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Evaluating the environment for public-private partnerships in Eastern Europe, Central Asia and the Southern and Eastern Mediterranean The 2017 Infrascope

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Evaluating the environment for public-private partnerships in Eastern Europe, Central Asia and the Southern and Eastern Mediterranean

The 2017 Infrascope

© The Economist Intelligence Unit Limited 2017 1

About this report

This document is the first edition of an informational tool and benchmarking index that assesses the capacity of countries in Eastern Europe, Central Asia and the Southern and Eastern Mediterranean to carry out sustainable public-private partnerships (PPPs) in infrastructure. The original methodology for the Infrascope was developed in 2009 and has been applied to assess multiple regions since. This edition features a new methodology developed in 2016. The analysis and content of this index covers the period between September 2016 and March 2017. The index was built by The Economist Intelligence Unit (EIU) and is supported financially by the European Bank for Reconstruction and Development (EBRD). The views and opinions expressed in this publication are those of The Economist Intelligence Unit and do not necessarily reflect the position of the EBRD.

The index results, as well as country summaries, can be viewed on this website:

Infrascope.eiu.com

Please use the following when citing this report:

The Economist Intelligence Unit. 2017. Evaluating the environment for public-private partnerships in Eastern Europe, Central Asia and the Southern and Eastern Mediterranean: The 2017 Infrascope. The EIU, London.

For further information, please contact:

Economist Intelligence Unit Leo Abruzzese, Project Director: [email protected] Camilo Guerrero, Project Manager: [email protected] Jennifer Wells, Marketing Executive: [email protected]

European Bank for Reconstruction and Development Matthew Jordan-Tank, Head of Infrastructure Policy and Project Preparation: [email protected] Marcos Martinez, Infrastructure Specialist: [email protected]

http://infrascope.eiu.com

Evaluating the environment for public-private partnerships in Eastern Europe, Central Asia and the Southern and Eastern MediterraneanThe 2017 Infrascope

© The Economist Intelligence Unit Limited 20172

About The Economist Intelligence UnitThe Economist Intelligence Unit is the research arm of The Economist Group, publisher of The Economist. As the world’s leading provider of country intelligence, we help governments, institutions and businesses by providing timely, reliable and impartial analysis of economic and development strategies. Through our public policy practice, The Economist Intelligence Unit provides evidence-based research for policymakers and stakeholders seeking measureable outcomes in fields ranging from gender and finance to energy and technology. We conduct research through interviews, regulatory analysis, quantitative modelling and forecasting, and display the results via interactive data visualisation tools. Through a global network of more than 350 analysts and contributors, The Economist Intelligence Unit continuously assesses and forecasts political, economic and business conditions in over 200 countries. For more information, visit www.eiu.com.

About the European Bank for Reconstruction and DevelopmentThe EBRD is investing in changing people’s lives from central Europe to Central Asia, the Western Balkans and the southern and eastern Mediterranean region. With an emphasis on working with the private sector, we invest in projects, engage in policy dialogue and provide technical advice which fosters innovation and builds modern economies that are competitive, well governed, green, inclusive, resilient and integrated.

We provide financing for well-structured, financially robust projects of all sizes (including many small businesses), both directly and through financial intermediaries such as local banks and investment funds. The Bank works mainly with private-sector clients but also finances municipal entities and publicly owned companies. Our principal financing instruments are loans, equity investments and guarantees. We maintain close policy dialogue with governments, authorities, international financial institutions and representatives of civil society, and provide targeted technical assistance using funds donated by member governments and institutions.


The 2017 Infrascope


Acknowledgments

As part of the research process for this project, 62 in-depth telephone interviews were conducted with policymakers and country infrastructure experts from multilateral and consulting institutions and from the private sector. We would like to express our thanks to all the interviewees for their advice and inputs.

The following researchers, country analysts and specialists also contributed to this report. We thank them for their participation.

Country analysis:Justin Alexander, David O’Byrne, Benjamin Godwin, Filip Drapak, Nino Evgenidze, Dmitry Kirilenko, Sladjana Sredojevic, Marina Maluk, Juna Miluka, Razvan Orasanu, Nikola Rogatchev and Matus Samel

Report development:Adam Green

Model development: Will Shallcross



Contents

Introduction 5

Infrascope categories and indicators 7

Key findings 8

Category scores 11

Special: “Facilities management” PPPs in health and education 18

Infrascope country summaries 21

Albania 21

Belarus 23

Bulgaria 25

Egypt 27

Georgia 29

Jordan 31

Kazakhstan 33

Morocco 35

Romania 37

Serbia 39

Slovakia 41

Turkey 43

Ukraine 45

Appendix I: Project background 53

Appendix II: Methodology, sources and detailed indicator definitions 57

Glossary 77

Bibliography 80


The 2017 Infrascope


Introduction

This report is the latest regional edition of the Infrascope, a research programme begun in 2009 by The Economist Intelligence Unit to benchmark the capacity of countries around the world to deliver public-private partnerships (PPPs) in infrastructure sectors. Stretching from Morocco to Kazakhstan, the regions in Eastern Europe, Central Asia and the Southern and Eastern Mediterranean (EECA-SEMED) covered in this report comprise a culturally diverse and economically varied group of countries. They range from Bulgaria and Albania, which are aligning their political and market systems with the legislation of the European Union, to economies such as Kazakhstan, which are primarily oriented towards Russia and China. This vast area also includes countries undergoing profound domestic changes, notably Turkey.

The economic landscape across these regions varies considerably. In Albania, Bulgaria, Romania and Slovakia real GDP grew by more than 3% in 2016, a respectable rate. But political and economic shocks have weighed on the economic performance of Ukraine and Turkey, placing their currencies under pressure. Political and security risk has also weakened investor sentiment in Egypt. Throughout the broader Eurasian region, growth has been held back by the recession in Russia.

Across most of these countries, infrastructure needs significant improvement, as does the ability to finance it. The World Economic Forum estimates a worldwide infrastructure financing gap of around US$1trn per year, representing 1.4% of GDP.1 The challenge is especially acute in emerging markets and in the newer members of the EU. The European Commission estimates that up to US$220bn in annual infrastructure investment will be needed in the EU through to 2020, building on the investment in transport and energy infrastructure that has been channelled in recent years into new EU member states.2 The Asian Development Bank (ADB) forecasts that countries in Central Asia will require US$492bn in infrastructure investment between 2016 and 2030, representing almost 7% of GDP.3 The Middle East and North Africa (MENA) region will need more than US$100bn per year in investment to close its own infrastructure building and maintenance deficit, according to the World Bank.4

Productive and effective infrastructure programmes can make a powerful contribution to long-term development, reducing unemployment and inequality and fostering sustainable growth. Transport assets can spread economic activity to lagging regions, while safe, efficient and affordable energy and water infrastructure can benefit consumers and businesses alike. Indeed, in recognition of infrastructure’s beneficial impact on social and economic progress, the UN’s Sustainable Development Goals (SDGs) include a pledge, in Goal 9.1, for member states to develop “quality, reliable, sustainable and resilient infrastructure, including regional and trans-border infrastructure, to support economic development and human well-being, with a focus on affordable and equitable access for all.”

A large body of international evidence demonstrates that PPPs can be an effective way of bridging the infrastructure gap in both emerging and developed economies. PPPs combine the government’s regulatory oversight and long-term perspective with the capital and expertise of the private sector. PPPs are also potential instruments in the delivery of public services, such as health and education.

This latest edition of the Infrascope is the first to cover the Eastern European, Central Asia and



Southern and Eastern Mediterranean regions in this combination. It examines 13 countries: Albania, Belarus, Bulgaria, Egypt, Georgia, Jordan, Kazakhstan, Morocco, Romania, Serbia, Slovakia, Turkey and Ukraine. This group includes countries that have considerable experience with PPPs, such as Turkey and Jordan, and those that are just beginning to build up their PPP-related institution and regulations.

