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Public Private Partnership (PPP)

Public Private Partnership (PPP)

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Public Private Partnership (PPP)

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  1. Public Private Partnership (PPP) • PPP gives an opportunity to transfer private initiative with its efficiency in a process of public infrastructure management (transport, health, social, education and other) • PPP helps the public sector to launch large projects and deal with budgetary and public debt restrictions • There are several forms of the partnership which differ by tasks and risks distribution between private and public sectors in the process of public services rendering.

  2. There are different schemes of PPP … Service Contract Risks transferred: - design&construction Operation contracts Risks transferred: - design&construction; - operation BOT (Build-Operate- Transfer) Risks transferred: - design&construction; - operation; - financial Concession Privatization Risks transferred: - design&construction; - operation; - financial; - costs recovered from users charge Risks transferred: - all risks transferred Public Private RISKS DISTRIBUTION

  3. … however public purchase of services dominates in Lithuania … Source: Office of Public Procurement, Ministry of Finance

  4. … when concessions struggle and have controversial reputation • 2004: • October: A tender for construction and maintenance of transport junction in Kaunas (M.K. Čiurlionis bridge). The tender was failed after long negotiation with a single bidder. • 2005: • March: a tender for construction, maintenance and operation of a multipurpose arena in Kaunas. The tender was canceled for technical purposes. • May: a tender for construction and maintenance of transport junction in Kaunas (Aleksotas bridge). An agreement concluded with a single bidder in August. A year after the disputes began regarding transparency of the project and tender procedures. • May: a tender for construction, maintenance and operation of a multipurpose centre in Panevežys. An agreement concluded with a single bidder. Financing of the project will be combined with EU funds • May: a tender for renovation and maintenance of schools in Kaunas. The tender failed after negotiation with a single bidder. • September: Kaunas municipality for the second time announced a tender for multipurpose arena. The tender failed since none of potential investors replied to. • October: a tender for construction, maintenance and operation of a multipurpose centre in Šiauliai. An agreement concluded with a single bidder. Financing of the project will be combined with EU funds • November: Kaunas municipality for the third time invited investors to submit bids for Kaunas multipurpose arena concession. Municipality is still in negotiation process with a single bidder. • 2006 • February: a tender for transport junction (M.K.Čiurlionio bridge) was announced again. Two bidders participated in the tender and a concession agreement concluded in June • May:a tender forconstruction and operating of road infrastructure objects in Elektrėnai. Three bidders replied to and a concession agreement was signed in July

  5. What is wrong in the process? • Lack of knowledge about PPP schemes it selves • Poorly prepared projects and absence of alternatives analysis • Private partner interests are not taken into the account • Lack of transparenc and limited access to information needed to evaluate projects • Absence of pre-marketing of PPP projects • In order to prevent the disputes, Vilnius municipality undertakes the more conservative way and has performed the following feasibility studies for PPP projects in 2005-2006: Vilnius tram project, Schools renovation, Primary personal health institutions projects and other

  6. What is crucial to make projects attractive to private investors and … • A PPP project is in line with strategic public sector goals and a necessity of this project is undisputable (cross-parties approval would be desirable) • Analysis of alternative schemes for a public service delivery is performed and PPP scenario shows better Value for money than traditional methods • Qualified approach of a PPP project to potential partners as well as to all the parties that may be concerned • Ensure equal conditions of access to project information to all prospective bidders

  7. … make private funds available for public projects Source: Bank of Lithuania

  8. What do private partners expect from PPP projects? • Private partner (concessionaire) • Fair return • Compensation for assumed risk • Clear legal/regulatory structure • Growth potential • Political support • Political stability • High leverage • Lenders • Extensive financial analysis • Conservative cost/revenues assumptions • Certainty of grant and state funding • Clear legal regulator structure • Technical ability of owner/operator • Political stability

  9. What return might be attractive to private investors? Average profitability in some Lithuanian industries Source: Department of Statistics, Lithuania * Represents 12 months period from 1st July of 2005 to 30th of June 2006

  10. AB DnB NORD BANKAS Company code 112029270 Bank code 40100 SWIFT AGBL LT 2X VAT code LT120292716 Address J. Basanavičiaus str. 26 Vilnius LT-03601 Telephone + 370 5 239 3444 Short number 1608 Fax +370 5 213 9057 Telex 261097 VOD LT E-mail info@dnbnord.lt Web page www.dnbnord.lt