Sectors & markets

Public Private Partnership in Georgia

PPP by sectors

Public Private Partnership in Georgia

21 June 2019

 

On June 21, the PPP agency organised a conference in order to show the progress achieved, to introduce the agency and mention the potential sectors of application.

 

Partners

 

The Asian Development Bank (ADB) has been involved in the establishment of the PPP Agency in Georgia. The Bank has been operating in Georgia since 2007 and has invested more than 2.8 billion for projects. They are focusing on different sectors of activities such as infrastructure.

They have been involved in the PPP project since the beginning by giving legal framework advices to facilitate its establishment.  The project started in 2015 with technical assistance to the different ministries involved (Finance, Economy, Health, Education,…). The law on PPP has been adopted in 2015 and the PPP agency was formed in 2018.

United Nations Development Program is also a partner in this project, supporting Georgia in its sustainable economic development at national and local level. Their vision for Georgia is to move the traditional idea of PPP (big projects like airports) to a local level in order to answer the community social needs. This last point was reinforced both by the Minister of Economy Natia Turnava and the Minister of Finance, Ivane Matchavariani.

The government of Georgia underlined that PPPs are a great opportunity as they allow to attract investment, increase jobs and allow the risks to be shared between private and public sectors. One of the sector mentioned by the government to put in place this new instrument is the energy sector. Nevertheless, the government mentioned that they need to focus on the best practices in the field by looking at what was already done in other countries.

Their will, with the establishment of the agency, is to have a transparent process where public procurement will be made properly. The Ministry of finance announced that they were currently preparing a detailed methodology in order for the framework to be comprehensible and accessible for everyone.

 

Experience of PPP

 

EBRD Regional Director Catarina Bjorlin started by mentioned that whenever the financial burden was put on the private sector, the PPP has all the chances to fail. It should be avoided and taken into consideration by the Georgian government. Also, all the actors should take into considerations that PPP is a long process and is not an instrument to use in case of urgent need to solve a problem.

The framework of PPP is a constant process. The case of the Philippines was brought up. The Philippines were awarded the title of Best Agency PPP (2014). ADB noted that the success lied in the commitment of the president that was calling the Agency every week in order to get a feedback on the potential issues. Thus, after a political change, no PPP projects were signed.

The recommendations made by the different panellists were:

  • Standardise the framework and templates for the private entities to know that the information is reliable because it is the same format as the one used in other countries (trust in the information).
  • All the risks, the questions of payment, of termination of contract, dispute resolution must be discussed beforehand.
  • The PPP should be done according to the capacity on the ground (people must be trained), a deep collaboration between all the actors (risks being shared) and commitment.
  • Transparency in the project
  • Make roadshows to announce the PPP. Not only in Georgia but also abroad in other countries in order to involve as much as possible the companies.
  • PPP should be a tool to improve people life, reducing poverty.

 

Need for PPP

 

The need for PPP comes from the infrastructure finance need. It is expected that 5 to 7 trillion USD is needed to cover the infrastructure need. So, PPP is a way to share the risks, to involve private financing and to deliver more efficiently the infrastructures as the projects can be more complex.

The need for PPP came from a universal problem that is cost overruns.

According to a research made by the professor Bent Flyvbjerg, 9 out of 10 projects in the world have cost overruns.Cost overruns of 50% to 100% are common. This phenomenon applies to both developed and developing countries. The UK has 73% of its projects experiencing cost overruns, India 40%. In Europe 60% of the projects had more than 1-year delay.

PPP have proven to deliver projects more efficiently, reducing considerably the cost overruns and the delays. In Australia 15% of projects got cost overruns and 1% for PPP’s projects. (out of 33 projects).

 

PPP readiness

 

According to ADB, Georgia is classed in the category ‘emerging’ for its readiness to PPP. 5 countries were named in the category ‘matured’: Australia, UK, Thailand, Philippines, China. In the category ‘Nascent’ two countries of the region were named Ukraine and Belarus. (France was not appearing in their ranking).

In 2018, The Kyrgiz Republic and Kazakhstan are higher in the ranking than Georgia in term of readiness.

The process in the Kyrgiz republic was launched in 2012 and the first transaction was closed in 2017. 4 million USD was put into the project, 15 officials were assigned to PPP. They followed 200 hours of trainings and 8 of them passed the national PPP exam. More or less 50 projects were submitted, 18 entered the feasibility studies and 3 transactions were closed.

 

PPP Agency

 

The head of the Agency Alexander Revia underlined that the agency was created in 2018 and that its goals are to achieve inclusive growth and reduce poverty. The agency wants to position itself as on stop shop, dedicated to the public and private sector. A network of professional is put into place in order to train all the persons involved in the process, including regional trainings for municipalities.

The agency is placed directly under the supervision of the Prime Minister with a team of 10 persons.

 

The PPP project phases are the following one:

1/ Project identification and initiation (competent body, private sector, PPP agency)

A new document created with a EBRD expert called PCN was created to be completed in order to initiate a PPP.

2/ Project preparation

3/ Selection of the private partner

4/ Project implementation

5/ Ex-post evaluation

The final decision is taken by the government on 3 criteria:

  • Strategic/public importance
  • Economic impact
  • Fiscal impact

 

-At least 5 years project

-No less than 5 million GEL (exceptions can be made)

-Risk sharing

-Full/ partial private financing

-Provision/ Creation of a public service/infrastructure by the private partner.

 

PPP projects in Georgia

 

The sectors in which the private sector should be interesting in investing are roadinfrastructures, water supplies and waste management according to Irakli Karseladze, First Deputy Minister of Regional Development of Infrastructures of Georgia, Chairman of Roads Department of Georgia. It is always important to balance between public and private sectors while still being careful to respect European standards and taking into account social aspects.

Regarding respect of waste management, there are different plans being set in place and some companies are interested.

For roads investments and infrastructures, the government is working on pole roads concept with a budget of 12 billion GEL for the next 5 to 7 years.

 

Next to speak was the Deputy Minister of Economy and Sustainable Development of Georgia, David Tvalabeishvili. He mentioned projects concerning energy, in particularly developing facilities to allow the population to get access to energy and electricity. This type of initiative requires backup from the government by reducing cost of electricity for example. The problem in this field is that there is a lack of practice causing problems for the development of energy, especially wind turbines.

 

Public Private Partnership is also very important in the health sector. The Ministry of health is engaging private providers in health system. Indeed, PPP is present in 80% of hospitals. In 2013, the state reintroduced the single payer system, the government is working on improving the efficiency of this system. The goal is to attract private investors as primary healthcare is less attractive than other surgeries for example. The government wants to make sure that all the population has access to basic healthcare, which is why they decided to collaborate with private providers. The government wants to privatise the remaining hospitals.

 

The last subject discussed was education by Irina Abuladze from the Ministry of Education. Previous PPP project in education didn’t really succeed which is why in 2016 the government introduced a new project in form of apprenticeships. These programs are actually dual programs which means half of the year students’ study and the other half they work in accordance with their studies. The students are therefore paid by partner companies. So far, the program holds 50 companies and 200 students

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