Public-private partnership in Russia

The concept "public and private partnership" (PPP) is widely used in Russia and in the world (public-private partnership, PPP). There is no a standard determination of this term either in Russia or abroad. But if in the world there is a unique understanding of models, scopes of application, PPP tools so in Russia a fierce debate is carried on the issue what must be understood under PPP.

PPP is an involvement of private sector for more effective and high-quality implementation of tasks relating to the public sector, on the terms of expenses compensating, distribution of risks, obligations and competence.

Economic concept of PPP leans on the following elements: Sphere of PPP is contoured accurately, this is a public infrastructure: combination of constructions, buildings, equipment, systems and services necessary for functioning of branches of goods production and support of society activity conditions (water, heat, solid waste treatment, education, health care, transport, public offices, etc.)

Infrastructure is a capital-intensive and resource-intensive branch.

Development of infrastructure has a positive impact not only on quality of life of citizens as services consumers, but also on economy in general: business develops in place where there is infrastructure, this is an important competitive advantage for regions and municipalities.

Government authorities are responsible for infrastructure conditions. The most widespread forms of the state involvement in infrastructure are owner, investor (budgetary funding of capital investments) and controller (rates, norms).

There are more infrastructure problems, than the state can solve by own efforts therefore budgetary capital investments are pinpoint and used either for "buildings of a century" or they for "patching of holes".

Use of budgetary loans is tantalizingly constrained by the budgetary legislation for different reasons, based on the fact that they are afraid of creation of such conditions when funds would be spent ineffective, up to authority (or a unitary enterprise, for example, municipal unitary enterprise) adjudication in bankruptcy.

The consent of the state for equal relations with business can be caused by interest of the state in better and effective implementation of obligations to society – increase of accessibility and quality of services. The state shall be a responsible partner to private business for PPP success, be responsible for the assumed obligations.

The state shall pay not for process ("this year X kilometers of pipes were laid"), but only for achievement of  contractual result in advance ("X % of consumers received high-quality services in due time, on a full scale, at pre-agreed cost"). It requires a deep understanding of civil and municipal servants, persons making the decision on project implementation of obligations which shall be performed by the authorities for the project implementation.

The private sector shall provide specific skills, technologies, qualified personnel to the state; shall assume the risks connected to implementation of high-quality changes, obligations of the state necessary for more effective implementation; shall be capable to attract additional capital for support of activities within the partnership with the state.

Private sector cannot receive anything from the state that it could not receive from the market if only it doesn't concern obligations of authorities to use exclusive state rights (defined by the legislation) for project implementation, such as:

  • regulation (economy regulators – different privileges, investment credits, warranties, guarantees),
  • command of state (municipal) ownership,
  • purchases of goods and services for state and municipal needs,
  • direct rendering of state and municipal services to business,
  • determination of public services rendering order,
  • responsibility for organization of certain markets,
  • planning of budgetary expenditures,
  • provision of subsidies, subventions.

The state represented by authority will organize PPP creation process consisting in competitive procedure preparation and implementation; according to the results of competition the winner is selected who attracts financing and renders service to the state on the conditions determined by the contract; the parties control contract execution.

Eventually, results of private investor activities in case of project implementation on PPP terms always appear felly owned by the state (municipality).

Thus, PPP is an alternative: to infrastructure privatizations saves the state monitoring over it, to poor infrastructure control of public and municipal administration authorities, besides, restricted by rigid budgetary frames. PPP mechanisms is not a goal in itself and not the universal response to challenges, but the instrument of goals of social and economic development of society at federal, regional and municipal levels achievement.

The most wide-spread form of public and private partnership in Russia is concession, concession agreement is involvement of the private sector in effective management of state ownership or in rendering of services which are usually rendered by the state, on mutually advantageous conditions.

In the international practice the following types of concession agreements are defined:

  • BOT (Build — Operate — Transfer) — "Construction — management — transmission".  The concessionaire constructs and maintains projects (generally — on the property right) during the agreed period then the object is transferred to the state;
  • BTO (Build — Transfer — Operate) — "Construction — transmission — control".  The concessionaire constructs object which is transferred to the state (concessionaire) right after construction completion then it is put into operation of the concessionaire;
  • BOO (Build — Own — Operate) — "Construction — possession — management".  The concessionaire constructs object and realizes the subsequent maintenance, owning it on the property right, the validity period of which is not limited;
  • BOOT (Build — Own — Operate — Transfer) — "Construction — possession — management — transmission" — possession and use of constructed object on the right of private property is carried out during a certain period after which the object passes into the ownership of the state;
  • BBO (Buy — Build — Operate) — "Purchase — construction — management" — the form of sale which includes restoration or expansion of the existing object. The state sells object to the private sector which makes necessary improvements for effective management.

Law of Murmansk region No. 1311-01-LMR: "About involvement of Murmansk region in public and private partnership"

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Marina Kovtun

The governor of the Murmansk region

+7 (8152) 486-201

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In the Murmansk region completed a comprehensive educational program in the field of PPP for state and municipal employees

n addition, in the course of full-time training modules, the problems of interdepartmental cooperation between state and municipal authorities in initiating and developing projects in the field of PPP were discussed, as well as program participants familiarized themselves with the practical aspects of financial structuring and developing a financial model of the project, features of competitive selection of private partners, post- competitive negotiations, tax and budgetary aspects on the example of concession agreements and PPP agreements. In addition, participants familiarized themselves with the methods of evaluating the effectiveness and justifying the comparative advantage.
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