International and CEE
experience with PPP
Evaluations of PPP
• Many different resources available, like:
– EC Resource book on PPP studies
– Other books
– Web pages – international and national
• Mainly positive experience: f.e. France –
building of highways [about 35 %
constructed via concessions]
• Mixed experience: f.e. UK – health care or
• Negative experience: f.e UK/France:
EU PPP cases
• The examination of case studies enables the confirmation of a
number of key principles governing PPP development and
• Foremost it is important to stress that PPP structures come in many
forms and are still an evolving concept which must be adapted to the
individual needs and characteristics of each sector, project and
• Successful PPPs require an effective legislative and control
framework and for each partner to recognize the objectives and
needs of the other.
• Guaranteeing benefit from PPP requires recognition of the relative
strengths and weaknesses of each type of structure and the aims
and objectives of each party. Of particular importance is the role of
the public sector, which may transform itself from a service provider
to an overseer of service contracts.
Value of Investment
• The water and transport sectors
represented the largest capital
investments. This is to be expected given
the scale of projects and the investment
• The smallest financial consequence was
presented by the solid waste sector.
Transfer of Responsibility
• The solid waste cases demonstrate the
highest degree of transfer of responsibility
onto the private party. This is often in
relation to the more speculative and
commercial nature of investments in solid
waste operations, which the private
developer is expected to finance and
assume market risk.
• Again the water and transport sectors
represented the longest project /contract
durations often over 20 years. This is
inherent of the relationship between the
size of capital invested, degree of private
sector involvement and length of time
required to ensure investment and profit
• Demand Risk.
– As with the previous criteria, the solid waste sector generally has the
highest degree of transfer of risk onto the private party. This includes
demand risk but this may again be indicative of the type of projects
selected, which on the whole are more speculative as opposed to those
requiring the building and operation of large infrastructure. On the whole
the cases, within the same sector, demonstrate a relatively even
distribution of demand risk between the parties. This may indicate an
understanding that the public sector is also, in part, responsible for
ensuring the financial viability of a project.
• Availability Risk.
– The general pattern suggests that risks under this category are
distributed in relation to the characteristics of the project and the parties.
This would tend to confirm the principle that risk should be adopted by
the party best able to manage it.
A number of cases demonstrate ineffective risk distribution and also the
consequences resulting from it.
• Risk transfer lies at the heart of effective PPP design. If a good
balance is not achieved it will result in increased costs and the
inability of one or both parties to fully realize their potential.
• The need for sustained political support and commitment is clearly
demonstrated particularly for large projects and ones representing a
first attempt at developing and implementing a PPP project.
• Associated to this is the need to demonstrate clear value for money
from the project.
• Equally important is the need for an enabling and well defined
legislative and regulatory environment.
• Given the complex interactions between service provision and
financial viability, it is crucial for all sides to correctly estimate project
• SWA has responsibility for delivering a capital investment programme covering the
period from 2002 to 2006 and amounts to some £1.8 billion.
• It decided that the best way of making this investment was to create a subsidiary
company, Scottish Water Solutions (SWS) to deliver the investment required in the
most cost-efficient way.
• Scottish Water Solutions, SWS, is a unique joint venture. SWS was formed by SWA
and two consortia in one of the largest partnering agreements of its kind and a first for
the UK’s water industry.
• SWS is also set apart as there are eight partners with equity in the business – making
it a PPP partnership within a company structure.
• SWA owns 51% of SWS with the rest split equally between the two consortia: Stirling
Water, comprising Thames Water, KBR, Alfred McAlpine and MJ Gleeson and
UUGM which is formed by United Utilities, Galliford Try and Morgan Est. Today, SWS
brings together some of the most experienced figures in the UK water industry with
global experience of asset management, engineering, programme management,
construction skills and delivering major capital investment programmes.
• Results: SWA is now significantly more efficient, running at around 20% less than it
cost two years ago. The quality of drinking water is improved and the delivery of the
£1.8 billion investment programme to modernise the infrastructure is now gathering
pace, moving towards the implementation of at least £40 million worth of investment
• The Berlin Wasserbetriebe was privatised through a European wide
tendering process, which resulted in the constitution of a PPP in the
form of a joint venture between an international consortium and
Berlin City. The international consortium comprises RWE Aqua
GmbH, Allianz Capital Partners GmbH, both German companies
and Veolia Deutshland GmbH (formerly Vivendi of France). The
newly created company is the BerlinWasser Holding AG. Berlin
maintains control of the company with a 50.1% stake.
