia, Kazakhstan, and Kyrgyzstan. Russia’s PPP market has the highest indicators – as at 1 September 2022, it comprised 3,724 PPP infrastructure projects (including quasi-PPP projects), with a total investment of RUB 5.4 trillion, including RUB 3.9 trillion (72%) in private investment. Kazakhstan’s PPP market has been growing steadily – as at 1 November 2022, the country had 1,350 PPP projects at various stages, with a total mobilised and planned investment of KZT 1,335.9 billion. The Kyrgyz Republic also has a promising PPP market – as at 1 November 2022, its pipeline included 55 PPP projects worth a total of approximately KGS 100 billion.

PPP MARKETS BY SECTOR

Traditionally, the most important and capital-intensive initiatives in any PPP market are transport projects. There has also been an increase in PPP projects in utilities, health, and education, which are approaching transport projects in their scale and value. In 2022, Russia launched 39 PPP projects in the social sector, 13 projects in energy and utilities, and 6 projects in transport. Another tendency is PPP development in sectors that are important to Eurasian integration. In Kazakhstan, these are PPP projects to build an integrated network of wholesale distribution centres as well as service and procurement centres, which would play a role in building the Eurasian commodity distribution network. In Kyrgyzstan, these are PPP projects to set up customs and logistics facilities in order to develop international transport corridors.

PPP MARKETS’ GROWTH FACTORS

  • A programmatic approach to building a portfolio of PPP projects based on Eurasian as well as national infrastructure development plans;
  • Government support for priority infrastructure needs (preferential PPP financing schemes, priority co-financing, special legal treatment, etc.);
  • Digitalisation of project preparation and implementation processes, setting up a single digital PPP space and digital project offices to facilitate interdepartmental interaction, and creating communication channels for authorities and potential investors;
  • Standardisation, based on best PPP practices, of PPP project documents and agreements to improve their quality and reduce the start-up time and costs of PPP project participants;
  • Enhancing the transparency of management decisions related to the development of PPP projects, bidding procedures, and the performance of PPP agreements;
  • Continuous building of PPP competencies; and
  • Partnerships with international and national development institutions/banks.

THE EDB HELPS TO CREATE GROWTH POINTS FOR PPP MARKETS:

At the national level

By providing project consultancy and grants to cultivate PPP projects and prepare all the pre-project documentation necessary to create bankable PPP projects;

In Eurasia as a whole

By scaling up best PPP practices and engaging in key investment mega-projects with an integration effect on the infrastructure that is of interest to all EAEU countries