Public-Private Partnership Mechanisms

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Being new for our country, different forms of public private partnership are becoming the subject of close examination of Russian economists and practitioners. The book Public Private Partnership: Mechanisms of Realisation will be published soon. One of co-authors of this book, Andrew Pushkin, Executive partner of Tenzor Consulting Group law firm, Chairman of the Intersectoral Arbitration Court, answers the OPEC.ru questions. 

- How to generate demand for PPP projects on the part of business? Are there any developed schemes for a case when business itself advances an initiative? 

- Without doubt, during the global financial crisis activity of the business community in realisation of public private partnership projects has decreased significantly. Many investors, which intended to invest in this or that industry, had either to freeze their projects for some time, or to abandon them till better times. Nowadays the situation improves gradually, and many companies themselves are entering the market and offer their ideas, business-plans in order to attract financing of these projects and find support and aid in the person of state and local authorities. There is no strict developed scheme. For example, when there is a business-plan of a project, a certain capital to start realisation of the plan, it is necessary to find a co-investor, it can be state bodies, banks, the investment fund, state corporations, etc. The most important thing is to find a contract and understanding with heads of the region in which the project is planned to be realised, then you may look for all other paths and ways out. 

- In which spheres is PPP demanded most of all? What should leaders of our country turn their attention to first of all? 

- PPP is a union of authorities and business for realisation of socially significant projects in various spheres of activity – starting with scientific researches and construction of high-ways to provision of social services. 

To my mind, it is the transport sector (construction of roads, bridges, junctions), housing and utilities, water supply, health care, the innovation sector, tourism that require PPP mechanisms most of all. PPP is an effective way to raise life quality of the population, a promising method of diversification of industry and an optimal way out to a new modern development path. 

- Health care and PPP: what projects is business attracted to? What are the key risks for the state, for business? 

- Unfortunately, unlike in Western countries, in Russia public private partnership in the health care sector is just beginning to go through the process of formation. However, there is a certain progress even now. For example, a large perinatal centre (cost 13,4 million dollars) is being built in Kazan on terms of public private partnership. A corresponding contract was signed by the Mayor’s Office and several private companies. The peculiarity of this project also in the fact that the Administration of Kazan invests in the project the building in the centre of the city of the area of 3,3 thousand square meters with adjacent land of 1,7 thousand square meters. Private companies perform reconstruction of the building, training of specialists and implement the newest medical technologies. I think, that PPP in the health care sector has a great future. It is related to the fact that the state must be interested in improvement of quality of medical care, and business can invest profitably, at the same time solving socially significant tasks. Besides, although, the health care sector may not be the most profitable business, there has always been, is, and will be the need for quality medical service, thus, it will have stable solvent demand. 

As for risks for the state and business, they are quite typical of all PPP projects. The only difference is that, leaving people’s health to the mercies of private business, state bodies must perform strict control over the level of specialists and doctors, who will transform their business ideas to reality. 

- Could the analogue of the Russian Bank for Development (Investment Fund, Venture fund, Rosnano) function within the framework of PPP?

-  Both the Russian Bank for Development and its analogue may surely claim for one of the main components of PPP, in case of assignment of approriations for realisation of a joint project of the state and business. As a PPP mechanism, the RF Investment Fund has gained a special significance, which allows to attract financing at the nationalwide as well as at the regional level. We should also say about Vnesheconombank, under which the PPP Centre was created to develop the PPP institute. 

- What is the reason for the lack of effect of activity of special economic zones (SEZs)? Are they really inefficient? 

- A great deal of SEZs either are being created at the moment, or just begin their actiivty, so it is too early to speak about the first results of such large-scale projects. However, it becomes clear even now, that not all SEZs have shown their effectiveness nowadays. The example of successfull investments on the part of the state can be the SEZs of technology-innovative type in Dubna and Tomsk, zones of industrial-production type in Tatarstan and in the Lipetsk region. On the territory of these zones an active work of residents of relevant profile have been performed for a long time, infrastructure is developing very quickly, new jobs are being created, the volume of production and services is increasing, etc. The most problematic situation is that concerning tourist-recreational SEZs. The serious activity in this sphere is seen only in Buryatiya and the Altai Territory. Unfortunately, due to lack of significant benefits and preferences, investors do not strive very much to become SEZs residents. Thus, in order to develop SEZs it is necessary to increase the amount of benefits, activate infrastructure arrangement, increase the efficiency of governmental decisions and transfer more functions to the local level. It would make it possible to increase twice or three times the annual amount of private investments in SEZs. I would outline that creation of SEZs of the federal level is likely to be a purely political decision, than an economic one. I think that the most appropriate thing is the possibility to create SEZs of the regional level, that is those ones of a mixed type, which provides for combination of several spheres of activity. Such zones correspond most of all to real needs of the region. 

- Should both parties engaged in PPP take part in development of the legislation in this sphere? And how can business be “heard” after all? 

- Adoption of any legislative acts, and especially those ones related to PPP, must be conducted under active participation of interested groups. The authorities must necessarily attract business representatives to the work on improvement of the legislation, it is necessary to use all available potential, rich practical experience and resources, which our law-makers do not have by nature of their work. 

It is necessary to more actively use resources on attraction of consulting companies to works on drafting of laws, development of conceptions of normative legal acts, financial and economic feasibility studies, conducting the analysis and expertise of the current legislation. 

PPP for the Housing and Utilities, and more. Attraction of business to improvement of the legislation will make it possible to look at the problem from different angles, adapt normative legal acts to real conditions, help prevent arising of unnecessary questions and clarifications in its realisation. 

Interviewed by Julia Litvinova

The presentation of the book “Public Private Partnership: Mechanisms of Realisation” will take place on May 21, 2010 within the framework of the conference “Single-Industry Cities: Modern Decisions”.      

27 May 2010
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