On the 17th of February a workshop “Public-private partnership: win/win cooperation” took place.
The event was organized by the PPP Agency to fulfil the terms of the Memorandum of Cooperation signed on the 25th of November, 2021 with the Ministry for Communities and Territories Development of Ukraine and government institutions “Ukraine Investment Promotion Office” (UkraineInvest), and “Entrepreneurship and Export Promotion Office”, regarding the implementation of joint initiatives in the field of regional development. The goal of the Memorandum is to increase the institutional capacity of public authorities and local governments; specialists of regional development agencies in the field of public-private partnerships (PPPs) in Ukraine as well as to deepen the level of expertise of specialists responsible for the preparation and implementation of PPP projects/concessions, taking into account the best international practices.
More than 140 public sector representatives from different parts of Ukraine have participated in the event.
The workshop was opened by the director of the PPP Agency, Niko Gachechyladze. He greeted the participants, expressing his gratitude for taking interest in the event. Niko Gachechyladze has explained the relevance of PPP mechanism implementation, taking into account the best international practices, and has illuminated the recent news regarding the creation of an efficient institutional and legislative framework in the field of PPPs/concessions.
Thus, he has noted that the government of Ukraine regards the PPP mechanism as one of its main priorities for attracting investments to the development of infrastructure, both economic and social. This is reflected in the State Economic Stimulus Program for 2020-2022, intended to counteract the negative effects caused by restrictive measures taken to prevent the spread of acute respiratory disease COVID-19 caused by SARS-CoV-2 coronavirus (approved in May 2020), as well as in the new National Economic Strategy until 2030 (approved in March 2021).
He drew the attention of the audience to the updated legislation in the PPP field, which allowed to reconcile the interests of all participants of PPPs to modernize infrastructure and improve the quality of social services.
Among the latest legislative updates following were emphasized:
≫ The procedure for determining the concessionaire by conducting a concession tender or competitive dialogue via the electronic trading system, approved by the Resolution of the Cabinet of Ministers of Ukraine of August 20, 2021, № 909
The procedure determines the mechanism for conducting concession tender, competitive dialogue and publishing documents in the procedure of direct negotiations with the lessee of the state property that is transferred in concession via the electronic trading system. It also specifies functioning procedures; in which cases the electronic trading system should be used to conduct concession tenders; as well as the amount, order and terms of payment and refund for the electronic system operator.
The electronic trading system (ETS) is being developed with the support of the European Bank for Reconstruction and Development (EBRD) and is based on the electronic platform for project preparation and management – SOURCE. SOURCE will be integrated with Prozorro using the application programming interface (API). Such an integrating approach enables high-quality and efficient operations management regarding the preparation of concession projects (via SOURCE), tender (conducted via ETS) and concession contract management (via the new module developed by SOURCE in partnership with ETS administration).
≫ Method Procedure for analysing the efficiency of public-private partnerships, approved by the order of the Ministry of Economy of Ukraine № 1067 dated December 14, 2021. This Method procedure determines the general principles for concept note and PPP efficiency analysis, taking into account the best international practices. The Method procedure provides recommendations on:
- the content of the PPP concept note and its analysis;
- the content of the feasibility study;
- financial model development;
- conducting Cost-Benefit Analysis (СВА);
- determining the amount of government support of PPP implementation, including availability payment;
- conducting Value-for-Money (VfM) analysis of project implementation with and without the involvement of a private partner;
- conducting a market sounding and consulting potential investors at different stages of the PPP life cycle, as well as interacting with creditors (commercial banks, international financial organizations, multilateral development banks, etc.) that can offer to finance the project.
≫ Amendments to the Budget Code of Ukraine to regulate budget management during the implementation of PPP agreements, including concession agreements (the bill №5090 was adopted on February 15, 2022, by the Verkhovna Rada of Ukraine in the second reading). These amendments entail the implementation of an effective mechanism for government financing of long-term liabilities involved in PPP projects (concessions), which is a prerequisite for the realization of a whole range of PPP projects, including social infrastructure development (for instance, projects in fields of education, healthcare, culture, housing and communal services, the road sector).
Yuliia Sukhoverkha, the head of the PPP Project Support Division of the PPP Agency has detailed the key characteristics and advantages of the PPP mechanism for public and private partners as well as main PPP models and their peculiarities.