This is also the first Infrascope to employ a refreshed and expanded methodology. The new indicator framework was commissioned and financed by the World Bank and developed through a joint process that included The Economist Intelligence Unit, the ADB, the Inter-American Development Bank (IDB), the European Bank for Reconstruction and Development (EBRD) and the World Bank.

Using a combination of 66 qualitative and 12 quantitative sub-indicators and based on research across legal and policy documents and in-depth interviews with country experts, this report analyses country performance across the PPP life cycle, including:

l a country’s legal and regulatory framework for private participation in infrastructure;

l the design and responsibilities of institutions that prepare, award and oversee projects;

l experience in implementing PPP projects and the government’s ability to uphold laws and regulations;

l the business, political and social environment for investment; and

l the financial facilities for funding infrastructure.

The new methodology captures current themes and requirements for efficient and sustainable PPPs, such as sustainability (in alignment with the SDGs), fiscal control/budgeting, transparency and accountability, and new financing instruments.

This report shows that the majority of the countries in the study are utilising PPPs to deliver investments in transport, water and energy, and solid waste management, and that there is some appetite to explore PPP models in health and education facilities management. There is strong political support across most nations for the PPP model in principle, and there has been significant recent PPP legislation in several countries, including Belarus, Jordan, Kazakhstan, Morocco and Romania.

Strong performers in this latest Infrascope include Slovakia, which tops the index overall, supported by a notable lead for its regulatory climate; Kazakhstan, which has constructed a strong institutional framework; Turkey, which has the highest maturity and financing scores thanks to its active PPP programme; and Serbia, which has the strongest investment and business climate ranking.

The Infrascope also identifies areas that require attention within specific countries and across the group. Although all countries in the study have developed enabling regulatory frameworks, overall PPP co-ordination is lagging in many of them. Moreover, some countries have yet to test their frameworks through an entire project life cycle. Transparency is also an issue: the majority of countries reviewed here do not yet require the publication of contracts, for example, and governments do not generally have publicly accessible PPP registries. Other issues include the limited utilisation of capital markets for PPPs in most countries. Sustainability factors, including climate change and disaster risk, are not yet fully integrated into PPP frameworks in any of the countries in this study.

This benchmarking index is intended as a learning and diagnostic tool to help policymakers identify the challenges that, if overcome, could unlock the power of PPPs and support the broader development agenda.


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Infrascope categories and indicators

The Infrascope index comprises 23 indicators and 78 sub-indicators, both qualitative and quantitative in nature. Data for the quantitative indicators are drawn from The Economist Intelligence Unit and from the World Bank Public Participation in Infrastructure (PPI) Database. Some gaps in the quantitative data have been filled by estimates produced by The Economist Intelligence Unit.

The qualitative data come from a range of primary sources (legal texts, government websites, press reports and interviews) and industry reports.

The 5 categories and 23 indicators of the index are as follows (Appendix II provides detailed definitions and the full list of sub-indicators):

1) Regulations

1.1.) Conducive regulatory environment

1.2.) PPP selection criteria

1.3.) Fairness/openness of bids and contract changes

1.4.) Conciliation schemes

1.5.) Regulators’ risk-allocation record

1.6.) Co-ordination among government entities

1.7.) Renegotiations

1.8.) Sustainability

2) Institutions

2.1.) PPP institutional framework

2.2.) Stability of PPP dedicated agency

2.3.) Project preparation facilities

2.4.) Transparency and accountability

3) Maturity

3.1.) Experience with infrastructure PPP contracts

3.2.) Expropriation risk

3.3.) Contract termination

4) Investment and business climate

4.1.) Political effectiveness

4.2.) Business environment

4.3.) Political will

4.4.) Competition environment in the local industry

5) Financing

5.1.) Government payment risk

5.2.) Capital market for private infrastructure finance

5.3.) Institutional investors and insurance market

5.4.) Currency risk



Key findings

l Public-private partnerships (PPPs) are playing an important role in driving infrastructure development across Eastern Europe, Central Asia and the Southern and Eastern Mediterranean region. The majority of the 13 countries in this study are utilising PPPs to deliver on sizeable investments in transport, water and energy and solid waste management, although there is a significant gap in experience between more advanced countries, such as Turkey, and the rest. There is strong political support for PPPs across the majority of countries, with senior officials, including prime ministers, presidents or ministers, expressing support for PPPs in the media or through policy actions. There is also strong bipartisan or multi-party backing for PPPs across most countries. Support for PPP programmes is further evidenced by the passage of new PPP-specific legislation in a number of countries, including Belarus (2016), Jordan (2014), Kazakhstan (2015), Morocco (2014) and Romania (2016).

l Governmental co-ordination is strongly correlated with the overall PPP environment. PPPs are complex, inter-agency endeavours that require significant collaboration across different government entities, including ministries of finance, sector ministries and PPP units. Roles and responsibilities should be clearly defined in the country’s legal framework, and manuals to guide implementation are a useful resource. Furthermore, a country’s PPP programme should ideally be aligned with a national infrastructure plan. The Infrascope index finds that such co-ordination is one of the most important determinants of overall country performance: most of the countries with the highest scores for co-ordination among their government entities also score in the top five for the index as a whole

Table 1: Overall scores

Infrascope index overall score / 100

Albania 48

Belarus 46

Bulgaria 45

Egypt 55

Georgia 41

Jordan 63

Kazakhstan 58

Morocco 58

Romania 49

Serbia 60

Slovakia 64

Turkey 61

Ukraine 50

EECA-SEMED average 54


The 2017 Infrascope


(Kazakhstan, Slovakia and Jordan). Ten countries have developed national infrastructure plans, but only four use these to prioritise PPP projects. Seven countries have co-ordination mechanisms or guidelines to address overlapping jurisdictions, but only three (Egypt, Jordan and Slovakia) have a regulatory framework providing clear guidance on the interaction between bodies that award PPPs and those that regulate tariffs and service standards.

l Greater transparency is needed across the PPP cycle. One cross-cutting theme which emerges from the Infrascope is the need for increased transparency as countries accelerate their PPP activities. Transparency spans the full gamut, from open bidding to the publication of contracts and project evaluations, as well as the creation of accessible public registries. Encouragingly, all countries require the publication of bidding documents, and eight have procedures for dealing with unsolicited proposals; all but two countries have had a relatively low ratio of unsolicited bids in the past five years. However, only two countries (Albania and Slovakia) have a regulatory framework that requires the publication of full contracts. Only three countries (Bulgaria, Egypt and Serbia) have a publicly accessible online PPP registry; the absence of a registry greatly limits available knowledge about the scale and scope of PPPs. Only two countries publish the findings of their public consultations on PPPs (Georgia and Morocco). No country in the index publishes the results of PPP project evaluations, a serious omission as a matter of accountability.

l Sustainability criteria are not sufficiently embedded in PPP frameworks. While most countries require environmental impact assessments as part of the feasibility study, very few include disaster- and climate-risk considerations in their laws and protocols. Indeed, no country accounts for disaster risk management or adaptation in PPP regulations, and none incorporates climate-change commitments in its criteria for project identification, selection or implementation. Disaster risk is accounted for partially, through a requirement of project insurance, in only three countries (Bulgaria, Turkey and Kazakhstan). Gender and social inclusion criteria in project implementation are absent in all countries.

