How to make PPP work in Russia

2012 Overview

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The public and private sectors give different assessments of the advantages and opportunities of PPP projects in Russia.

However, they agree that legislation must be improved and they underline the importance of a clear state policy on PPPs. An appropriate allocation of liability for risks in PPP projects between the state and the private sector is paramount.

In this overview, we present the findings of a survey that EY did this year of players on the Russian PPP (public-private partnership) market.

Key conclusions


1.

The public and private sectors give different assessments of the advantages and opportunities of the practical implementation of PPP mechanisms.

Public officials regard off-budget financing as the key task of PPPs. They count on transferring liability for key project risks to the private sector and expect a low cost of private capital.

The private sector is prepared to provide optimal value for money, but in return expects state support and guarantees as well as an adequate return on investments.


2.

Market players agree that certain sectors, with the exception of social infrastructure, are relatively promising.

Transport and utilities are the industries that show the most promise for PPP mechanisms in the next five to ten years

The state needs PPP projects in the social sphere, but has not as yet created the conditions for projects in this sector.


3.
For the further development of PPPs, legislation must be improved.

Federal and regional PPP legislation should be flexible and coordinated, and a number of related issues need to be resolved in the areas of tariff formation, access to land, taxation, budget formation, etc.


4.
But it’s no less important to eliminate other obstacles as well.

The quality of project preparation remains low. State bodies lack experience. State institutions for the support and development of PPPs are insufficiently developed at the federal and regional levels. Investors are also concerned about the low creditworthiness of Russian regions.


5.
There are opportunities to make projects more financially attractive.

Projects may be made more attractive by means of state guarantees, the accumulation of experience with PPPs and an appropriate allocation of liability for risks.


6.

A clear state policy on PPPs is of key importance for all market players.

Most market players do not understand current state policy on PPPs. The state should more clearly formulate its requirements. Development institutions can and should assist in project preparation and delivery.

For more detailed information on a variety of legal, financial and commercial issues relating to PPP projects please click on the headings below:


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