OREANDA-NEWS. October 22, 2009. Deloitte and Touche CIS (Deloitte) and the Public-Private Partnership Center of Vnesheconombank presented a joint report on the current situation on the public-private partnership (PPP) market and proposed appropriate measures to support PPP projects in Russia during the current economic crisis and into the future, reported the press-centre of Deloitte.

The authors of the report benchmarked the key principles of how the PPP/Private Finance Initiative market operates in Russia against those that are characteristic of developed markets. They also reviewed the impact of the global economic slowdown on the Russian PPP market and analyzed international best practices in PPP projects, as well as the possibilities of their application in Russia’s current social and economic situation. Experts believe that many solutions that have proven to be efficient in other markets can be successfully implemented in Russia.

The analysts observe that the development of Russia’s PPP market is still in its initial stages due to the following factors:

Shortcomings of the Federal Law “On Concession Agreements”, which currently does not fully protect the interests of investors and lenders

A small overall number of PPP projects implemented so far, mainly developed on the basis of regional legislation on PPPs

Narrow investment focus of current PPP projects that were initiated to meet conditions on which funding was to be provided by the Russian Investment Fund and do not match the international requirements set by private investors in today’s competitive business environment

Sophisticated legal and institutional environment for PPP projects and the current trend of investing in some specific sectors of the economy (e.g., healthcare or education) curb rather than spur investment in community infrastructure

Experts maintain that PPP is not a universal tool that can significantly increase the level of investment and improve the quality of delivery of infrastructure projects in Russia on its own. At the same time, industry-specific PPPs may be of great benefit to both the public and the private sectors. In particular, experts single out the following opportunities that PPPs can create:

Using private industry experience for the benefit of modern day high-tech and efficient community infrastructure

Creating a more competitive environment through open and transparent tendering

Laying foundations for long-term contractual relationships

Attracting additional funds for community infrastructure projects that were put on hold due to the crisis

Providing better services to the public sector within a fixed budget

Providing better efficiency and reducing costs during construction and operation

Creating incentives aimed at the development of different industries

Increasing efficiency of government funding to modern city infrastructure

According to experts, the Russian government should act as a coordinator, securing the implementation of PPP projects, in addition to their direct funding. They believe that the Russian government and Vnesheconombank, whose role is to advance PPPs, should focus on developing and supporting PPP initiatives in the following areas:

Allocation of industry-specific quotas/preparation of funding programs/foundation of investment funds to support regional PPP projects in the private sector (e.g., healthcare, education, sport, etc.) with the minimum investment set at RUB 500 million (minimum investment is currently RUB 2 billion for Vnesheconombank and – RUB 5 billion for the Russian Investment Fund)

Design and development of financial instruments to attract funds from international infrastructure funds, national pension funds, national insurance carriers and individual investors to implement investment programs as part of infrastructure projects similar to investment programs for public companies which can secure sources of ruble funding to be available for 12–30 years

Development of risk mitigation mechanisms effective at federal, regional and municipal levels that can provide sufficient guarantees for potential investors and make the market more predictable (in particular, this means mitigation of budget and currency risks)

Development of the legal framework aimed at the implementation of PPP projects, taking into account the specifics of international regulations for institutional PPP projects in order to mitigate potential conflicts of interest and speed up the preparation and implementation of investment projects

Strengthening the role of Vnesheconombank’s PPP Center in supporting regional and municipal authorities, as well as empowering the regional agencies in this area

Experts strongly believe that the global economic slowdown presents a unique opportunity for Russia to introduce new methods and financial instruments by implementing PPP projects at the federal, regional and municipal levels. This will create conditions for economic growth in the industries that the Russian government finds strategically important. Despite the economic downturn, private investors, including Russian ones, have access to financial recourses available for investment in projects with an acceptable risk level.

This report is currently under consideration by Vnesheconombank’s management.