PPP projects see brighter prospects as arguments continue over their merits

Photo: www.vinci-construction.com

Three letters - PPP - were once on the tip of everyone’s tongue in the Czech Republic as a formula for carrying out large infrastructure projects. Public Private Partnerships then ceased to figure large in the political and public vocabulary. Now, PPP appears to be on the verge of a comeback as the economic crisis squeezes central and local government coffers. Even so, the arguments about the merits of PPP projects have not disappeared.

PPP projects – where the state and private sector team up usually to build a road, hospital or piece of infrastructure with the private company usually given the rights to run it for a certain period - do not have an illustrious history in the Czech Republic so far.

The brainchild of British Conservatives in the early 1990’s, PPP’s made their Czech debut under the left wing Social Democrats in 2002. The problem was that the launch project – a long stretch of motorway in the east of the country to the Polish border – the D47 – became infamous as a totally botched job. The contract was given to an Israeli company without a competitive tender, all the risks were shouldered by the state and the sums to be paid back by the state were so high when finally totted up that the deal was cancelled.

Today’s backers of PPP projects argue that the project broke so many basic rules that it should never have been deemed a PPP project to start with. Since then the Czech Ministry of Finance has came up with a standard template of how such projects should be organised and structured. Even so, the hangover from the close shave with what seemed like daylight robbery on the D47 has lasted a long time.

Jan Škurek is the head of the PPP Centrum, which was created to help Czech local councils and central government take advantage of the opportunities offered by PPP projects. He sums up the story so far:

“Up till now in the Czech Republic level at a municipal level – that is towns and local councils – there are about 20 sealed PPP projects. These are mostly small projects for water works or sports facilities and social services. At the state level we have no finalised PPP projects. The one that is closest to coming to closure is for the central hospital at Střešovice where investors should tender bids in the second half of this year probably at the start of the autumn”

That is a rather low total compared with some neighbours, such as Hungary, where PPP projects have been all the rage for some time and even Slovakia, where a left-dominated government has earmarked them for key projects, such as the completion of a motorway link between Bratislava and the second city Košice. Mr Škurek again:

“Certainly we and private investors are not happy with the current situation. They expected a much higher number of PPP projects to have been realised. The reasons that this has not happened are several. From my point of view, one of the main ones is the unstable political situation in the last two or three years in the Czech Republic. It has not been clear from the government side what support for PPP there was. Stakeholders, backers of these projects and decision makers have changed. Some projects have been continually redefined and in some cases completely stopped due to political decisions and sometime for economic and rational reasons.”

A low ebb for PPP projects came with the recent centre-right coalition of former prime minister Mirek Topolánek although the coalition programme promised such innovations as PPP prisons. One factor was a coolness towards PPP projects from the finance ministry headed by Miroslav Kalousek.

At one point, the last government came up with plans to tighten up conditions for PPP projects although the trend across most of Europe was to relax them. That move would have killed PPP projects dead in the Czech Republic, according to – the executive director of the PPP Association, Vladimír Sloup. The association groups around 60 private companies who are keen to broaden the scope of PPP initiatives in the country. Although the move has been shelved, some still say it would have helped ensure the administrative oversight that such projects require.

In any case, Mr Sloup now detects a drift of opinion in favour of PPP.

“I have to say that the last year it was changing slightly. So the last government was changing its opinion on PPP. At the beginning this government was against PPP but they were forced to change their opinion slightly because they saw that PPP is working all around the world and in countries around the Czech Republic and even working at a municipal level. So they were slightly changing because they saw that their negative opinion at the beginning was not right. Of course they are politicians so they could not admit that they were wrong. But I saw that the PPP environment was changing and changing in a positive way.”

And he sees the aftermath of the upcoming parliamentary elections in October as a real chance for PPP projects to take off.

“For me it seems that any election could only be favourable for PPP projects because it is true that political support is most important for PPP and there was no political support in the past for PPP. So I think that changes could only be positive”

Indeed, some fairly large projects now look they could get underway. One of these is for construction of a 1.0 billion crown accommodation facility at Prague’s Střešovice hospital. Around half of the approximately 500 beds would be shared between the hospital and private developers. Final bids should be made by the end of August. A second is a much more ambitious 28.4 billion Ministry of Transport project for a private constructor to build a 113.5 kilometre stretch of motorway linking Prague and the southern towns of Tábor and České Budějovice. The private company would operate it for 30 years.

Further down the line the Prague city council is considering that a PPP project could be used by its indebted transport company for a new line of the Prague metro and a fast rail link between the city and Central Europe’s busiest airport at Ruzyně.

Mr Sloup says the main argument in favour of PPPs is that they are more transparent and less prone to corruption than normal tenders and it is now getting through.

“PPP is really transparent against classic procurement because during some concession dialogue, for example, there are too many parties, too many companies involved in this dialogue so it is very difficult, almost impossible, to bribe somebody because there is the financial advisor, technical advisor, legal advisor. There is the bank, there is the construction company, there is the facility manager. And all of them are in one group and there are three or four groups of such people. So it is very difficult to influence such dealing, such a dialogue. Even where there are bribes, banks would be very suspicious about it because where there is a bribe it means that something is wrong. It means that maybe it is not the best solution.”

Other factors which should favour PPPs is the conclusion of Czech applications for European Union structural funds after 2013 and the fact that PPP projects do not figure in calculations of national debt under criteria for adoption of the single currency euro.

There is, however, the downside that the credit squeeze that makes the projects more attractive to governments have scared off some banks that might have been falling over themselves to payroll them in the past.

In addition, there are still doubters about the basic merits of PPP projects. David Ondráčka is director of the international anti-corruption organisation Transparency International. He says that both Czech public institutions and the backers of PPP projects have still to prove that they could work properly here:

“TI always questions the transparency of public contracts signed in this country. And when you have contracts signed for 20 or 30 years with a lot of obligations, then it is even more necessary to ensure complete openness and accountability. We question mainly the ability of the Czech public sector to divide risks accordingly, to sign balanced contracts and really to enforce obligations.”

He also queries whether PPP projects are inherently more corruption-proof than conventional public tenders.

“In my view there is no difference in the transparency of awarding procedures or competition between normal public procurement and PPP schemes. There are potentially even more risks if you are competing for a 20 year long contract than if you are competing for something short term.”

With the arguments still raging - for better or worse – some sort of clearer verdict on PPP’s looks like coming in the wake of October’s elections.