l Utilisation of capital markets for PPPs is limited. Financing, the fifth pillar of the index, has the lowest overall performance, with no country scoring higher than 56 out of 100 (where 100 equals the best possible environment for PPPs). This suggests a somewhat limited development of local capital markets for infrastructure and a reliance on multilateral financing. Institutional investors, a major source of funds for infrastructure in some parts of the world, have been active only in Jordan and Turkey among the countries in this study. Seven countries score in the “Nascent” or “Emerging” category for government payment risk overall, and eight countries score in the same low categories for currency risk. Taken together, these risks deter private participation in infrastructure projects because of the long timelines and large outlays such projects entail. Beneath the sobering overall scores, though, are bright spots. Two countries, Morocco and Turkey, have utilised “green bonds”, an innovative financing instrument that is underutilised in emerging markets globally.5 Government payment risk is very low in Morocco and Serbia, and only minor risks are assessed in a further four nations (Jordan, Bulgaria, Ukraine, Georgia). Eleven of the 13 countries have had no government



defaults on PPP contracts during the last decade, and eight countries have used government payment guarantees in PPP projects in the last five years.

l Slovakia and Jordan lead the index. Slovakia tops the overall Infrascope, scoring 64 out of 100. Its Regulatory framework is ranked first, its Investment and business climate third and it comes fourth in Institutions. Although it lacks a unified PPP law, Slovakia offers comprehensive public procurement guidelines that address most steps of the project life cycle, and it has mechanisms in place for strong co-ordination among government entities. Slovakia has implemented a number of large transport projects, so its institutional capacity was largely evaluated for this sector.* Two large-scale highway projects have reached financial closure—one highway was built and is operational, another closed financially and is under construction. Projects currently under way have followed competitive procurement and reporting practices. Jordan’s strongest performance in Institutions and Financing, for which it is ranked second in the index. Jordan has developed a stable PPP unit in the Ministry of Finance with a clear remit on project preparation, and it is one of only two countries in the index to have established a project development fund to finance feasibility studies. It is also one of two countries in the Infrascope regions to have institutional investor engagement with PPPs. However, at the regulatory level, Jordan’s relatively new PPP-specific legal framework (adopted in 2014) is still somewhat untested.

l PPP maturity depends not merely on having the right regulations and institutions in place. The index reveals that countries such as Turkey and Morocco, with a strong record of project implementation, have not yet fully adopted best practices in terms of regulations and institutions governing PPPs. At the same time, countries such as Belarus and Kazakhstan, with adequate regulatory frameworks, have still not implemented full projects. This shows that initiating a successful PPP programme requires more than adequate regulations, and important factors include strong political will, long-standing technical experience and capacity, and a favourable market in terms of size, investments and financing conditions. However, refining and standardising the rules for PPP preparation and implementation is recognised as essential to improve the efficiency of PPP transactions across both emerging and mature PPP environments.

* The new Infrascope methodology evaluates countries based on their most developed PPP sectors in cases where public-sector capacity differs across sectors. This is to acknowledge different development trajectories and to score countries consistently based on their most developed areas.


The 2017 Infrascope


Table 2: Regulations

Rank Score / 100

1 Slovakia 85

2 Serbia 67

=3 Albania 55

=3 Belarus 55

=3 Egypt 55

6 Kazakhstan 54

=7 Bulgaria 51

=7 Morocco 51

9 Turkey 50

10 Jordan 49

11 Ukraine 47

12 Georgia 36

13 Romania 29

Mature (80-100) Developed (60-79) Emerging (30-59) Nascent (0-29)

Category scores

1. Regulations

Countries’ regulatory frameworks are converging with international best practice. All countries in the Infrascope have developed conducive regulatory frameworks for PPPs, either through encompassing legislation or through broader public procurement regulations. The diversity of legal mechanisms used to support PPPs shows that different arrangements can contribute towards a conducive environment as long as some key principles are present, such as transparency, competition and appropriate oversight and control. However, in some countries (Georgia, Romania and Turkey) the rules on PPPs have not been codified in clear manuals for easy interpretation by stakeholders, which may create inefficiencies and confusion.Best practices for project selection and procurement are found across countries, but full transparency is not yet the norm. With regard to project selection, all countries have regulations requiring competitive bidding, all require cost-benefit analysis by regulatory agencies, and all but two have a “value for money” requirement in selecting PPPs. Openness, however, does not exist across the project life cycle. While all countries require the publication of bidding documents, only two mandate the publication of full contracts, and only three require disclosure of contract changes. Alignment of the PPP programme with national infrastructure plans is another important best practice that



allows PPPs to be organised in concert with the country’s development needs, but only four countries (Georgia, Kazakhstan, Slovakia and Turkey) link project identification and selection to these national plans. Regulatory gaps remain in risk allocation and renegotiation procedures. On average, the lowest performance in the Regulations category concerns risk allocation criteria and renegotiations. Only three countries (Kazakhstan, Serbia and Slovakia) provide clear frameworks to account for contingent liabilities, and only in Slovakia is there evidence that this is applied in practice. Rules on renegotiations are becoming increasingly important around the world to prevent opportunistic practices by private partners in the bidding processes, which may lead to cost overruns. In only seven countries have transparent systems been established to manage renegotiations, and only four have specific mechanisms to deter or improve transparency around renegotiations (Georgia, Morocco, Romania and Turkey). While all countries allow for international arbitration, only seven define technically adequate conciliation schemes that can lessen the potential for costly and lengthy litigation by the courts. All countries conduct environmental impact assessments, and half have regulations requiring public consultations on PPPs. All countries make environmental impact assessments (EIAs) a required part of PPPs, and seven have legal requirements for consultations with communities affected by projects. However, only Georgia and Morocco require the publication of consultation findings. In Morocco, Albania, Georgia, Slovakia and Turkey consultations are conducted as part of the EIA. Public consultations are vital to ensure the overall public support and sustainability of projects, especially in countries where there is widespread scepticism about private involvement in infrastructure. Gender and social inclusion criteria are absent in regulatory frameworks in all countries, which shows that sustainability has been addressed only from an environmental perspective. Climate-change and disaster-risk considerations are not yet part of the PPP process. As the world faces increased frequency of extreme weather events, disaster risk management and climate-change adaptation should become a more common practice. Climate and disaster risks should be understood properly to identify and allocate risk between the public and the private parties involved in PPPs, and infrastructure should be developed in ways that increase resilience and reduce environmental impact. No country accounts for disaster risk management or adaptation in its PPP regulations, and no country incorporates climate-change commitments in its criteria for PPP selection or procurement; only three countries (Bulgaria, Kazakhstan and Turkey) account for disaster risk through insurance requirements. Incentives may be inadequate for private partners to agree to such provisions, which could impact project costs, so countries should consider standardising these requirements in the selection and procurement processes.


The 2017 Infrascope


Table 3: Institutions

Rank Score / 100

1 Kazakhstan 88

2 Jordan 78

3 Egypt 68

4 Slovakia 56

=5 Albania 53

=5 Belarus 53

=5 Turkey 53

8 Ukraine 43

9 Morocco 40

10 Serbia 38

11 Romania 33

12 Bulgaria 8

13 Georgia 1


PPP agencies exist in most countries, providing technical support and co-ordination, and are associated with the overall quality of the enabling environment for PPPs. PPP units vary across countries in terms of their structure and roles, but in general their contribution involves supporting contracting agencies through knowledge dissemination, policy development, capacity building, co-ordination and oversight. Encouragingly, all but two countries have a PPP-dedicated agency or sector-specific PPP agency that reports directly to a line ministry. While some countries have developed central units located in ministries of finance (for example, Egypt and Jordan), others have created sector-specific entities based on their needs, such as Slovakia in transport. Indeed, the presence of a PPP unit plays a significant role in the overall performance of the PPP environment: Bulgaria and Georgia are the only countries without a PPP unit and are in the bottom three countries in the overall index.PPP agencies face a variety of challenges, including a lack of independence, skills and clear guidelines regulating agency interactions. While PPP agencies exist in most countries, they have weaknesses. Expanding technical and practical skills is needed in Egypt, Serbia and Romania. Other challenges include high staff turnover (Slovakia) and too many staff vacancies (Jordan). Morocco, Romania, Serbia and Ukraine score in the “Emerging” category for the stability of their PPP agencies; challenges include too few checks and balances to ensure the independence of PPP agencies and a lack of guidelines outlining interactions between different agencies. Empowering PPP units with the right technical and human resources, with a clear remit and the independence to fulfil their role, can be instrumental in improving the quality of the overall PPP process.Countries lack project preparation facilities and project development funds. Project preparation facilities typically involve technical assistance, capacity-building and the financing resources to

