Issue Briefs
Ukraine Bets on PPPs For Infrastructure Modernization
By Eugene Spiro
September 8, 2017
While Ukraine’s state-owned seaport facilities labor under serious need of repair and modernization, the country’s Ministry of Infrastructure (MoI) is taking a “can do” approach in seeking to upgrade the country’s ports via concessions and public-private partnerships (PPPs).[1]
A new PPP Office
To address gaps in capacities needed to prepare and deploy these mechanisms, MoI has created a PPP Office, a “think-and-action tank” of sorts, to do a pilot PPP. The Office, with a staff of 10, prepares studies, performs legal due diligence, and advises on fee structures and handles functions like contracting, risk management, certification, and compliance. It is not formally part of MoI, and is rather structured like a group of advisors housed at the Ministry (a model being followed elsewhere in Ukraine, including the Export Promotion Office at the Ministry of Economic Development and Trade).
How the process works
The PPP Office’s recommendations are brought to the Ministry of Economic Development and Trade (MEDT) for approval, given the latter’s broader mandate for privatization, whereupon the Cabinet of Ministers reviews and, with the Cabinet’s approval, public tender follows. The expectation is that the PPP Office will, in due course and given results, be fully integrated into MoI and supported by the Ministry’s budget.
MoI decided not to wait for passage of Ukraine’s concessions law, a work in progress, but rather to prepare for it by undertaking advance work, overseen by the PPP Office, including pre-feasibility studies (with World Bank support), site visits, information collection, stakeholders (e.g. utilities) and local community engagement, and environmental impact studies.
Funding issues
MoI hopes that the concession law will pass Rada (Parliament) this autumn, enabling tenders to be prepared and issued. As investors plan and budget for such projects a year or more in advance, MoI has been doing its marketing and, with the support of international financial institutions (IFIs) including the World Bank and the European Bank for Reconstruction and Development (EBRD), which has been supporting drafting of the new concessions law, the PPP Office has identified three projects slated for concession.
Long-term commitments
A key consideration both for the IFIs and the PPP Office itself is consistency and long-term commitment: The Office needs well-qualified people to do the work, and, given the vagaries of donor support, staff generally need to know that their positions will last longer than, say, three months.
In the absence of long-term donor commitments, the office faces challenges in retaining high-quality staff. Regarding mandate, the PPP Office may confine itself to management, outsourcing technical (sectoral, per project) expertise, as is done in the Netherlands and Singapore.
PPP benefits
Concessions are expected to generate commerce and tax revenue, while the operators are expected to invest in upgrades over time, leading to subsequent privatization. There is a sense of urgency to all this, as Ukraine is losing its position in the shipping market.
Indeed, cargo transit and imports to Ukraine are in decline, due to the lack of modern facilities and low capacities of ports (most of which are multi-purpose), as well as higher port duties. These factors influence concession tenders.
Start small
MoI’s approach with the PPP Office is to gain experience with smaller ports, then to move on to larger, more important projects. Ukraine’s Investment Promotion Office and Investment Promotion Council are supportive, and stakeholders in government and embassies are helping to spread the word to prospective investors. There is abundant potential for PPPs in Ukraine. The country’s roads, seaports, and airport are in need of upgrade.
The best way to obtain infrastructure upgrades
PPPs are a widely used approach to leveraging private capital and support governments in bringing large-scale infrastructure projects to fruition. Efforts being made by Ukraine’s Ministry of Infrastructure are both necessary and informative, as their success will provide lessons for such initiatives elsewhere, as countries seeks to upgrade their facilities and retain or strengthen their positions in international commerce and trade.
Eugene Spiro is a GPI Fellow and a Professor of International Affairs at BAU International University. His expertise is in international development in transition environments, with focus on private sector development, corporate governance and financial sector reform. Currently he is engaged as a consultant with the United Nations Development Program, co-authoring a strategy for UNDP’s partnership with international financial institutions. At the International Finance Corporation, IFC, he led a corporate governance capacity-building and technical assistance program in Asia. In the civil society sector he led capacity-building, governance, and advocacy programs in support of private sector development in Africa, Central Asia, Central and Eastern Europe and the Middle East. He holds a Master’s Degree in International Economics and a Bachelor’s Degree in International Studies, both from the American University in Washington, D.C.
[1] The legal framework covering PPPs in Ukraine comprise a number of laws and regulations, several of which are being updated: The PPP Law (2010), the Concession Law (1999), various sector-specific concession laws applicable to roads (1999, amended 2009), water sanitation (2010), and seaports (2012), and tender procedures regulating PPP implementation (April 2011). In February 2016, the Ukrainian Parliament (Verkhovna Rada) adopted Law of Ukraine No. 817-VIII “On Amending Certain Laws of Ukraine Regarding Removal of Regulatory Barriers to Developing Public Private Partnerships and Encouraging Investments to Ukraine” to improve the legal framework governing PPPs (source: PPP Knowledge Lab).
The views and opinions expressed in this issue brief are those of the authors and do not necessarily reflect the official policy of GPI.