Private Sector Expectations from Public Private Partnership

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Private Sector Expectations fromPublic Private
Partnership
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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.

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There are different schemes of PPP
Service Contract Risks transferred -
designconstruction
Operation contracts Risks transferred -
designconstruction - operation
BOT (Build-Operate- Transfer) Risks
transferred - designconstruction -
operation - financial
Concession
Privatization
Risks transferred - designconstruction -
operation - financial - costs recovered from
users charge
Risks transferred - all risks transferred
Public Private
RISKS DISTRIBUTION
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however public purchase of services dominates
in Lithuania
Source Office of Public Procurement, Ministry of
Finance
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when concessions struggle and have
controversial reputation

• 2004
• October A tender for construction and
  maintenance of transport junction in Kaunas (M.K.
  Ciurlionis 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.Ciurlionio bridge) was announced again. Two
  bidders participated in the tender and a
  concession agreement concluded in June
• May a tender for construction and operating of
  road infrastructure objects in Elektrenai. Three
  bidders replied to and a concession agreement was
  signed in July

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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

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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

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make private funds available for public
projects
Source Bank of Lithuania
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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

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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
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