2. Institutions



Table 4: Maturity

Rank Score / 100

1 Turkey 83

2 Morocco 78

3 Jordan 72

4 Romania 68

5 Serbia 66

=6 Slovakia 63

=6 Ukraine 63

8 Georgia 62

9 Egypt 61

10 Kazakhstan 60

11 Belarus 56

12 Bulgaria 51

13 Albania 33


support the early stages of PPP projects; these are indicative of a sophisticated and standardised PPP delivery environment. All but four countries (Jordan, Kazakhstan, Egypt and Morocco) lack such project preparation facilities, and only two countries (Jordan and Kazakhstan) have project development funds. Jordan, Egypt and Kazakhstan have budgets for project preparation facilities, administered through their PPP units, which finance feasibility studies and provide project documentation. In the absence of such institutions, these processes are undertaken and costs are borne by the contracting agencies, sometimes with assistance from international financial institutions or regional bodies (such as the EU). Most countries need to improve institutional transparency. Only Bulgaria, Egypt and Serbia have publicly available, online PPP registries. This lack of easily accessible information makes it difficult for potential investors to assess the true level of project experience in the majority of countries in the Infrascope. Publication of reports on upcoming and ongoing projects is limited, with only Bulgaria making these accessible online. While there is reporting on project performance by contracting agencies in some countries, only in three (Kazakhstan, Serbia, Ukraine) is this process managed in a systematic way by a national, dedicated agency. Meanwhile, only Kazakhstan, Slovakia and Ukraine have auditing or evaluation processes in place for PPP projects, and no country publishes the results of PPP evaluations. Needs assessments, which should be the basis for justifying PPP projects, are only published in Slovakia as part of feasibility studies. Mechanisms for dissemination and transparency, which are lacking across most countries, are not only important for overall good governance of these processes, but also to foster knowledge-sharing and achieve continuous improvement in public-sector practices.

3. Maturity


The 2017 Infrascope


Countries differ markedly in terms of PPP maturity. Turkey, Morocco and Jordan are the most mature PPP countries, and Turkey and Jordan have the highest PPP “maturity” when combining the number of projects in the past five years with the size of projects relative to GDP. Based on World Bank data, Turkey is the most experienced country in terms of national PPP projects reaching financial closure in 2012-2016,* at 60, followed by Jordan and Romania at 17 each, revealing a marked gap between the leader and the rest. However, Morocco, which has delivered only seven PPPs projects in the past five years, has decades of experience. Four countries have delivered between one and four PPP projects in the past five years. Belarus and Kazakhstan, with no projects in this period, have ambitions to increase their infrastructure development in the future, based on their national infrastructure plans and projects in the pipeline. It is worth noting that the general absence of public PPP registries and limited transparency may mean that in some cases project experience is underreported. The rule of law in infrastructure has had a strong track record over the past five years, with low rates of expropriation or unilaterally enforced price revisions. All countries perform well for their overall protection of private property in infrastructure. Only one of the 13 countries studied has had a PPP project expropriation over the past decade, and even that exceptional case was eventually settled. Similarly, only two countries show evidence of unilaterally enforced price revisions. In the vast majority of cases, pricing issues are resolved through mechanisms stipulated in contracts and regulations. Also, most countries have clarified rules on contract termination and allow flexibility to negotiate possible grounds of termination in the project agreement, and all countries provide for fair compensation in the event of early termination by the government.A successful record of project delivery is not synonymous with a strong regulatory framework. Some countries have developed considerable experience in PPPs in spite of regulatory limitations, while others that have strong and unified regulatory and institutional frameworks are still waiting to test them in the real world. Turkey, for instance, has the highest Maturity ranking in terms of PPP projects and PPP investment as a share of GDP, yet is middle-ranking for its regulations and institutions. Kazakhstan, which has an adequate legal framework and tops the index for its PPP Institutions, is among the least experienced countries in terms of project delivery, albeit with projects in the pipeline. In Turkey’s case, a large number of active projects has made it difficult to harmonise the legal framework, so laws have developed based on specific sectoral needs at different times, although a PPP law has been discussed. These trends show that regulations are only one element in developing a successful PPP programme. Other drivers include strong political will, long-standing technical experience and capacity, and a favourable market in terms of size, investments and financing conditions.

* The World Bank Private Participation in Infrastructure (PPI) Database features project experience data for the energy, transport and water sectors only.



Table 5: Investment and business climate

Rank Score / 100

1 Serbia 76

2 Albania 74

=3 Romania 71

=3 Slovakia 71

5 Bulgaria 64

=6 Georgia 62

=6 Kazakhstan 62

8 Morocco 61

9 Jordan 58

=10 Turkey 52

=10 Ukraine 52

12 Egypt 51

13 Belarus 38


Political support for PPPs is strong in most countries. In nine countries, PPPs generally receive high-level, bipartisan/multi-party political support, often from prime ministers, presidents or ministers, in the media or through policy actions. Although PPPs have engendered opposition in some parts of the world, the analysis for this report shows that most governments and opposition parties are not fundamentally opposed to PPPs in principle. Indeed, in Albania the current government is carrying out projects initiated by the former government, and in Turkey the primary opposition party utilises PPPs in the municipalities it governs. Morocco, thanks to a long history of PPPs, also has strong support for the PPP model across the political spectrum. Leaders who have spoken publicly in support of PPPs include Albania’s prime minister, Kazakhstan’s president and Jordan’s King Abdullah, and in some countries, such as Belarus, initial scepticism has given way to more support. Where differences of opinion exist, they often relate to views among some stakeholders that some projects have an undue cost burden (as has been claimed in Slovakia), rather than underlying objections to PPPs as a model. High levels of political will, however, contrast with somewhat low levels of political effectiveness—a combined measure of political stability and government effectiveness—which is ranked as “Emerging” or “Nascent” in ten out of 13 countries. The business environment rating is highest in Slovakia, Bulgaria, Jordan and Turkey, which also have substantial project experience.Opinions on PPPs are not as uniformly favourable in the broader stakeholder community. There are more differences of opinion about PPPs outside the executive government, such as among advocacy organisations and political commentators. This is because PPPs are often associated with privatisation,

4. Investment and business climate


The 2017 Infrascope


Table 6: Financing

Rank Score / 100

1 Turkey 56

=2 Jordan 52

=2 Morocco 52

=2 Serbia 52

=5 Bulgaria 47

=5 Slovakia 47

=7 Egypt 36

=7 Ukraine 36

=9 Georgia 34

=9 Romania 34

11 Albania 33

12 Kazakhstan 28

13 Belarus 21


or because of troubled past projects involving private participation that may have led to negative perceptions of the PPP model. There are also ideological differences shaping what kinds of investments are considered appropriate for private participation. In Bulgaria, activist groups oppose “concessions” in the water sector. In Egypt, a long history of controversy surrounding privatisations, notably during the Hosni Mubarak era, has led to more widespread opposition to PPPs from opposition parties and civil society. In Jordan and Georgia, by contrast, public opposition relates more to the manner (such as cost or efficiency) in which PPPs are executed, rather than any fundamental scepticism over private participation in infrastructure. Indeed, Jordan’s PPP unit is planning a communications campaign to ensure proper understanding of the difference between PPPs and privatisation. This may help to ensure that the attributes of PPPs are well understood, especially in countries with historical political and social tensions.

