 Remaining public investment needs in the face of declining aid flows: what scope for public-private partnerships in BiH? Serban Ghinescu, EBRD 4 March 2003 1

PPPs: where can be used, public sector versus PPPs BiH: foreign aid is declining, budgets are facing hard constraints infrastructure is outdated, dilapidating rapidly, inadequate to support economic growth and to serve the citizens PPPs: Arrangements between governments and private sector entities to provide public infrastructure and services. Sharing of investment, risk, responsibility and return Areas: Power, Roads, Water, Waste Disposal, District Heating, Rail, Urban Transport, Hospitals, Education, Facilities Management, Prisons

Advantages and Disadvantages of PPPs to the Public Sector Significant transfer of risk in: Construction completion Design standards Integration of construction and operation Responsibility for day-to-day management Raising and repayment of finance DISADVANTAGES OF PPPs Long term contract possibly inflexible Can be complicated to implement Require institutional change Can require changes in law

Risks to be retained by the public sector Political risks: war and political violence, nationalisation and expropriation, change in law, change in tax Sector specific: usage or volume risk, ongoing need for a facility, off-take from a power station if there is no market Public sector duties: discipline in a prison, standards of education, universal service obligation in telecommunications

Generic constraints Affordability constraints Inadequacy of legislative and legal framework Lack of tendering and contracting capacity Public sector experience and willingness of private investors Affordability constraints Counter-party credit risk

Challenges for the public sector Build cross party consensus PPP’s typically will last for the life of several governments Become a manager of contracts Public sector is no longer a procurer of assets but a buyer of services Allow innovation Private sector finance is generally more expensive than public sector finance. Value to the public sector accrues from reductions in whole life costs which outweigh incremental financing costs

Challenges for the public sector contd. Provide a stable environment The private sector needs to be confident of the public sector’s long term commitment Plan thoroughly Set clear and realistic goals before starting the process of developing a PPP Build local capacity Need to work with international partners and achieve technology transfer

Challenges for the public sector contd. Build implementation capacity Consider a dedicated task force Address cross sectoral issues consistently Get good advice

Challenges for the private sector Build long term relationships with public sector clients Offer competitive prices and value for money Foster a long term investment culture

The way forward PPP’s can offer viable and cost effective alternative to the public sector model PPP’s are not a “cure-all” A successful PPP programme can bring resources, innovation and commercial enthusiasm to the development of infrastructure