• Unfortunately Berlin Wasser experienced a liquidity crisis due to the
large amount of new investments required, a 9% interest rate on
contracted debts and the weight of the concession fee. This was
resolved through an agreement between the Berlin State and the
company for a debt guarantee of € 361 million, shared in equal part
between the public and the private counterpart.
• The city of Mülheim in 1994 invited two private partners to found the public-
private MSWM enterprise MEG limited. 25.1% of the shares belonged to the
city. The 74.9% of private shares were divided equally between one
international (Trienekens AG) and one domestic waste enterprise. In 1997
all private shares were transferred to Trienekens AG.
• In 1998 the city council asked the city management, the management of
MEG I and Trienekens AG to develop a PPP concept for all municipal solid
waste services. The political idea was to concentrate in one organization
again and to mobilize additional private capital and know how. The majority
of the shares – 51% – of the new PPP should be held by the city to keep
political control in a sector with controversial public discussions. Trienekens
AG accepted this proposal, which meant resigning its majority in MEG I,
• After two years of preparation and negotiations the new “MEG II” started
work in October 2000.
• Problem: ECJ!
Beiras Litoral and Alta Shadow
Toll Road, Portugal
• Shadow tolls present some adverse aspects to the public sector that must
be evaluated against the benefits. In first place, the regime implies the
transfer of costs from users to the public purse and ultimately to the
taxpayer. In second place, the regime provides some guarantees to
concessionaires, in order to reduce the traffic risk or to create additional
sources of profit.
• In Portugal they implied the granting of some local “monopoly” to
concessionaires: the government agreed contractually to freeze the Road
Plan as it was in 2000, in the vicinity of road concessions, for 30 years,
abstaining from increasing the level of service of those roads beyond the
stipulated in the Plan.
• The dramatic increase in projected costs of Beiras Litoral e Alta concession
to the public purse occurred also in other road concessions, creating a
significant burden to public accounts. The expected amount of shadow tolls
in 2007 is higher than the current highways agency budget for construction
and maintenance of national roads in all country. That, and the fact that
traffic prospects are very good in this concession, prompted the government
to announce in May 2004 that this highway (as well as several other SCUT
roads) will have real tolls when completed.
Beiras Litoral and Alta Shadow
Toll Road, Portugal
• In 2002, the environmental appraisal of the project resulted in the
refusal of the project and the requirement of enlargement of all
existing sections regardless of their gradient or sinuosity (that should
be, nevertheless, corrected).
• As this represents a deviation of more than 200 metres away from
preferred alignment, the concessionaire is entitled to compensation
for any additional costs or for delays in relation to the baseline of the
• As the environmentally accepted alternative (of just enlarging the
existing road) was not accepted by government, construction works
were stopped, and work schedule is delayed several years, waiting
for an agreement between concessonaire, government and local
authorities (and for the result of its ulterior environmental
Local Airport Kassel-Calden,
• The “Flughafen GmbH Kassel” (FGK) since 1991
operated as a joint stock company equally shared as a
public-private joint venture between the city of Kassel
and changing “silent” private partners. In 1995 the
municipality of Calden and the rural district of Kassel
started to participate in the FGK GmbH.
• Between 1991 and 2003, facing investments of €7,5m,
the annual deficit could be reduced from€0,25m in 1991
to an almost balanced budget, but a positive return on
investment has not been realised.
• In spite of two official and one private partner feasibility
studies, a diligent and sophisticated cost-benefit and
competition analysis has not been conducted so far.
• While the project partly transferred design and construction risk to the private party,
demand risk was borne by the public party and resulted in substantial costs to the
State as maximum revenues were not capped. Additionally no provision was made
for including project life cycle costs in the contract
• A competitive tendering process contributes to the creation of real value for money
[only one bid].
• The development of a national PPP competence centre is a clear advantage for the
development and application of analytical methodology, development of national
know-how, provision of assistance to local authorities and the general dissemination
of experience and support.
• The project clearly demonstrates that project costs and overall value for money are
affected by the effectiveness of the procurement process in identifying the most cost
effective solution. Also the public party should clearly identify the financial and
economic case for a PPP option beforehand by comparing it to traditional public
sector methods. Only if it clearly provides better value for money should a PPP option
be selected (as is now the case in most EU Member States).
• A modified toll model for public-private tunnel projects can be more expensive for the
taxpayer than a public solution if PPP experiences in transportation projects are
• General opinion in the Netherlands suggests that such a project would not be
repeated given the overly generous terms accorded to the private party in an attempt
to attract the required financing.