5. Financing

The PPP financing category shows the lowest overall performance in the Infrascope. All countries earn sub-par scores in this category (Emerging or Nascent), and no country scores higher than 56, making this the weakest area of the Infrascope. In terms of government payment risk, six countries (Morocco, Serbia, Jordan, Bulgaria, Ukraine and Georgia) are scored as “Developed” or “Mature”—this indicator combines sovereign risk, experience of past defaults, presence of government guarantees and available support for low-income users. There are only two examples of government default on PPP contracts over the last decade. Government payment guarantees, which provide protection to investors, are present in eight countries, and in three countries (Morocco, Serbia and Albania) over 70% of PPP projects used these mechanisms in the past five years. However, sovereign risk may still



present a challenge in most countries, with ten of them in the Nascent or Emerging category. Currency risk is also below the Emerging category in eight countries.Local capital markets have yet to play a catalysing role in PPPs. Capital markets can make a major contribution to the financing of PPPs, but all countries are either Emerging or Nascent when measured by actual capital markets development. An indicator on the development of marketable debt, or debt that is traded freely, shows a somewhat developed market for long-term government bonds in nine countries, although there is limited activity for private bonds across all countries, with limited depth and liquidity overall. Also, there is a high reliance on international institutions for the financing of PPP projects. The share of PPP projects with financing and loans from international financial institutions is above 50% in around half of the countries that have implemented a PPP project. Innovative financing is limited, as is the involvement of institutional investors. Institutional investors, such as pension funds or insurance companies, are suitable funders of infrastructure in other global regions, but in this study only Jordan and Turkey have attracted such investments. These include financing by a pension fund of the As-Samra Wastewater Treatment Plant in Jordan and the presence of Korean and Turkish investors in a health-sector project in Turkey. Other countries have yet to leverage institutional investment, owing partly to regulatory restrictions on institutional investor activity and the limited number of projects. Other sources of investment include regional infrastructure funds such as InfraMed, which has been active in Egypt. Guarantees from international institutions protecting against political risk, such as those offered by the Multilateral Investment Guarantee Agency (MIGA, part of the World Bank Group), are only available in Jordan in the sectors studied. There is limited use of more innovative financing instruments as well. Green bonds, used to finance environmental projects or those that are environmentally sensitive, have only been issued in Turkey and Morocco. Turkey is also the only country that has used development impact bonds, with a focus on development targets in the healthcare sector.

Special: “Facilities management” PPPs in health and education

Facilities management PPPs refer to arrangements under which the private sector manages a public facility under a contract with the government (specifically, in this report, education and health facilities), for a medium- to long-term period. This provides a way of increasing private participation in social sectors and has been adopted by both high-income and emerging economies. Prominent adopters of such models include the UK6 and Australia. India has also been active in the use of such PPPs for a

range of healthcare facilities under a variety of approaches, some of which include primary-care facilities and involve infrastructure design and development as well.7 With ageing populations in many countries and millions still lacking access to services in low-income countries, healthcare in particular is in need of continued heavy investment that strains public budgets, which may lead countries to explore such PPP modalities.

However, while such PPPs can bring much-needed private investment and know-how to social services, they are not without challenges. Governments must balance the need of


The 2017 Infrascope


investors to obtain viable revenue streams while preserving affordable access for the poor. This is especially difficult in healthcare, where salaries and advanced equipment can push up operating costs.8 Facilities PPPs in social services are thus sensitive and complex, and countries need to conduct careful assessments of factors such as tariffs, expected demand volume and revenue projections. Restrictions on government subsidies and regulatory hurdles may also complicate delivery of these services, and there is generally more public opposition to private involvement in health and education than in economic sectors such as transport or power.

Given that the Infrascope methodology has a focus on economic infrastructure (such as transport, power and environment), rather than social infrastructure, facilities management transactions in education and healthcare are not assessed formally as part of the index. However, recognising the growing importance of this modality of PPPs, regulations and experiences were analysed across the index group for health and education as part of the research process.

Key findings

l Facilities management is only included under general PPP provisions in some countries. In Egypt, Morocco, Serbia and Jordan, facilities management PPPs in health and education are possible under existing PPP laws; in Slovakia, they are regulated by public procurement laws. In other countries, PPP legislation is geared towards physical infrastructure construction rather than facilities management, with a frequent lack of legislative clarity. This is a challenge in Morocco, for example, where it is unclear which

of many pieces of legislation apply to facilities management. Similar problems exist in Ukraine, where the PPP legal environment is complex, with a range of laws and regulations that could be applied. In some countries, regulations are unclear because this type of contract has not been a focus of PPPs.

l Turkey and Egypt are most active in health and education facilities PPPs. Turkey is by far the most active implementer of facilities PPPs, followed by Albania, Egypt, Georgia and Kazakhstan, which have each delivered, or are at the pre-tendering stage of, single projects. In Turkey, 34 healthcare projects have been developed, with a typical project term of around 30 years.9 Around ten healthcare projects are reported to have been approved recently in Turkey, with tenders anticipated in 2017, while the Ministry of Youth and Sport has indicated interest in launching Build-Lease-Transfer (BLT) tenders for 56 student dormitories. In Egypt, the first facilities PPPs under the 2010 PPP law involved the construction and management of two hospitals at Alexandria University. In education, Egypt’s first PPP tender—currently under way—involves the building of 200 schools and operating them for 40 years before transferring them to the government.

l Other countries, while lacking experience, have expressed interest in health and education facilities PPPs. Kazakhstan’s government is prioritising health and education, and its 2016-18 plan to develop PPPs includes adopting standardised documents for tenders in health and education, including kindergartens, schools, dormitories, clinics and hospitals. A tender is being prepared for



a school in Kyzylorda, and the national PPP website suggests that hospital construction projects in Aktau, Ust-Kamenogorsk and Semey are likely to reach tender stage in 2017. Georgia is currently selecting private partners for the redevelopment of three hospitals in the capital, Tbilisi, and is discussing PPPs in vocational education. Jordan is exploring healthcare infrastructure facilities management related to hospitals in Tafila and Aqaba.

l Challenges affecting facilities PPPs include lack of experience, lack of guarantees and regulatory uncertainty. There are several constraints on facilities PPPs in the Infrascope countries. The first is a lack of experience, which is especially challenging given the technical complexities involved in hospital construction, for example. In Slovakia there are strong lines of communication between the transport ministry and the ministry of finance, as this has been the country’s main area of PPP activity, but such linkages (and trained personnel) may not be present in other government agencies. Similarly, in Ukraine, local authorities in education and healthcare are not familiar with investment finance and remain dependent on state budgets for investment.

l Health and education are sensitive sectors for private involvement across the regions.

The health and education sectors are sometimes excluded from PPP or private participation, especially where there is a past history of problematic or derailed privatisations, or of industrial action and strikes related to the privatisation or commercialisation of public services more broadly (as has occurred in the health sector in Romania and Slovakia).10 In some countries, healthcare and education are considered fundamentally public-sector activities. A related challenge, identified in Serbia for instance, is that the prices of education and healthcare services might be too low to generate sufficient profits to entice the private sector. Regulations are also tighter in social sectors, which can limit profitability. In Ukraine, budget legislation restricts the length of long-term contracts with private providers, which means support for a project could be discontinued in future budgetary cycles. Moreover, state support for projects in Ukraine can only be approved by the cabinet of ministers, a further hurdle to advancing projects that require subsidies or state guarantees. Bureaucratic challenges, such as onerous regulations and lack of established processes, are especially prohibitive to facilities management projects because of their relatively small budgets compared with major infrastructure projects.