Thus, The main features of PPP are:
♦ longevity of relations (from 5 up to 50 years) based on the contract
♦ creation and/or development (development, significant upgrade, renovation, overhaul and technical re-equipment) of the public-private partnership asset and/or management (use, operation, maintenance) of the asset, potentially including related service management;
♦ significant management responsibility of the private partner; some of the risks are transferred to a private partner for a significant part of the asset life cycle, in addition to the transfer of risks associated with development;
♦ investment by a private partner in a public-private partnership asset: the private partner provides a significant portion of the financing, with the remuneration significantly linked to performance (availability and/or use) in order to reconcile the interests of both parties: (I) attracting external funds allows the state partner to implement several projects at once and pay later, (II) participation in project financing encourages a private partner to
⧁ reduce the cost of initial investment,
⧁ ensure the availability and proper operation/maintenance of the infrastructure,
⧁ optimize infrastructure life cycle cost management.
The most widely implemented PPP model is DBFOM – “design, build, finance, operate, maintain”.
Depending on revenue source, projects can be:
- Concession. If the public partner transfers to a private partner most of the operational risk, including demand and/or supply risk then this form of a PPP is a concession.
- PFI (Private Finance Initiative) PPP (involves availability payments by the government). It is the most appropriate form, for instance, for social infrastructure object development and management.
Ms Sukhoverkha has illuminated the advantages of the PPP mechanism for public and private sectors as well as advisors (consulting companies and consultants). She has also explained how this mechanism can stimulate the development of the business environment in Ukraine. She has explained the role of the PPP Agency, including the implementation of various events to find potential investors for project realization as well as providing them, within the competence, with information about the PPP project pipeline in Ukraine.
During her presentation, Yuliia Sukhoverkha has discussed the peculiarities of various PPP models for the development of social and economic infrastructure, providing specific examples from international experience. She has described the PPP program in the road sector “Ostregion”, that took place in Vienna (Austria), the PPP project for the reconstruction of the building of the Ministry of Finance in the Hague city (Netherlands), the concession of the Chicago O’Hare International Airport (USA), the experience of Uzbekistan in implementing a PPP project in the energy sector, as well as the PPP Waste-to-Energy project in Belgrade (Serbia).
The next speaker was Taras Boichuk, Head of the Project Office for the Development of Public-Private Partnerships in Infrastructure “SPILNO” (part of the Ministry of Infrastructure of Ukraine).
He explained different ways to finance the construction of roads, detailing the advantages of engaging private investments under the PPP model (PPP with availability payments).
He emphasized that the adoption of the law №5090 creates favourable conditions for attracting private investment in road construction, according to the best international practices. Now, the government will be able to issue payments to the private investor, stipulated by the PPP/concession contract, from the State Road Fund.
It is important, however, to set restrictions on the total annual amount of long-term PPP liabilities. Annual payments on long-term PPP liabilities should not exceed 30% of the Road Fund revenue, intended for roads of national importance, and 30% of general fund revenue of the local budgets, received from taxes and fees (except for personal income tax), intended for local projects. Such an approach corresponds to the best international practices and will allow to engage more than UAH 100 billion of private investments in road infrastructure and over UAH 150 billion in urban infrastructure development while ensuring that the state is able to meet its obligations.
Mr Boichuk has described the experience of the SPILNO team in preparing and implementing pilot concession projects in the seaports of Olvia and Kherson. To implement the projects successfully, the SPILNO team has simultaneously worked in several directions:
- collaboration with partners (including IFC and EBRD) on project preparation;
- passing all stages of the project life cycle (preparation of concept notes, feasibility studies, efficiency analyses, tender documentation preparation, tenders, etc.)
- conducting seminars and increasing institutional capacity;
- providing expert support to update PPP/concession legislation.
Taras Boichuk has also emphasised that a number of key internal and external factors are necessary for the successful implementation of PPP projects.
Internal factors include having a team of highly qualified experts, focusing on specific projects and the achievement of clear results, proper selection of projects based on their economic feasibility, well-established and coordinated communication within the team, as well as the political will of the officials.
External factors include the interest of international partners in project implementation, support of and cooperation with key government agencies, the commitment of the public partner to sign contribution agreement, maintaining an impeccable reputation among market players, as well as complying with principles of equality and transparency in project preparation.
After this, the director of the PPP Agency, Niko Gachechyladze has described to the participants the peculiarities of the PPP project life cycle. PPP projects can be initiated either by a public or private partner (by parties that according to the Law of Ukraine “On Public-Private Partnership” can be private partners), but, in any case, the private partner is determined only via tender. Having passed the identification, a project becomes a part of the so-called “project pipeline” – a list of identified projects that are either intended to meet specific needs or are of a general nature.
Niko Gachechyladze has illuminated the role of the PPP Agency at the stages of PPP project identification, PPP implementation proposal preparation (concept note, feasibility study), tender and PPP contract management.
The workshop has ended with a discussion on the peculiarities of the PPP mechanism and projects that are currently being prepared.
You can download the presentation of speakers from the PPP Agency at the link below: