World trends of public-private partnership in small projects

World trends of public-private partnership in small projects

10 December, 15:05 116
World trends of public-private partnership in small projects

Public infrastructure influences to all aspects of human life beginning from supply of drinking water finishing with construction of roads. Infrastructure is an engine of economic growth: qualitatively constructed roads, a working public transport accelerate movement of people and goods, increasing economic productivity. However the needs of the population for high-quality infrastructure grow. Bodies of the authorities of all levels, especially municipalities do not manage to meet these needs. The problem is that the mechanism of public-private partnership in many countries is worked out generally at the national level and is much more rare on places.  

Local authorities of such countries as Russia, Canada, India, the Republic of South Africa even more often resort to the mechanism of public-private partnership as to an alternative method of financing of small infrastructure projects. Today small projects are implemented by the authorities of local level in such sectors as heat supply, lighting, transport, utilization and conversion of waste, water supply, by such types of public-private partnership as concession, the contract for operation and maintenance, the agreement on management.
Though many signs characteristic of public-private partnership do not depend on at what level of the power the project is performed, nevertheless there are moments which are inherent only in local projects.
Small projects which often require more active intervention of state bodies for increase in profitability and stimulation of financing of projects.
Regional authorities often do not possess the financial resources necessary for projects implementation. Respectively, they should be limited to projects which require urgent implementation.
Public-private partnership projects by the nature are technically and economically quite difficult. Local authorities, in most cases, do not have enough knowledge and abilities for management of such projects. Moreover, insufficient experience of public-private partnership projects implementation forces local authorities to address to higher bodies for receipt of support and resources. Though this decision contributes to the promotion of projects, the essence of a problem remains. The lack of a human capital becomes one of the main obstacles for implementation of local projects. Besides, involvement of consultants in planning and public-private partnership projects implementation can be rather expensive entity unavailable to the limited local budget.

For example, for the solution of this problem the special fund which helps to finance expenses on consultants is created in India and it can be used by national and regional authorities.

As international experience shows, the public-private partnership is more suitable for big projects where emergence of additional material costs not strongly influences to a total cost of the project. Large projects often have higher rates of a gain in productivity necessary for compensation of the fixed costs arising during the planning and project implementation of public-private partnership.

For example, the authorities from the Canadian province of Ontario establish a certain threshold (20 million dollars) and projects below of this should not be implemented according to the scheme of PPP. When the project has rather low capital costs, the possibility of binding of this project with other objects can be considered to interest potential private partners. It promotes creation of the project having sufficient scales for absorption of the additional material costs arising in case of project implementation according to the scheme of PPP. One of examples of such decision is the program created by Department of transport of Pennsylvania, the USA, uniting a construction and operation of several hundred small bridges in one PPP project. Average cost of the project for one bridge would make about 2 million dollars that would be insufficiently for project implementation according to the scheme of PPP.
The institutional structure created for planning and projects implementation of PPP including the moments of coordination, examinations and statements is not always suitable for the small projects realized at the local level.

All reconciliation procedures in the Republic of South Africa are carried out at the local level for the projects realized in the sphere of tourism worth up to 10 million rand (600,000 dollars of the USA). However, some countries use the same processes of coordination for all projects of PPP. For example, one of the main sales problems of projects of PPP in Indonesia and Kenya is a long process of coordination.
In general, experience shows that despite attraction of much lower capital costs, small projects require the same amount of time and undergo the same difficult procedures, as well as large projects. Actually, the small projects realized at the local level should undergo several additional coordination from higher bodies of the power. Moreover, sometimes the available institutional structure "discriminates" local projects according to these or those characteristics. There is not always separate institutional framework for projects at the local level. This trend is more characteristic of the countries with the federal than unitary political and territorial device.

The question of a lack of qualified personnel and accurate institutional planning framework and implementation of PPP projects is thorny.
There are solutions for some of these problems, such as use of standard documentation for small projects. If the project cost of PPP does not exceed a four-million monthly settlement indicator. However other questions concerning financing and training remain open, though it is possible to allocate certain spheres where fast results can be received in case of small costs of temporary and money resources:
the accelerated processes of coordination and examinations;
the accelerated financing process;
further development of standard documentation;
consolidation and the analysis of projects of PPP by economic sectors;
development of measures of support for financing of small projects at the local level; etc.
It is obvious that the potential of implementation of small projects according to the scheme of PPP at the local level is big, therefore work in this direction is actively continued.

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