The 2017 Infrascope


Shkoder

AdriaticSea

Durres

Vlore

Elbasan

ALBANIA

Macedonia

Greece

MontenegroKosovo

Tirana

Albania

Key market data

GDP at current market prices (US$ bn, 2016) 12.2

Population (m, 2016) 2.9

GDP at purchasing power parity (PPP) per capita

(US$, 2016)11,710

EIU Sovereign rating (March 2017) B

Total PPP investment in 2012-2016 (US$ m)* 129.3*Based on World Bank PPI Database. Energy, transport and water and sewerage sectors.

Infrascope country summaries

The following section provides a brief profile of the PPP environment for each of the 13 countries in this study and their performance in the index. Countries are listed in alphabetical order. Please note that the information selected for the country profiles is intended to provide a high-level overview; it is not intended to provide an outline of the legal environment or represent a comprehensive account of all recent activity.

Overview of the infrastructure sector and PPPsAlbania’s government considers PPPs to be instruments to attract investment, especially in strategic sectors such as energy, transport, information and communications technology (ICT) and, more recently, health and education.11 There were 12 active projects, amounting to US$721.5m of investment, between 2009 and 2013.12 The energy sector dominates with ten PPPs, amounting to US$362.16m. The Ashta Hydropower Plant has been the largest, at more than US$244m, led by two Austrian investors, Energieversorgung Niederösterreich and Verbund. The second-largest PPPs, with a value of US$359.3m, are in transport, with projects including Tirana International Airport in 2005 and the Port of Durrës in 2013.

Summary of the enabling environment for PPPs Albania has improved the enabling environment for PPPs, with a specific law on PPPs and concessions passed in 2013.13 This established a stable framework for promoting, attracting and facilitating public-private concessions and PPPs. The law covers rules on competitive bidding, unsolicited proposals, selection criteria, award criteria, contracts and modifications, termination of contracts, financial



Infrascope results

Category Score / 100 Rank / 13

1) Regulations 55 =3

2) Institutions 53 =5

3) Maturity 33 13

4) Investment and business climate 74 2

5) Financing 33 11

issues and dispute settlements. The legal framework includes bylaws such as the decisions of the council of ministers with regard to the governing and workings of PPPs/concessions, which set out the rules for the assessment and granting of PPPs, the electronic conduct of competitive procedures, the establishment and management of the electronic registry of PPPs, and the organisation and functioning of the country’s PPP Unit, ATRAKO.14 The 2013 law was amended in 2015 to align it with Directive 2004/18/EC of the European Parliament and the Council relating to the co-ordination of procedures of procurement for public works, supplies and services contracts. Albania has also advanced its operational clarity, with manuals available on the website of the Agency of Public Procurement, explaining the technicalities of the tender procedure.

Main challenges for PPP (infrastructure) developmentDespite positive developments in the regulatory framework, there are weaknesses at an institutional level, with uncertainty among public-sector staff about the required steps and procedures for pursuing PPPs. Lack of financial and human resources in line ministries is an issue, and better project identification processes and feasibility studies are needed, supported by appropriate technical manuals.15 Contract management and performance-monitoring of PPPs have also been inefficient, and risk-allocation practices are suboptimal. There are no clear provisions in the regulations regarding accounting of contingent liabilities in PPP projects. The country’s weakest category in the index is Financing, with weak capital-market development and high reliance on multilateral financing.

AlbaniaEECA-SEMED(average)

Regulations

Maturity

Institutions

Investment &business climate

Financing

100 10080 8060 6040 40

20 200


The 2017 Infrascope


Overview of the infrastructure sector and PPPsFrom 2000 onwards the Belarusian government has pursued an investment promotion policy.16 The priority PPP sectors have included transport and customs facilities (28.1% of total financing), education (11.1%) and healthcare (7.5%).17 Since 2012, owing to deteriorating economic conditions, the state’s infrastructure policy has focused more on efficiency of investments, with an increased emphasis on creating a favourable environment for infrastructure PPPs. With the support of international financial institutions the Belarusian government has initiated a number of PPP projects, including the reconstruction of the M-10 road, the renovation of a hospital and the building of kindergartens. At present, these projects are in their initial stages (preparation of feasibility studies, selection of consultants).

Summary of the enabling environment for PPPs Belarus has improved its legal and institutional environment for PPPs. At the end of 2015 the government adopted PPP Law No. 345-Z, describing terms and definitions, eligible sectors and the obligations and guarantees of involved parties. The law, prepared with the support of international expert agencies, aligns with international best practices. Supporting regulatory legal acts were

Belarus

Infrascope results



2) Institutions 53 =5

3) Maturity 56 11


5) Financing 21 13

Key market data




(US$, 2016)17,970

EIU Sovereign rating (March 2017) CC

Total PPP investment in 2012-2016 (US$ m)* 0*Based on World Bank PPI Database. Energy, transport and water and sewerage sectors.

Grodno

Vitebsk

Gomel

Lithuania

Latvia

Ukraine

Poland

Russia

Russia

Minsk

BELARUS

BelarusEECA-SEMED(average)

Regulations

Maturity

Institutions


Financing

100 10080 8060 6040 40

20 200



also approved, describing bidding processes, project selection and feasibility studies, and further legislative amendments are in development.18 At the institutional level, the National Agency of Investments and Privatisation (NAIP) houses a subdivision called the PPP Centre, which is responsible for implementing PPP policy, assisting the Infrastructure Interagency Co-ordinating Council, pre-assessing projects, developing the country’s National Infrastructure Plan (together with other government bodies), and preparing methodological materials.

Main challenges for PPP (infrastructure) developmentDespite the improving legal and institutional framework, there is room for enhancing implementation capacity and improving project oversight. The existing PPP framework lacks key elements, such as national project preparation facilities and project implementation funds, sustainable and mature financial facilities, and independent oversight. The legal framework does not consider facility-management projects in the social sphere (without an investment component) as PPPs.19,20 The complexity of PPPs compared with conventional types of procurement and infrastructure project implementation schemes undermines the benefits of PPPs in the eyes of some decision-makers.


The 2017 Infrascope


Bulgaria

Infrascope results



2) Institutions 8 12

3) Maturity 51 12


5) Financing 47 =5

Key market data




(US$, 2016)19,330

EIU Sovereign rating (March 2017) BBB


BlackSea

Plovdiv

Pleven

Burgas

Varna

BULGARIASerbia

Romania

Turkey

Greece

Macedonia

Sofia

Overview of the infrastructure sector and PPPsIn Bulgaria, European structural and investment funds are currently the preferred source of financing for new infrastructure, including highways, water and sanitation, with PPPs deployed mainly for the maintenance of facilities or service delivery. Indeed, there was a drop in the number of concessions tendered and concluded in 2016. Out of 73 calls for concessions, just 37 were awarded, with 36 for the delivery of services and one involving construction work (compared with 97 calls and 73 concession contracts signed in 2015).21 PPP projects with international investors include those involving Veolia, the operator of Bulgaria’s only water concession in the capital, Sofia, and Fraport, the operator of Burgas and Varna airports. Procurement for the civil airport in Sofia has recently been cancelled.22 The tender for the airport of the second-largest city in Bulgaria, Plovdiv, failed owing to insufficient interest from investors and is expected to be retendered in 2017.