Channel Tunnel Rail Link (CTRL),
• This case highlights the importance of understanding the skills
and motivations of private sector partners and the impact that
they can have on the long term development of transport
• The CTRL was promoted by engineering and construction
companies whose primary interest is in designing and building
the infrastructure (a task they are completing successfully) but
are less skilled in the operational and commercial aspect of
• The development of passenger and freight services may
therefore have been less successful. This case also
demonstrates that on a project of national significance it is
almost impossible to transfer the overall risk of the project to
the private sector and that the Government must remain
Delivery of local services: CZE and
• The structure of forms of delivery of
selected local public services.
• The decision-making processes,
concerning selection of the form of
• The costs of delivery of respective
service for all existing forms of delivery
Table 2 Use of procurement methods in selection of external suppliers
Number of municipalities
Waste Public green Public lighting communicati Cemeteries
SR CR SR CR SR CR SR CR SR CR
a) open tender 2 4 1 0 1 0 3 2 1 0
b) price bid 0 8 0 4 0 3 0 8 0 3
c) restricted tender 1 7 0 1 0 0 1 1 2 1
d) negotiations 0 4 0 1 0 1 0 2 0 1
e) direct purchase 2 19 1 22 8 29 1 35 5 25
f) municipality not 9 13 9 7 0
15 4 4 3 1
Table 3 Average costs of waste collection and refusal according to respective forms of service delivery: Slovakia
Number of municipalities Average yearly costs per inhabitant
Form of delivery
1. Municipal employees 2 136,29
2. Brutto budgetary organization 2 295,34
3. Netto budgetary organization 7 420,36
4. Municipal limited company 9 538,35
5. Municipal joint stock company 2 701,35
Average for internal forms 22 398,34
Contracting 1 11 351,14
Contracting 2 9 251,44
Contracting total 20 301,29
Contracting 1 – citizen pay fees only to the municipality
Contracting 2 – citizen pay fees both to municipality and to supplier
Table 6 Relative costs for different forms of delivery of local public services in Czechia – sample 2004 (in house production = 100)
Waste collection Public lighting
In house production 100 100 100
Municipal firm 221 154 164
Municipal firms selected by
competition 172 112 102
Direct purchase 141 134 120
Tendering 192 135 116
Source: Pavel, 2006
CEE specific issues
• Level of market competiveness in CEE
• “Quality” of public administration
• “Quality of democracy”
• “Regulatory market”
Level of market competiveness
in CEE countries
• Potentially competitive markets in CEE are in
many cases still not well developed, but
characterized by monopolistic or oligopolistic
structures and behavior. With this it is rather
optimistic to expect comprehensive supply of
competing effective bids. Under these
circumstances the argument of possible unit
costs savings is far more controversial than in
developed countries, and the use of PPP has to
be more carefully evaluated.
“Quality” of public
• Current systems of public sector controlling/auditing use in most if
not all CEE countries dominantly the old-fashioned administrative
procedural type of control. New laws on financial control were
passed by national parliaments under the pressure from Brussels,
but in reality effective mechanism to control/audit real efficiency,
economy and effectiveness (nor quality) of public sector institutions
and processes are still not in place (see 2004 EC reports).
• Most of public sector organizations run old-type financial
management schemes, based on ”pre-historical” budgetary rules,
creating incentives to spend and not to save. Modern cost-centre,
outcomes based financial management is more than rare (if exists),
capital budgeting/accrual accounting methods the same. There do
not exist tools to calculate real costs of provision of any service.
• Contract management skills of public officials are more than limited.
“Quality of democracy”
• The “quality of democracy”, comparing developed
Western countries and CEE countries in transition,
differs still much. Democratic institutions cannot be fully
developed during still short period available for CEE
countries. Citizens are not able, but many of them are
also not willing really to control political processes in the
country. Media and non-profit sector just start to exercise
their crucial role in supporting of democratic processes.
• Under these circumstances the current non-responsive
(rent-seeking) behavior of politicians is fully effective,
exercising the simplest way to maximize individual
benefits (see data on corruption), at least in short-term
point of view. Voters are in this system these who loose,
but really they are not only victims, but also accomplices.
• The possible success of PPP, competition and
contracting is built also on high quality legislation
and regulations. However, normally the only
existing legislation in CEE countries is existing
[too complicated] public procurement laws,
defining just the procedure of awarding the
contract. High quality regulations and guidelines
are not available at all.
• The general situation of “the state of law” is not
supportive, too. Legal side of “business
environment” is very weak; there are real
problems to enforce the law.