Investment in partnership with the state - Private capital for roads, spa resorts, industrial zones

Adoption of the Law on Public-Private Partnership and Concessions has opened the way for investments by private investors interested in using this model to implement projects, and it has also made infrastructure projects awaiting implementation for years more realistic.

The Serbian government has decided to examine the possibilities of financing the construction of roads through a partnership between private and public sector, and the Belgrade Institute of Economics is now working on a study on the application of this model to future projects for the company Putevi Srbije.

This study will specify both technical and economic criteria for applying projects for PPP, and it will also set frameworks for the selection of roads whose construction will be financed in this way.

- The main part of the study will be completed by the year's end, whereas the whole study will be finished in Q1 2012. It will, actually, specify concrete projects that can be financed in this way. In any case, such projects are state roads of the first and the second class, as well as facilities on them – people at Putevi Srbije say for eKapija.

According to some earlier announcements from the Ministry of Economy, whether and in which way some project will be implemented and financed will be decided by a commission for PPP, consisting of experts from several ministries. The adoption of this law does not mean that the public sector is obliged to conclude agreements with private partners in the field of the construction of state roads or any other field. Investments are possible only if the competent public agencies recognize the need for such implementation and find it justified.

There is no doubt that private companies will bring technical know-how and expertness to the partnership, but the construction of roads by this model will also free certain government funds and make them available for investment in other fields, say people at Putevi Srbije.

- When it comes to the road network, more active participation of private capital is one of the possibilities to build new and improve existing state roads in Serbia. Besides, it will also allow for the maintenance of the budget balance at the time of the crisis, thus positively affecting the sectors of general interest.

Our interlocutors add that the change in the legal framework, as well as aforementioned Study, may help revive the concept of PPP in the sector of public roads in Serbia until the end of 2012, but nothing is for sure yet. Although the adoption of this law has meant a step forward in that field, people at this company believe that the readiness of the country as a whole is not yet on the required level to consider this model of funding one of the key ways to build roads.

- It is difficult to answer with certainty the question of how many investments will be attracted in this way and if there will be some new large investors. The economic crisis has also left its mark on the use of PPP in the world, which is significantly reduced. Surely, the existence of frameworks and guidelines for PPP in the road sector, along with the appropriate legislation, will help earn trust from investors - our interlocutors explain.

Local self-governments are already preparing projects

The new Law on PPP and Concessions has primarily made local self-governments happy. Since their chances for obtaining favorable loans from international institutions are quite reduced, they will be able to use private capital in the future to implement all those important projects they lacked money for if the competent authority gives green light.

Local self-governments are enabled to enter into certain partnerships on their territory without involving republic authorities – the Serbian government will be in charge of the projects of national significance, whereas local self-governments will be reponsible for local projects.

Representatives of cities and municipalities already announced projects they would like to implement by means of this type of cooperation. For most of them, there is not enough money in the budget.

For example, people in Kula are willing to have a spa center built in this small town with great geothermal potentials. The project itself is too expensive to be financed from the municipal budget, which is why people at this town in Backa hope that the private capital will make it possible for them to get one such tourist center in the near future.

- The municipal has no funds to implement such project by itself. A minimum of RSD 30 million are required to activate thermal wells. Also, the maintenance of a spa resort or an aqua park that would be built here is too expensive for us. That is why we hope to find investors thanks to the new Law on Public-Private Partnership. In return for an investment in the exploitation of this natural resource, the investor would be allotted about 20 hectares of land by Kula to have a spa resort built on that land - Kula Deputy Mayor Damjan Miljanic explains for eKapija.

Similar comments are given by authorities in Leskovac, Kragujevac and Pozarevac who intend to use PPP for infrastructure projects, the construction of the first underground public garage, and the formation of a new industrial zone, respectively.

Energy, green economy and transport

According to recent announcements by the National Agency for Local Economic Development (NALED), trends in the world show that most PPP projects are implemented in the fields of energy, green economy and transport.

People at the Ministry of Economy announced that private investors had expressed interest in carrying out certain municipal activities - ranging from the construction of sports facilities and schools to small hydroelectric power plants.

The Government of Vojvodina and the Petroleum Industry of Serbia (NIS) have already announced the formation of a joint venture for the exploitation of geothermal sources of energy, which required the adoption of this law.

As Beta news agency reported earlier, the investment and development company A1-S has announced that it wants to reinvest EUR 30 million in public-private partnership projects in cities in Serbia, claiming that the model of PPP gives investors security that the law will spark the development of local self-governments.

Experiences

Public-private partnerships are in intensive use around the world and Europe for as many as 20 years now. Numerous studies call Great Britain the "cradle of PPP" because this country presented the Public Financial Initiative as early as in 1992, removing limitations to the participation of private capital in the public sector funding.

Croatia was among the first countries to start implementing this type of projects, and the first PPP contract was concluded in 1995. The Agency for Public Private Partnership, which exists since 2009, is in charge of the implementation of PPP projects in Croatia.

There is no law in the Federation of Bosnia-Herzegovina that regulates PPP on the whole territory of the country, and a Bill on PPP and Concessions in the Sarajevo Canton was designed in June.

- According to some researches, the use of PPP in the construction of roads in Southeast Europe has not been so impressive to date, and it is unknown if the project implementation through the public sector would produce better or worse results - said people at Putevi Srbije.

M.S.

Ministarstvo privrede Republike Srbije

JP Putevi Srbije Beograd

Ekonomski Institut a.d. Beograd

Vlada Republike Srbije

Vlada AP Vojvodina

Opština Kula

Grad Leskovac

Porr - Werner & Weber d.o.o. Leskovac

Grad Kragujevac

Grad Požarevac

NALED Beograd

NIS a.d. Novi Sad

A 1 S d.o.o.

public private partnership

concession

concessions

Law on Public Private Partnership

PPP

Commission for Public Private Partnership

Damjan Miljanic

Agency for Local Economic Development of Leskovac

Maja Kocic

Sinisa Marjanovic

National Agency for Local Economic Development

NALED

Nebojsa Ciric

A1 S