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Developing and Structuring PPP projects in Lithuania

2006/11/22

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TABLE OF CONTENTS

• Perception of PPP in Lithuania;

• Overview of PPP initiatives and “symptoms” in Lithuania;

• A brief overview of Vilnius schools PPP project;

• What have we learned so far?

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CURRENT INFRASTRUCTURE OF SCHOOLS IN VILNIUS

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PERCEPTION – public sector

Maybe PPP could become an additional source of funding and it would not take 200 years to satisfy urgent needs of

infrastructure improvements?

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PERCEPTION – private sector

Is public infrastructure (PPP project) a (new) business opportunity?

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PPP initiatives and “symptoms” in LithuaniaIn the form of:

• Standard public procurement (service contracts);

• Asset swap contracts;

• Joint ventures;

• Consortium agreements;

• Long term rent (operator) contracts;

• Privatization.

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A FEW RECENT PRESS RELEASES

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A FEW RECENT PRESS RELEASES

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A FEW RECENT PRESS RELEASES

Rugpjūčio 24 d.

MIESTAS IR SAVIVALDA Koncesija susidomėjo prokurorai („Laikinoji sostinė“, 2 psl., Arūnas Dambrauskas) Kauno apygardos prokuratūros vyriausiasis prokuroras K.Betingis vakar susitiko su Kauno meru A.Garbaravičiumi ir susitarė dėl bendradarbiavimo tiriant skandalą sukėlusią Aleksoto transporto mazgo statybos sutartį. „Su vyriausiuoju prokuroru norėjo pasikonsultuoti kaip turėtumėm bendradarbiauti, kad tyrimas būtų kuo efektyvesnis, kad būtų nustatyti asmenys, dėl kurių kaltės miestui primesta akivaizdžiai nuostolinga sutartis“, -sakė A.Garbaravičius.

Fokusas už 20 milijonų litų („Kauno diena“ 1 psl., Arūnas Andriuškevičius ) „DnB Nord“ banko atstovai paneigė, kad Kauno savivaldybė įsipareigojo jiems mokėti milžiniškas palūkanas Savivaldybės administracijos direktorius A. Keserauskas vakar patvirtini, kad bendrovė „ Kamesta“ sutinka nutraukti Aleksoto transporto mazgo koncesijos sutartį, tačiau greičiausiai tai bus padaryta jau pastačius objektą. „DnB Nord“ banko specialistai vakar paneigė įtarimus, kad už 15,5 mln. litų paskolą per 25 metus jiems būtų atseikėta net 26,6 mln. litų palūkanų.

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PPP initiatives and “symptoms” in Lithuania (cont’d)

• Technology and science cluster “Saulėtekis valley”, current, Vilnius – (legal obstacles);

• Construction of Siemens universal sports hall in Vilnius (sharing losses);

• Kaunas schools PPP, Kaunas (terminated at political level).

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PPP initiatives and “symptoms” in Lithuania (cont’d)

Success stories:

• Vilnius SPA, 2003, Druskininkai;

• Europa City hotel, 2006, Druskininkai;

• Long term rent of utility service providers in Vilnius, Druskininkai and several other cities across country;

• Other.

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PPP initiatives and “symptoms” in Lithuania (cont’d)

Current projects:

• Vilnius healthcare (clinics) PPP, Vilnius;

• Vilnius schools PPP, Vilnius;

• Vilnius Tram PPP, Vilnius.

Ideas and plans:

• Ignalina nuclear power plant;

• Santariškės medical valley;

• Universal sports halls in Kaunas;

• Universal sports halls in Panevėžys, etc.

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A LEARNING PROJECT - Vilnius schools PPP

At the beginning:

• A tender for advisors was announced 1.5 years ago (summer 2005);

• Expected timing and scope of the project – as fast as possible and as many EI as possible;

• Expected time of sample results - August 2006;• Expected investment per school ~ LTL 2 mill.;• Expected services – all (from reconstruction and

building maintenance to leisure and community hours);

• Expected framework – Concession Law.

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A LEARNING PROJECT - Vilnius schools PPP

Examination and selection of EI

Feasibility study Tendering and Contracting

I Stage II Stage III Stage IV Stage

• Selection criteria• Technical examination• Selection

• PSC • Shadow tariff analysis (PPC)•VfM analysis• Legal feasibility• Risk assessment & risk allocation• Soft marketing

• Invitation• Competitive dialogue• Binding proposals• Selection• Negotiations•Contracting and implementation

Ince

pti

on s

tage

(p

lan

nin

g)

PR and promotion

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A LEARNING PROJECT - Vilnius schools PPP

The result:

• The Pilot project – 2 lots of total 15 schools;• Expected start of Pilot project – summer 2007 (2

years after the selection of consultant);• Expected investment per school ~ LTL 4-8 mln.;• Services – just reconstruction, facility

management and financing (DBOF/PFI);• Expected framework – competitive dialogue

procedure under the Law on Public Procurement (DBOF/PFI).

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A LEARNING PROJECT - Vilnius schools PPP

What we have learned:

• PPP is a concept, a guideline for effective public sector planning and decision making process related to capital intensive, complex and long-term investment projects in public service and infrastructure area rather than a new financial instrument.

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A LEARNING PROJECT - Vilnius schools PPP

What we have learned (cont’d):

• We are starting from “the wrong foot”...

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A LEARNING PROJECT - Vilnius schools PPP

Source: EU Guidelines

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A LEARNING PROJECT - Vilnius schools PPP

What we have learned (cont’d):

• We do not need to re-invent a bicycle...

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A LEARNING PROJECT - Vilnius schools PPP

The options for choice

Source: EU Guidelines

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A LEARNING PROJECT - Vilnius schools PPP

Typical PPP Structure

Governing BodyProcuring Council

SPV/ContractorPPP Service Provider

Banks – debt finance

Facilities ManagementCompany

Sub-contractorse.g. cleaning and

maintenance

Construction Company

Sub-contractorsand Professional

Team

Governing Body Agreement

Lease / LicencePPP Agreement

Debt FundingArrangement

FM/Operating Contract

Construction Contract

Construction contract performance

guarantee

Operating/FM contract performance

guarantee

Sub-contracts Sub-contracts

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RECOMMENDATIONS

• Get Central Government involvement and commitment – establish an effective PPP knowledge and administration body;

• Identify resources (perform inventory of the State property), capital expenditure needs and set investment priorities;

• Coordinate/centralize State property management;

• Resolve purchase VAT issue for public institutions (contracting authorities). Is an exemption for PPP projects eligible/feasible?

Government level:

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RECOMMENDATIONS

Government level (cont’d):

• Elaborate on legal realization of PPP schemes. Particular attention to “step in” realization, which mitigates the risks of financing institution in case of vendor default;

• Elaborate on Government contribution to PPP projects mechanisms through co-financing and/or risk hedging (guarantees, etc.).

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RECOMMENDATIONS

Contracting Authority level:

• Do not try to re-invent a bicycle - learn from and adopt PPP practice and guidelines of other countries;

• Involve all stakeholders and pay special attention and use resources to ensure sufficient communication (publicity) and transparency;

• Position a PPP project in the market;

• Facilitate competition among potential vendors to get best value for money;

• Establish a win-win, not win-lose relationship with a private partner.

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THE END

The rest is a matter of education, choice and professional management.

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THE END

Thank you for Your attention.

Arvydas Saročka, Managing Partner

UAB “Verslo procesų valdymas”, Tel.: +370 5 239 41 41, Email: arvydas.s@vpv.lt

www.vpv.lt