Summary of the enabling environment for PPPs PPP projects are implemented under the Concession Act 36/2006, which also defines other modalities of private participation.23 There is no fully dedicated agency in charge of PPP preparation and

BulgariaEECA-SEMED(average)

Regulations

Maturity

Institutions


Financing

100 10080 8060 6040 40

20 200



implementation, and no state body to monitor the performance of concessions. As a member of the EU, Bulgaria is obliged to align its legislation with EU law, but this process is incomplete. A new draft of the Concession Act, intended to merge the regulatory requirements for PPPs and concessions and incorporating EU rules on concessions (Directive 2014/23/EU), was passed by the parliament in January 2017. However, it was vetoed by the newly elected president and is not expected to be passed in the foreseeable future.24

Main challenges for PPP (infrastructure) developmentOne challenge to the long-term stability of the PPP programme is posed by the ideological differences about PPPs in Bulgaria, including public scepticism about engaging private partners in the delivery of public services. Concessions and privatisations are perceived negatively by some non-governmental and civil society groups, and attempts to award large contracts have been widely debated. With no dedicated body to implement PPP infrastructure projects and no project development fund, there is also a lack of experience in structuring PPPs using international best practices. Political instability, and elections in 2017, present further challenges for the adoption of the Concession Act and the tendering of PPPs. European structural and investment funds, coupled with public procurement, will probably continue to be the main funding source for new infrastructure projects.


The 2017 Infrascope


Overview of the infrastructure sector and PPPsEgypt began implementing transport and power PPPs in the late 1990s, and in 2006 it established a PPP Central Unit. In the latter half of the 2000s at least 17 infrastructure projects, valued at around US$5bn, were executed.25 The tendering process was disrupted by political instability during 2011-13, and only two hospitals have been built since then, but 14 projects—worth over US$4bn—are at various stages in the project cycle, including ports, roads, rail and ferries. The Abu Rawash Wastewater Treatment Plant, awarded in 2015, is no longer classified as a PPP, as it was converted into an engineering, procurement and construction project in February 2017. Egypt’s precarious public finances, along with an urgent need to upgrade infrastructure to meet the needs of a large and growing population, mean that privately financed infrastructure projects are a priority for the government, with a particular focus on the education sector.

Summary of the enabling environment for PPPs The PPP environment has evolved in the past decade into a more organised and structured framework. Initially, PPPs were conducted ad hoc by ministries under sector-specific legislation. More co-

Egypt

Infrascope results




3) Maturity 61 9


5) Financing 36 =7

Key market data



GDP at purchasing power parity (PPP) per

capita (US$, 2016)11,370

EIU Sovereign rating (March 2017) CCC


EGYPT

Jordan

Sudan

IsraelCairo

Libya

SaudiArabia

Mediterranean Sea

RedSea

AlexandriaPort Said

Suez

EgyptEECA-SEMED(average)

Regulations

Maturity

Institutions


Financing

100 10080 8060 6040 40

20 200



ordination came after 2006 with the formation of the PPP Central Unit. This led to the passing of a comprehensive PPP law in 2010, Law No. 67,26 which covers projects tendered by ministries and government agencies across all sectors, under the overall authority of the PPP Supreme Committee, a cabinet-level body. However, the law does not cover state-owned companies (SOCs). PPPs implemented by these SOCs, notably in the electricity sector, fall under sector-specific legislation, with the most notable recent example being the Renewable Energy Law of 2014,27 which provides a framework for electricity feed-in tariffs, thus facilitating PPP-financed projects such as solar and wind farms. Egypt relies heavily on multilateral donors to finance PPP projects and feasibility studies.

Main challenges for PPP (infrastructure) developmentEgypt’s PPP environment faces several challenges. One is the lack of adequate community consultation to guide project selection and secure public support for projects. This is problematic given widespread opposition to privatisation,28 with which PPPs are often confused, and distrust of foreign investors. The small number of projects executed so far under the PPP law also indicates limited implementation experience. Research by the OECD suggests that the PPP Central Unit is understaffed and points to difficulties in securing PPP buy-in from line ministries.29 There is also an inadequate legal structure for unsolicited PPP proposals. Political instability and a volatile currency have discouraged private infrastructure investment in the past. Heavy reliance on donors for PPP funding is a further weakness, and more private investors are needed if Egypt is to realise the necessary financing to achieve its infrastructure goals.


The 2017 Infrascope


Georgia

Infrascope results


1) Regulations 36 12


3) Maturity 62 8

4) Investment and business climate 62 =6

5) Financing 34 =9

Key market data




(US$, 2016)9,310

EIU Sovereign rating (March 2017) BB


BlackSea GEORGIA

Sukhumi

Batumi

Kutaisi

Tbilisi

Turkey Armenia

Russia

Azerbaijan

Overview of the infrastructure sector and PPPsA small number of projects in Georgia have reached financial closure in the past five years, mainly greenfield electricity projects in hydropower, such as the Anadolu Paravani Hydroelectric Power Plant,30 which reached financial closure in 2011 with a total investment of US$156.5m. And in 2016 the government and the Anaklia Development Consortium signed an investment agreement to develop and operate the US$2.5bn Anaklia Deep Sea Port, which will be the largest project implemented so far.31 The government will invest US$100m in the construction and development of railway and transport links to connect the port to the region.

Summary of the enabling environment for PPPs The government of Georgia is developing PPP legislation, and there is strong political support for private partnerships in providing public services such as healthcare and education. As there is no designated law on PPPs, projects are governed by the civil code and other relevant legislation. A concessions law from 1994 provides legal support for projects but lacks clarity on project selection, planning, implementation and monitoring.32 Two new resolutions (No. 191 and No. 245) were adopted by the government in 2016 and provide guidelines on feasibility studies and value-for-money analysis,33 and outline a general policy framework for PPPs.34 PPP implementation is enabled by Article

GeorgiaEECA-SEMED(average)

Regulations

Institutions

MaturityInvestment &business climate

Financing

100 10080 8060 6040 40

20 200



21 of the Public Procurement Law. It is expected that legislation will be developed further in 2017. Key PPP institutions are the Ministry of Regional and Infrastructure Development of Georgia, which is the main governmental institution responsible for infrastructure development, and the Ministry of Economy and Sustainable Development, which is the PPP policymaker.

Main challenges for PPP (infrastructure) developmentGeorgia’s limited regulatory framework means that factors such as dispute-resolution mechanisms or risk-allocation practices are not sufficiently defined, and most details on project implementation are laid down in contracts rather than stipulated by law. A further challenge is the limited capacity of government agencies in planning and monitoring PPP projects.35 Currently, there is no single governmental agency with information or co-ordination functions.36 In the absence of dedicated PPP agencies, oversight activities are facilitated by donors.


The 2017 Infrascope


Overview of the infrastructure sector and PPPsJordan has been implementing PPPs since 1999 in sectors including rail, wastewater, ports, power and airports. At least a dozen projects, worth over US$5bn, had been implemented by 2013,37 the largest being the US$1bn Disi Water Conveyor Project, which pipes fresh water from a southern aquifer to the capital, Amman. Around 12 solar power projects were awarded in 2014-16, worth a total of US$700m, and the country’s international airport is in its second phase of expansion. Given its weak public finances, PPPs are considered vital to addressing Jordan’s infrastructure needs (such as limited water supplies and the high cost of energy imports), as indicated by the high level of support from figures such as the king and the minister of planning, as well as the inclusion of PPPs in the “Jordan 2025” vision document.38 PPP projects have attracted financing from a wide range of sources, including multilateral donors and domestic and foreign private investors.

