The Ukrainian Government Plans to Offer Simplified Public Private Partnership (PPP) Procedures and Attractive Incentives for PPP to Restore Ukraine
Maksym Sysoiev
Partner at Dentons | Specializing in Driving Energy and Infrastructure Projects Forward in Ukraine and Worldwide
On 6 May 2022 the National Investment Council of Ukraine, Ministry of Infrastructure of Ukraine, Ministry of Economy of Ukraine together with Spilno, advisory company to Ministry of Infrastructure, presented the suggestions of the Ukrainian government to the PPP legislation to simplify it for those projects which are necessary to restore Ukraine. Please find below my brief summary of the presentation and suggestions.
As of 18 April 2022, at least the following infrastructure objects need restoration:
·????????629 educational facilities,
·????????586 healthcare facilities,
·????????23 000 km of highways,
·????????116 factories,
·????????5 000 km of railways,
·????????7 thermal and hydro power plants,
·????????22 airports,
·????????277 bridges,
·????????5,3 mln sq. m of residential premises, in particular 35 000 unique addresses.??
However, the scope and exhaustive list of damages are still unclear and as well as unclear what objects to be rebuilt and how. Thus, the government considers it is necessary to take the following steps:
1.???carry out inspection and determine the list of infrastructure to be rebuild (if economically viable),
2.???determine the volume of financial resources necessary to rebuild,
3.???prioritize projects,
4.???determine the options for funding,
5.???use different mechanism, including PPP, for simultaneous restoration of huge number of objects.
If all objects are restored at the cost of the state budget, allocation of necessary funding based on direct expenses of the state budget and completion of the respective projects could take at least until the end of 2028 or even longer. At the same time in case of PPP, necessary funding and completion of the projects could be achieved until the end of 2024. In addition, the PPP will allow to reduce funds overspending and delays in completion of the projects because the private investor in PPP is motivated to optimize both factors compared to the contractors under public procurement.
What general amendments are expected in the Ukrainian PPP legislation?
1.???The Cabinet of Ministers of Ukraine upon submission of the Ministry of Economy determine the List of projects subject to the simplified PPP procedure.
2.???The term of projects will be limited to 15 years.
3.???Running all PPP tenders via the electronic system of procurement designed at the support of the EBRD.
4.???PPP Agency will provide technical support for competition commissions.
5.???The state authorities will submit to the Ministry of Economy questionnaires for adding to the list.
6.???Approximate budget estimate will be determined on the basis of the cost for analogous projects.
7.???Substantiation of the PPP will be determined on the basis of the market interest.
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8.???Preparation of state level projects will be made by the sector’s competition commissions and municipal projects by the centralized commissions of the city or region.
9.???There will be template (recommended) packages of competition documentation for all types of projects.
As a result of implementation of changes, it is expected that the duration of all PPP procedures will be reduced from 20 months to 7-11 months. Procedures for all following similar projects will last 5-7 months.
What simplifications for the PPP projects and additional guarantees are planned to be provided?
1.???simplified obtaining the decision of the Antimonopoly Committee of Ukraine as to the acceptability of the state aid;
2.???exemption of the private investor from the land tax for the entire period of the PPP,
3.???simplified procedure for allocation of the land plots for the implementation of the projects,
4.???exemption of the state/private partner from the need to run an environmental impact assessment,
5.???link of all payments to the foreign currencies,
6.???state guarantee for long term budget obligations of the state partner,
7.???possibility of the compensation payments to the private partner at the cost of the Restoration Fund in case of early termination of the PPP agreement,
8.???payments from the special Restoration Fund shall have a secured character,
9.???establishment of the fund for insuring risks against the war in a dangerous jurisdictions (similar to MIGA).
The respective draft law is planned to be elaborated and submitted soon.
The discussed amendments are considered because the following conditions are necessary for successful PPP under the current circumstances in Ukraine:
1.???payment guarantees,
2.???insurance against repeated military actions,
3.???clear and understandable list of the projects,
4.???optimized and standardized transparent procedures for investors selection,
5.???templates of tender documentation for groups of projects.
It is expected that a considerable amount of financing will come from the EU Funds, other countries during construction and the remaining funds will come from the state/local budgets in the form of the availability payments within 10-15 years. So, the private investor will have to cover the part of the project costs which will not be covered by financing and will receive the availability payments afterwards.
In case of early termination of the PPP agreement, the state guarantees returning of financing to the creditors. The return of funds to the investor shall take place only in case of the war which shall be covered by the efficient mechanisms to insure respective risks.??
This information does not constitute legal advice and is merely the opinion of the author.
Best regards,
Maksym
Principal/Chairman at C.Clement-Davies; Lawyer, investor, adviser and board member; Chairman at SkyLifter and Alexis Holdings Ltd. (Other portfolio directorships)
2 年Fascinating, Maxim. Thanks for sharing this. It sounds as if the government has really thought through some of the 'fast track' changes it needs to make. This is decisive and in many ways very convincing. (I wonder whether it will need international help with the revisions to the legislation?). Many of the most urgent projects will not be suitable for PPPs at all, especially where the assets being rebuilt are not revenue generating. But others may be (eg airports or railways). The Government must be right to line up PPPs as one possible route or option for reconstruction, as it will need every available tool at its command in the reconstruction process. Working out how exactly to modify the usual PPP structures, and the resulting changes to both the contracts and the procurement processes for them, is a huge challenge. But the Government is clearly well on the way. The EBRD and other IFIs should plug themselves into the middle of this discussion.
These general amendments expected in the Ukrainian PPP legislation, would be welcome in other countries too ! For sure !
Research Engineer at Stanford University | Senior Fellow at George Mason University
2 年As a researcher, I’m very inerested in these developments. PM Maksym if you want to discuss further
Sr. Economist / Innovation Advisor at Int'l Dev - on social media as a private citizen. 18k+
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Director - Opening to competition of the urban railway sector
2 年Thanks for bringing attention on this communication of the National Investment Council of Ukraine. Having read your summary, most of the proposed changes will facilitate the mobilisation of private funding and ressources and therefore are going in the right direction. However, I doubt of the timing outcome presented: PPP contracts are complex instruments and thinking that you can organise a tender up to the contract/financial close by 7-11 months is, to the least, too optimistic/ambitious. Anyway, the good éléments anounced well outweight this concern.