This content is from: Local Insights

Public-private partnerships

The cost of infrastructure development is very high in transition economies like Slovakia, where money needs to be spent on rebuilding the pension and healthcare systems, as well as on reforms of the education, legal and social systems. Governments usually draw revenue from taxes and privatizations. There is also help coming from the European Union's structural funds. But that's not enough to meet the ambitious plans of building highways across the whole country to offer investors good transport routes. In Slovakia, the construction and operation of infrastructure has until recently been the domain of the public sector (and has been financed with public revenue through taxes). However, the idea of including the private sector in government projects came from successful projects in many EU countries, and the Slovak government has decided to follow suit.

The first two public-private partnerships (PPP) in Slovakia, infrastructure projects, are being prepared.

The first project concerns an electronic toll collection system. The National Highway Operator (NDS) estimates the value of the order to be Sk20 billion (€598 million), excluding VAT. The NDS sent the official announcement on a tender for an electronic highway toll collection system in Slovakia on September 3 2007 (it is actually the second announcement of the tender, as the first was cancelled because too many bidders were interested in the tender and the NDS decided to add further criteria and widen the shortlist of bidders – from five to eight – that will be invited to submit bids). The winner of the tender will sign a 14-year contract to build the system for a 2,435-kilometre road network within one year, and operate it for the next 13 years, from the beginning of 2009. Moreover, an option in the contract will make it possible to extend the contract with the winner by an additional five years. It is expected that electronic toll collection will begin on January 1 2009.

The second project concerns the construction of 151 kilometres of highway and dual carriageway (divided highway), which is expected to cost Sk105.7 billion (€3.14 billion), excluding VAT. The transportation ministry intends to announce public procurement for two packages of projects on September 19 this year, and for a third package in the first six months of next year; it expects the three packages to be completed by 2012. The transportation ministry opted for a DBFO-type contract (design-build-finance-operate); the concession duration will be 25 years.

Legal framework

The main characteristic of PPP that differentiates it from other projects is the method of distributing risks between the private and public sector. The party that can best deal with them assumes the risks; however, major risks are often assumed by a private entity. From a legal point of view, these projects may take the form of institutionalized cooperation (based on a joint venture of the public and private sectors) or of different contractual agreements (not an individual type of contract, but a complex web of several innominate contracts). With respect to their characteristics, several sources of public law (including the Public Procurement Act, laws governing the administration of property owned by the state or self-administration, the Budgeting Act, the Road Traffic Act and the Act on Electronic Toll Collection) and private law (the Commercial and Civil Codes) may apply to PPP.

Slovak public procurement law is harmonized with EU public procurement legislation. Specifically, through the new Public Procurement Act (effective as of February 2006), the Slovak Republic transposed into its law acts of the European Communities and of the European Union regarding public procurement (Directive 2004/17/EC, Directive 2004/18/EC, Council Directive 89/665/EEC, Council Directive 92/13/EEC, and Commission Directive 2005/51/EC).

The Public Procurement Act regulates government or municipality activities and other specific sectors. The specific sectors include energy, water, transportation, and postal, as well as activities relating to the operation of public airports. The procurement procedures are generally simpler for those operating in those specific sectors. The Public Procurement Act prescribes procedures for procurement depending on the amount of anticipated value of the contract (contracts over the limit, contracts below the limit, contracts below the thresholds, and contracts of small value).

Concessions

In addition to the general provisions regarding procurement, the Public Procurement Act also introduced provisions regarding concessions for the procurement of building works, and as such enabled the creation of contractual relationships between public and private actors (such as PPP projects). The contracting authority is obligated to follow these provisions where the estimated value of a building works concession contract equals or exceeds €5,923,000.

A private entity may only become a contractual partner on such projects after the general provisions of the Public Procurement Act concerning the choosing of contractual partners in a tender have been fulfilled (so the entity that wins the tender will be granted the concession). By entering into a concession contract, the concessionaire acquires the rights and obligations of the property administrator. Pursuant to the Public Procurement Act, the concession period may not exceed 30 years.

The introduction of these first two PPP projects is essential for Slovakia, as it will allow the establishment and development of infrastructure, financed not only from the limited public resources, but also with the participation of a private party. If these projects are successful, there is the potential that PPP projects could also be used in other critical areas (the construction of airports, railroads, and the infrastructure of industrial parks; in the construction/renovation/operation of hospitals and schools; and in the construction/operation of prisons).

Lubos Frolkovic and Petra Holla

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