| Author: |
Martina Marečková |
| Publication: |
Czech business weekly |
| Date: |
9. 5. 2006 |
Local governments throughout the CEE have taken dramatically different approaches to public-private partnership (PPP) projects, with “strong“ finance ministers the most likely to shoot them down, says the point man for PricewaterhouseCoopers on PPPs.
The Czech Republic and Estonia are the two CEE countries most keen on using PPP plans as an alternative to financing public projects from the regular budget, according to Peter Mitka, director in the transactions department at PricewaterhouseCoopers (PwC), with Russia warming up to the idea. Without a well-functioning concession act and public procurement law, nothing can effectively move forward. But even more crucial is that the project is “bankable.“
Q: What PPP projects is PwC working on in the CEE region?
A: In practically every country in the CEE, PricewaterhouseCoopers has a team that has ambitions to actively participate in PPP projects in the future. In regard to the enthusiasm of governments to use PPP schemes to finance public projects, there’s a different approach in nearly all the countries in the region. I have a theory that it depends strongly on the stringent financial policy that a particular finance minister applies in a particular country. PPP projects are ´off public finance balance sheet’ projects, but by nature they establish a long-term financing commitment for the public sector. So, if the finance minister is strong and his priority is to keep the state budget on a tight rein, then there’s a smaller probability that the government will support the use of PPP schemes. If it’s a country with a right-wing government, then there’s a bigger probability that it will prefer to use traditional models for financing large projects through the state budget. When you look at countries like Poland, Bulgaria, Russia, the Czech Republic, Slovakia or the Balkan countries, you’ll see that each one has a different approach.
Q: How does the Czech Republic stand in the region?
A: In regard to the number of projects on the market that have been announced or are expected to be announced, we [the Czech Republic] are playing a leading role in using PPP schemes as an alternative means of financing public projects. I would also mention Estonia in this respect, and perhaps Russia, where the initiatives are already moving forward. In the other countries, the approach is more cautious. In Poland, the use of PPP plans was previously considered as one of the decisive elements to finance projects, particularly in the transportation sector. But following the change in government, you can see a very careful approach.
Q: What problems are inherent to PPP projects?
A: The first thing you need before a PPP project is launched is proper legislation, particularly the public procurement law and the concession act. The PPP project can be implemented without the existence of these acts, but for us - consultants - it’s important that the legislation exists because it’s more transparent if such projects are implemented in a functioning legislative framework. Also the private investors are more comfortable participating in transactions that are organized within an existing legal PPP framework. An ideal situation would be if the legal background existed in each of the countries prior to the PPP projects being launched.
Q: What else is important for consultants when evaluating a project?
A: Another key factor, perhaps even a more important aspect than the legal framework, is the question of whether a PPP project is bankable. I’ve noticed that the public sector somehow expects that PPP projects will secure other financing channels; that an investor will come and finance a project. They forget that the private investor will also have to secure financing from banks. But costs of financing a PPP project may be higher than if the project was financed in the traditional way as PPP projects often involve more than just one private investor. There’s often a construction company and a financial investor (such as an equity fund), and the banks and all these partners have to make money out of the project. For us it’s important to explain to the public authorities that it makes no sense to approach the market with projects that entail unrealistic financial calculations.
Q: What type of projects would you not recommend?
A: It’s hard to define a type of such a project; it depends heavily on issues that were already mentioned. For example, the transportation sector provides classic examples of projects that can be implemented through PPP schemes. The health sector makes massive use of PPP projects, particularly abroad. But you can’t generalize in this case; we can instead speak about three sectors in which PPP models proved to be successful abroad. They are transport and transport infrastructure, the health care sector and housing, such university campuses and prisons.
Q: Can’t we learn from Western Europe?
A: We can, but the economic and legal conditions in CEE are different from those in Western Europe, and I fear that we’ll have to go through the same painful process of learning from our own mistakes.
