Commission for PPP helping municipalities adopt strategic approach
Serbia February 26, 2018
The protection of the public interest, clear allocation of responsibilities, risk sharing and raising the level of public services’ quality are among the most important tasks of the Commission for Public-Private Partnership (PPP), said Andrijana Jovanović, Deputy Chairperson of the Commission for PPP. In an interview for the Improving Energy Efficiency through Public-Private Partnership Model publication, she stressed that decision-makers in certain cities and municipalities still face a lack of capacity to prepare and implement PPP projects, though also noting that this is still a new model.
How interested are local governments in energy efficiency projects under the PPP model?
There is a growing interest of local governments in the PPP model, which can be used to improve the quality of services to citizens while at the same time cutting costs, as well as to enable the transfer and use of new knowledge and technologies in the public sector, helping local governments achieve their strategic goals faster. Since municipalities and cities are often unable to independently invest in certain infrastructural projects and public services due to a lack of budget funds, one of the options is to involve the private sector and use the PPP model. The basic elements of the concept are the protection of the public interest, a clear allocation of responsibilities, risk sharing and raising the level of quality of public services. Each partner assumes the risk it can manage, which improves efficiency. Public-private partnerships in energy efficiency improvement projects, such as, for example, the reconstruction and modernization of public lighting, reduce budget spending and raise the level of efficiency in providing services. All this is aimed at providing benefits to the owners of infrastructure and society as a whole and protecting the environment, while at the same time enabling the public partner to use organizational, technical, financial and innovative skills of the private partner.
Which projects have drawn particularly strong interest from municipalities so far? Public lighting, improvement of energy efficiency in buildings, or heating?
Since its inauguration, the Commission has approved a total of 54 project proposals with or without concession elements. These are mostly projects of municipalities in the field of urban and suburban passenger transport, public lighting, municipal waste collection and production of heat and electricity from renewable energy sources. Since basing local development planning completely on public revenues represents too narrow a foundation for a faster community development, it is necessary to enhance budget financing by attracting private capital to build infrastructure and improve the quality of public services. All this is an indicator that PPP is becoming the most realistic option for local as well as regional and national infrastructure projects, since in recent years an increasing number of projects has been moving in that direction.
Promoting PPP and its wider applicationcan be of great benefit not only for the private sector, but for society as a whole. Private capital is one, but not the only option for solving the problem. Arrangements should be made after carefully and objectively assessing all pros and cons, comparing the advantages and disadvantages of this model with the traditional way of financing and providing services. When public entities decide on a PPP model, they should give clear priorityto the public interest, or public law, to the extent it secures benefits for citizens.
What are the shortcomings and what the advantages of improving energy efficiency through this model at the local level?
The Commission analyzes a project proposal and gives an opinion on whether it can be implemented in the form of a PPP, or whether it contains all the elements envisaged by the law. First and foremost, in addition to the proposed project and goal, an important part of the business plan is the cost estimate and the analysis of the results of invested funds, the model’s financial feasibility for the Commission, along with project financing details and the planned risk allocation. Meanwhile, we must bear in mind the quality of public services and environmental protection, as well as the safety, health and security of employees.
In terms of energy efficiency projects, initial conditions aim to achieve savings in municipalities by cutting energy costs, and one of the examples is the reconstruction of public lighting systems through the use of energy efficient, modern and economical light sources. A high degree of mechanical and electrical protection and high quality and durable materials provide a long life-span. An important component is environmental protection, since air pollution is reduced, meaning the emission of carbon dioxide is decreased to comply with European standards. The PPP model is justified and much more effective than the existing, traditional way of financing and providing services.
What are the obstacles in the process of submitting projects for approval?
During the preparation and writing of PPP projects, public entities as proponents often emphasize the development of a business and financial plan, risk assessment of the public and private partners, and defining minimum technical and qualification requirements as the most complex elements. When it comes to urban and suburban transport, the number of employees is also cited as a challenge. At the same time, the proponents of municipal waste collection, transport and disposal projects cite the calculation of cost assessment and the application of the methodology for the ‘value for money’ analysis, as well as the problem of collecting information on the amount of waste and the number of end-users of the service in question.
A majority of municipalities and cities, in general, point to the issue of a lack of adequate data necessary for the analysis of cost-effectiveness and feasibility. There is often a lack of data on the ownership, number or floor area and age of buildings, real incomes and expenses of public utilities, and the state of a project’s technical documentation. The most important issue is the establishment of a high-quality mechanism in municipalities and cities to monitor the implementation of projects in order to protect the public interest.
What should the government and relevant ministries do?
This model is first and foremost expected to help build capacities of local governments, as well as provincial and state authorities, but also ensure all public institutions work on identifying possibilities and drafting projects, and during implementation, on monitoring the quality of services and the measurement of results. There are great expectations concerning an increase in private capital inflows into projects that can improve the quality of public services and investment in infrastructure, equipment and services. Otherwise, projects that are not prepared seriously and skillfully enough could become a long-term burden on the budget, and push up public debt, and create environmental and social-economic risks. A state or local authority, as a purchaser of services, products or works, is one and a private company, as the supplier, the other side of the equation. The procedure is based on the principles of the protection of public interest, efficiency, transparency, equal and fair treatment, free market competition, proportionality, environmental protection, autonomy of will and equality of contracting parties.
Which municipalities and cities have sought the Commission’s approval, especially for energy efficiency projects, and which municipalities have obtained it?
A majority of the projects concerns urban and suburban transport – in Belgrade, Loznica, Jagodina, Šabac, Ruma… Municipal waste collection projects in Topola and Žagubica, the replacement of heating oil boilers with biomass boilers in schools in Niš and Pirot, and projects for modernization of public lighting (Kruševac, Pirot, Bor, Petrovac na Mlavi) have been approved. These are just some examples, and the list continues.