20150622 final project oz

Is it a Due Time for Public-Private Partnerships?

by Oksana Zatvornytska

June 22, 2015

Living in a distant rural settlement or a small town…

…we dream of making our lives… …easier, better and safer.

To materialize these dreams, the access to key public goods is needed

Adequate transport (infra and services) is crucial for accessibility:

- providing basic road connectivity to rural villages can generate significant social and economic benefits;

- urban poor make long and expensive journeys to work, often over 20 km and sometimes taking 3-4 hours per day travelling. http://unhabitat.org/?wpdmact=process&did=MTY3Ni5ob3RsaW5r

Is Ukraine on Track in Terms of Road Infrastructure Development?

169.6 thousand km of roads

are public, out of them 70%

are local roads

https://uk.wikipedia.org/wiki/%D0

%90%D0%B2%D1%82%D0%BE

%D0%BC%D0%BE%D0%B1%D1

%96%D0%BB%D1%8C%D0%BD

%D1%96_%D1%88%D0%BB%D1

%8F%D1%85%D0%B8_%D0%A3

%D0%BA%D1%80%D0%B0%D1

%97%D0%BD%D0%B8

Ukraine: road infrastructure network

http://www.indexmundi.com/facts/indicators/IS.ROD.DNST.K2

Road density: international comparison, km/100 km2

UA

28.01

PL

129.88

HU

214.52

IN

125.00

ZA

30.00

USA

66.57

Ukraine road infrastructure needs

0 1000 2000 3000 4000 5000

142500 143000 143500 144000 144500 145000 145500

Needed repairs (upper scale), km Lost bearing capacity (bottom scale), km

Effective repairs (bottom scale), km

http://slidegur.com/doc/1543958/prezent

ac%D1%96ya-dudnika-n.m.

2015

2014

2013

Ukraine Road Sector Outlook The country has a wide local roads network; local authorities

are in charge of operating and maintaining local roads in Ukraine

The network of E-roads is quite tiny (1.3% of public roads),

which signals of the necessity to catch up with European neighbors

Over 2013-2015 the infrastructure gap in roads sector of

Ukraine increased even more

- existing roads keep deteriorating further without being repaired;

- new roads are not constructed at all

The Government of Ukraine feels confident of IFI loans to support

the rehabilitation along key transport corridors

PPP projects are discussed as an alternative to support the

road sector development till 2020 period

Are there any chances that PPPs will succeed in Ukraine before 2020?

Roads PPP success in UA: Pros and Cons

Framework PPP Law and

specific law for road concessions

Some unsolicited pre-

feasibilities undertaken

PPP projects integrated into

Road Program 2013-2018

New market for

investors to step in UA

Military conflict and

social unrest

Macroeconomic

volatility

Weak public

finance

Imperfect PPP concepts

and legal collisions

Some remarks: road PPP model in UA

Legal framework avails for different forms of road PPPs (BOT, DFBOT, operation contract, etc), however, there is a

prerequisite to build an alternative free road even for

operation contracts.

Due to existing legal collisions, although entitled to toll

revenues, a private partner cannot receive them

directly since toll payments shall be transferred to the State Road

Fund of Ukraine. Only the Government can settle toll rates.

Besides the tolls, the private partner can also be entitled

to non-toll revenues and availability payments. Yet,

however, the availability payments won`t cover SPV and financial

costs.

Some remarks: road PPP model in UA

The Government charges the road users a toll

Tolls are transferred to the State Budget

The Government pays a proportion of collected tolls to a private

partner in the form of availability payments

Private partner needs to collect non-toll revenues to cover the

costs, which are not covered by the Government

Some remarks: road PPP model in UA

On the expenditure side, CAPEX and OPEX for road projects are

regulated by state construction norms and are mandatory to abide with.

The Government is sensitive to deferring from the

regulated CAPEX and OPEX, since these costs influence the

amount of availability payments that are due to a private partner.

Besides of that, the Government shall charge the private

partner a Concession Fee, which could be up to 10% of CAPEX

per annum. The amount of a due Concession Fees is derived in a

regulated manner and is not deemed by the Government to be an

element of a PPP Feasibility Study.

Some remarks: road PPP model in UA

PPP CAPEX and OPEX are rigid

No motivation for the private partner to innovate and save in a

longer-term perspective

Concession Fees are excessive and might question if it is worth of

starting PPP at all

Prior to start a PPP project, please make sure if it is a “right move”!

Not all moves are pleasant, but you should not compromise your partner