Recipe for better cooperation between municipalities and investors - Successful public-private partnerships impossible without support from politicians and real projects

Successful public-private partnerships (PPP) in Serbia require not only good laws, but also the support of top-level politicians, since the experience shows that this is one of the key matters the private sector pays attention to when deciding upon investing into a project. This is one of the conclusions of the 3rd Annual PPP Summit “Developing public-private partnerships in Serbia based on the UK model.”

The Summit held on 8 November 2012 at Hyatt Hotel was organized by NALED, USAID and the British Embassy in Serbia, with the support of Hypo Alpe-Adria Bank.

It is necessary to create realistically feasible and sustainable projects that local governments can afford, and one of the important conditions is a strict penalty for those who fail to meet their agreed obligations, British experts said at the Summit.

State Secretary in the Ministry of Finance Aleksandar Ljubic stated that the government would try to use the PPP method to attract investors, primarily for energy projects.

President of the PPP Commission Nenad Ilic said that only one public-private partnership project had been launched in Serbia to date, adding that another three such projects were awaiting approval. He specified that a positive opinion was given on the project involving the installation of a telecommunications network in Novi Sad, while the construction of an undergroung garage in Sabac, development of port facilities and the introduction of line transportation were pending approval.

Ilic stressed that an interest was expressed in public-private partnerships in the energy sector, especially in the construction of CHP plants.

Experts find a public-private partnership one of the best models for investing in the development of infrastructure and public utility services, particularly at this time of crisis, because the private sector is the one that provides funding and assumes the risk. Also, the private sector most usually has a greater experience and knowledge to develop projects than government agencies. A return on investment is ensured with the charging for the use of new infrastructure and services or with a fee paid from the national or municipal budget over the agreed period of time, after which the infrastructure developed is transferred to the possession of the state.

British experts were invited to Belgrade because the UK was one of the first countries to introduce the PPP model and is one of the most successful countries implementing this model. More than two thirds of projects in Great Britain were finished on time and within the agreed cost framework. Thanks to this investment model, they built a large number of roads, schools, hospitals, emergency housing units, care centers for old people, waste recycling plants, plumbing and sewerage, especially in rural parts of the country, which are not always attractive to investors.

- If the Highland area in Scotland manages to use the money of the private sector to build municipal infrastructure in remote parts of the state, at the very edge of Europe, so can you. All you need to do is try - said Alister Coutts, lecturer in Finance & Appraisal and Project Risk Management at the Edinburgh Napier University and former PPP director at the Highland Council, Scotland.

He suggested we should first focus on smaller PPP projects because they were shorter, less complicated, cheaper, and it was easier to create a useful service for citizens and assess the risks with such projects.

Most problems with PPP arise when determining the fee to be paid to the private partner during the management of infrastructure built by that partner. There are many examples of such partners being paid much more than they invested, which led to protests by taxpayers and the termination of unfavorable agreements. Problems also arise from a poor assessment of the project sustainability or an unsatisfying quality, which usually results in a dispute between the state and the partner.

- There is no doubt that Serbia needs better infrastructure and utility services and that we will need to make large investments in the years to come. In our economic situation, characterized by a high level of public debt, PPP is a good investment model since it doesn’t require initial borrowing. However, we need to pay attention to developing such a project where we would receive high-quality infrastructure or services for the money we need to pay back to the private partner, and we mustn’t allow the situation where the risk is transferred to the state or local government - said Toplica Spasojevic, vice chairman of the NALED Managing Board.

The Summit was also an occasion for the representatives of leading British consulting and construction companies, such as Mace International, Mott MacDonald, Grant Tornton, Harrison Solicitors, Global International Utilities and GIG, to share their experience in the implementation of PPP projects with participants in this event.

British Ambassador to Serbia Michael Davenport emphasized that PPP could be implemented at all authority levels, from central to local, adding that that was a convenient mechanism in the situations requiring large capital investment and the modernization of public service provisions.

Joseph Lowther, director of the United States Agency for International Development’s Business Enabling Project (USAID BEP), emphasized that there was a good will to initiate PPP projects in Serbia, but the problems were the liquidity in the real sector and a difficult access to funding sources for small and medium enterprises, as well as corruption.