Summary of the enabling environment for PPPs Jordan passed a comprehensive PPP law in 2014, Law No. 31,39 and established a cabinet-level PPP Council to provide approvals and a PPP Unit located in the Ministry of Finance to provide technical

Jordan

Infrascope results




3) Maturity 72 3


5) Financing 52 =2

Key market data




capita (US$, 2016)8,740

EIU Sovereign rating (March 2017) CCC

Total PPP investment in 2012-2016 (US$ m)* 2,526.0*Based on World Bank PPI Database. Energy, transport and water and sewerage sectors. JORDANJORDAN

AqabaAqaba

IrbidIrbid

ZarqaZarqa

SyriaSyriaLebanonLebanon

IraqIraq

IsraelIsrael

WestBankWestBank

Saudi ArabiaSaudi Arabia

AmmanAmman

JordanEECA-SEMED(average)

Regulations

InstitutionsFinancing


100 10080 8060 6040 40

20 200



support to line ministries. Although the law covers all economic sectors, the cabinet has the power to choose to exclude certain sectors from its requirements, as it has for water and energy through to August 2018 in order to facilitate urgent projects.40 These include projects governed by the Renewable Energy Law41 and the first phase of the Red-Dead project to refill the Dead Sea from the Red Sea, which is being prepared for tender.

Main challenges for PPP (infrastructure) developmentAt the regulatory level, the 2014 PPP Law is somewhat untested, with no projects implemented so far and thus limited expertise on its application. This partly explains why the cabinet excluded urgent projects from its scope for a two-year period. The PPP framework could be strengthened, for example through the clearer specification of conciliation schemes, greater transparency, more accounting for contingent liabilities, the conducting of independent audits, and a requirement for public consultation on proposed projects. The PPP Unit needs to recruit more staff and develop technical resources, such as creating a guidebook for project implementation. There is also little information published on the PPP Unit’s website regarding existing and proposed projects. Companies bidding for PPPs may also be concerned that the PPP Law provides insufficient clarity on dispute resolution, contract termination procedures and contract transfer, leaving these to be fleshed out in individual contracts.


The 2017 Infrascope


Overview of the infrastructure sector and PPPsKazakhstan sought to increase investment in infrastructure PPPs with the adoption of a concessions law in 2006 that enabled Build-Operate-Transfer (BOT) projects. However, subsequent projects, such as the North Kazakhstan-Aktobe region power line and the Charsk-Ust-Kamenogorsk railway line faced problems because the law conflicted with other legislation, meaning that risk was not equally shared between the partners. Both projects also produced less revenue than anticipated, leading to financial complications. Following these challenges, amendments to the concessions law and other legislation were made to harmonise the regulatory process. This resulted in the development of a new generation of concession projects, beginning with the Big Almaty Ring Road (BAKAD). Chinese investment in the country via its “One Belt, One Road” programme has increased the Kazakhstan government’s interest in infrastructure development.

Summary of the enabling environment for PPPs The new PPP law of 2015, which created a legal basis for PPP projects and a more comprehensive institutional structure, was adopted in the context of a range of strategic reforms and stimulus programmes, including the Nurly Zhol infrastructure programme and the 100 Concrete Steps, designed

Kazakhstan

Infrascope results


1) Regulations 54 6


3) Maturity 60 10


5) Financing 28 12

Key market data




(US$, 2016)24,520

EIU Sovereign rating (March 2017) BB

Total PPP investment in 2012-2016 (US$ m)* 0*Based on World Bank PPI Database. Energy, transport and water and sewerage sectors.

Turkmenistan

Uzbekistan

Tajikistan

Kyrgyz Rep.

China

Russia

Karaganda

Petropavlovsk

KAZAKHSTAN

CaspianSea

Almaty

AstanaUralsk

KazakhstanEECA-SEMED(average)

Regulations



100 10080 8060 6040 40

20 200



to reform government institutions.42 These set the conditions for projects such as BAKAD (officially awarded) and the Shymkent ring road and the Almaty rail bypass (in planning stages).

Whereas PPPs had previously played only a limited role via the concessions law, the 2015 law redefined them as a new method of developing infrastructure via a contractual relationship of 3-30 years with a private partner based on an equal share of risks, rewards, costs, rights and responsibilities. It was followed by a development plan to further promote PPPs, which assigned responsibility for the development of regulations and the establishment of projects to the Ministry of National Economy and the PPP Centre.43 A series of regulations was introduced, covering procurement processes, bidding documentation and contracts.44,45 In 2016 the Kazakhstan PPP Advisory Centre became the Kazakhstan Project Preparation Fund, with a new charter expanding its traditional role of consulting on project documentation to financing, with a new fund of US$6.3m from the Baiterek state financial holding company. However, despite this progress in legal and institutional development, projects remain slow to materialise.46,47

Main challenges for PPP (infrastructure) developmentOne challenge for Kazakhstan is building confidence in PPPs. Previous concessions have faced difficulties, including the Charsk-Ust-Kamenogorsk railway line, which defaulted on its infrastructure bonds in 2008 after cargo volumes failed to meet expectation, and the North Kazakhstan-Aktobe power line, which is still not running at full capacity after key industry actors failed to connect to its supply. These were also delivered using provisions in the civil code, meaning that the concessions law has not been fully tested.48,49 While the new legislative environment was welcomed by the legal community as it is less bureaucratic and distributes risk more evenly, it is untested and questions remain, including the availability and extent of state subsidies for certain projects, the possibility of indexation of long-term rates, limits on financing due to legislation on banking, potential limits on international arbitration, and whether delivery of a PPP with a state-owned enterprise will conflict with state procurement laws.50,51 One outcome that could stimulate further interest in infrastructure will be the successful delivery of the Big Almaty Ring Road Project, awarded in late 2016, which was prepared under the concessions law.52


The 2017 Infrascope


Overview of the infrastructure sector and PPPsMorocco has seen significant private-sector participation in infrastructure, with projects spanning electricity, ports, water and sewerage, natural gas and ICT. In the past five years several projects have reached financial closure, primarily in electricity, notably the Ouarzazate Solar Power Station with a total installed capacity of 160 MW, built under a BOT scheme.53 Ouarzazate is part of a larger PPP project, the Noor [Arabic for light] Solar Complex, to be delivered in four phases and intended to help Morocco achieve its renewable energy targets by 2030.

Summary of the enabling environment for PPPs Morocco’s regulatory environment for PPPs was enhanced by the enactment of a PPP-specific law at the end of 2014 (Law No. 86-12),54 accompanied by Decree No. 2-15-45, which provides details on project evaluation processes, contract clauses, the work of the PPP Commission, and protocols for dealing with unsolicited bids, among others.55 At the institutional level, project implementation is supported by a dedicated PPP Unit, which sits within the department for privatisation in the Ministry of Economy and

Morocco

Infrascope results




3) Maturity 78 2


5) Financing 52 =2

Key market data




capita (US$, 2016)8,110.0

EIU Sovereign rating (March 2017) B

Total PPP investment in 2012-2016 (US$ m)* 7,942*Based on World Bank PPI Database. Energy, transport and water and sewerage sectors.

SpainPortugal

WesternSahara

MOROCCOCasablanca

Marrakesh

Laâyoune

Atlantic Ocean

Algeria

MauritaniaMali

Rabat

MoroccoEECA-SEMED(average)

Regulations



100 10080 8060 6040 40

20 200



Finance. There is political will to continue with PPP contracts,56 despite public budgetary constraints, as evidenced in statements by high-profile officials.57

Main challenges for PPP (infrastructure) developmentDespite improving regulations, there is a lack of clarity in some areas, such as contingent liabilities, rules for the publication of contracts and the auditing of PPP projects.58 The structure, remit and interaction of the PPP Unit with other agencies need to be defined in more detail.59 A further challenge is the fact that pre-existing legislation, such as a 2006 law on delegated management of public services,60 still applies, which creates confusion for investors and agencies in terms of what legislative framework to follow.61 There is also progress to be made in terms of PPP process transparency, as project evaluation is not systematic and PPP contracts are not published.62 Furthermore, although Morocco has gathered experience with PPPs, no projects have yet been contracted under the 2014 PPP Law, and thus its effectiveness is still to be tested.


The 2017 Infrascope


Romania

Infrascope results




3) Maturity 68 4


evaluating the environment for public-private partnerships ......sladjana sredojevic, marina maluk,...

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