ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA

1. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Why the public-private partnership Immense needs for infrastructures and public utility remaining unsatisfied Conscience of the limits of the States and the Public bodies (Local States, Provinces, Large Cities, etc) to carry them out  quickly  effectively and economically  within the traditional budgetary framework and constraints SEFI - French Contractors Association

2. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Capacity of the private sector to:  bring their know-how  propose innovate solutions :  technical  financial  commercial, etc. speed up the process decrease the costs for an equivalent or better service delivered SEFI - French Contractors Association

3. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Improvement of concepts I- Define the Service of General Interest Public/Private: Boundaries and limits for analysis The hierarchy of needs Who has to pay? The treatment of debt  Public deficit and indebeteness  Impact on the geaving II – The 2 grand categories of public procurement A) Public works or public services contract Purchase of a property or service Limited duration of the contract Payment upon delivery SEFI - French Contractors Association

4. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA • Improvement of concepts (II) • B) Public-Private Partnerships • 4 grand categories • The concession • The hire-purchase system • The partnership agreement • The lease contract • The characteristic differences • Framework contract over the life-cycle of the property • Significant risk transfer to the private sector • Payment from different sources linked to performance • Complex contract with a multitude of interfaces SEFI - French Contractors Association

5. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Improvement of concepts (III) III – A conducive legal and contractual environment Readable, clear, stable but adaptable A clearly proven type of contract: public or private Common contractual clauses General clauses: nature, objective, etc. Task to design and build Task to operate and maintain Evolution of the contract over the life cycle Economic and financial clauses Sanctions et Termination clauses Dispute settlement SEFI - French Contractors Association

6. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Project preparation I - The spirit of the procedures Exploit and improve the available information Evaluate and et hierarchise the needs Systematise an advantageous cost or approach Assess the capacities and the willingness of beneficiaries to pay Dynamic principles of evaluation in order to anticipate the future Organisation of broad consultations Give preference to transparency of analyses of choice of organisation modes SEFI - French Contractors Association

7. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Project preparation (IV) IV – Comparison between public and partnership procedures Prime objective : Value for Money drives the resort to the private sector Effective Risk shaving The obstacle: insufficient bookkeeping and budgetary procedures of the public sector Recourse to off-balance sheet measures Maintain the interest of enterprises to bid for projects despite uncertainties SEFI - French Contractors Association

8. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Preparation of the project (V) V - Principle to implement for an effective risks sharing The sharing of the risks: the heart of the PPP - 3 stages 1° stage: principles of rigorous analysis  To leave from a detailed inventory  needs to satisfy  functionalities of the work  performances requested from the private operator SEFI - French Contractors Association

9. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA • To introduce the draft contract  To count the events being able to affect negatively each part by the realization of trees diagrams of  adverse events  causes of failure  Fusion in a double matrix of the risks according to:  chronology of the project  cost and nature of the risks encounter SEFI - French Contractors Association

10. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Preparation of the project (VI) 2° stage: the quantification of the risks  To collect relevant informations  To establish and to check the interactions between the variables  To select different scénarii: to call upon a probabilistic model methods of Monte Carlo. When quantification is not possible to use qualitative approaches:  treated on a hierarchical basis  implementing techniques of weighting and scoring SEFI - French Contractors Association

11. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Preparation of the project (VI) 3° stage: the risks sharing 3 main categories of assignment  transfer to the private partner  conservation by the public body  share the risks out between the parties SEFI - French Contractors Association

12. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Principal criteria of decision-making aid  nature and characteristics of the risks  attitude of the financial and reinsurance markets  expectations of the authorities  users’ demand  figuring of the costs/advantages  research of the optimum SEFI - French Contractors Association

13. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Particular mention for financial risks • Important distinction :  Payment by the concession-granting authority : PFI ;  Payment by users coupled to financial participation of the concession-granting authority : concession ; SEFI - French Contractors Association

14. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA  PFI-Type projects :  New trend : payment of the operator by public bodies varies, mainly linked to performance and availability rather from traffic level. Dual character of payment : • Payment covering senior loan(s) financing investment ; • Payment remunerating :  The risk-laden component of financing -capital and quasi- capital, junior loan ;  Operating / maintenance costs.  Lenders and investors support risks associated with construction and operation : maintenance attenuated by performance guarantees. SEFI - French Contractors Association

15. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA  Concession-type projects Financing is based on the users’ capacity to pay for the service they directly benefit from : time savings, fuel savings, reduced maintenance costs, etc…  This source of income is often insufficient to finance the project. The supplement is brought by the concession-granting authority.  The lender(s) takes risks relating to :  Future payment from the concession-granting authority ;  The results of the traffic / tariff element of the toll. This risk is mitigated by :  A tariff set at the optimum level acceptable by the users (cf. Bitterness Theory)  Reasonable traffic forecasts.  In return, the concession-granting authority is part of a profit-sharing mechanism. SEFI - French Contractors Association

16. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Economic and financial equilibrium Postulate: reintroduction in the financing of the surpluses generated by the realization of the project captured by  Users  State and/or Local Communities Allows to ensure a sustainable financing over the time.  capture of a part of the surplus profiting to users trough the tariff  assignment of a part of the surplus profiting to the State or the Local Communities thank to socio-economic benefits SEFI - French Contractors Association

17. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Tariffing I – Previous work Secure the capacity and the willingness of the user to pay the tariff II – Define the socially acceptable tariff Empirical for the developing countries The theory of bitterness once statistics are exploitable Rely on local enterprises An evolutionary vision of tariffs SEFI - French Contractors Association

18. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Tariffing (VII) VII – The tariff as an instrument of regulation Steer, encourage, restrain the demand and the modes of utilisation The tariff as an instrument of adjustment: sub urban water supply in Morocco SEFI - French Contractors Association

19. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Socio-economic benefit (I) This is the measurement of the utility coming from the implementation of an equipment and/or the delivery of a public utility. Economic calculation allows the determination of it The principal obstacle the unsuitability of the public accounts SEFI - French Contractors Association

20. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Principal sources of the socio-economic benefit  saving of time brought to the user. It based the tolling  acceleration of the delivery of the infrastructures and/or the public utility  additional economic growth resulting from the project  additional effectiveness/productivity  additional budgetary savings  nevertheless to take into account negative aspects of the project disutility - (pollution, social costs, etc) The socio-economic benefit are mainly collected through the taxation, direct and indirect, national or local SEFI - French Contractors Association

21. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Socio-economic benefit (II) Add-back of a part of the socio-economic benefit in the financing of the project  the most rustic form: the subsidy A new approach of the role of the State: an economic actor producing commercial public goods This new approach opens the door with:  a new public financial engineering transposing the methods of the private sector in the choice and the financing of the investments  a significant development of the Public-Private Partnership SEFI - French Contractors Association

22. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Require a deep reform of the public GAAP and the revision of the traditional budgetary principles of:  budgetary annuity  non assignment of the receipts to the expenditure  methods of determination of the deficits and national debt SEFI - French Contractors Association

23. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA First lessons of the experiment of the Public-Private Partnership The PPP has a very important field of application:  infrastructures of transport (road, rail, ports, airports, channels, etc) ;  Schools and Universities building ;  Prisons, Police and fire stations, etc.  SEFI - French Contractors Association

24. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Require a major change of the governmental culture of the States  To ask third party to do rather to do by itself. Becomes a regulator and not an actor.  To think in terms of delivered services and not in terms of production of physical equipment  Research of the long-term optimum within a global framework (design, construction, operation and maintenance)  Another approach of the national indebtedness: fundamental difference between:  financial commitments associated the investment in productive infrastructures  debts subscribed for the operation running of the State or the social welfare SEFI - French Contractors Association

25. Public action Private action Census of the needs Research of the total effectiveness in the long run (design, construction, etc.) Definitions of the functionalities Allows to avoid on over or under investments Determination of the performances to be reached Obligation of quality and effectiveness of the delivered service ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIAA new division of the roles SEFI - French Contractors Association

26. Regulation of the sector, choices of the tariff policies Development of a culture of project to optimize the tripod cost/quality/effectiveness Evaluation of the utilities and the negative externalities Permanent partnership dialog with the Public Bodies Control of public financial engineering and budgetary regulation Seek optimum division of risks Set up of the framework legislative, lawful, tax, etc Mechanism of sharing profits with the public person ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIAA new division of the roles SEFI - French Contractors Association

27. Project control and final mastering of the project  Cross fertilization coming from foreign experiences Contribution of the users to the financing trough the toll fare justified by direct benefits they withdrawn from the project Incentive to perform Justification of the rationality of the decisions with respect to the users, taxpayers ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIAA new division of the roles SEFI - French Contractors Association

28. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Conditions of success Cultural changes and adoption of a new institutional framework adapted to the Public-Private Partnership Need for a careful preparation of the project right from the start  creation of steering committees with participation of the whole of the parties concerned, while taking care of competition fairness  together engineering departments, operational agents and financial staff, etc.  staff representatives  representatives of the users  validation of the principle of the project and the procedure of Public- Private Partnership SEFI - French Contractors Association

29. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA • adoption of a policy of communication allowing to decrease • concerns To use well fitted procurement methods for complex projects: the competitive dialog To avoid entering into too complicated calculations: the hyper rationality does not increase the chances of success Not to retain allowance of the risks based on purely mechanical criteria To approach the procedure without ideological a priori SEFI - French Contractors Association

30. ESTABLISHING PUBLIC-PRIVATE PARTNERSHIPS IN TRANSPORT SECTOR IN RUSSIA Cardinal importance of the preliminary training of all categories of public actors concerned A new approach of the role of the State: a producing economic actor of commercial public goods Perennial add-back of the economic social benefit in the financing of the project SEFI - French Contractors Association