1 Developing and Structuring PPP projects in Lithuania 2006/11/22

2 TABLE OF CONTENTS Perception of PPP in Lithuania; Overview of PPP initiatives and “symptoms” in Lithuania; A brief overview of Vilnius schools PPP project; What have we learned so far?

3 CURRENT INFRASTRUCTURE OF SCHOOLS IN VILNIUS

4 PERCEPTION – public sector Maybe PPP could become an additional source of funding and it would not take 200 years to satisfy urgent needs of infrastructure improvements?

5 PERCEPTION – private sector Is public infrastructure (PPP project) a (new) business opportunity?

6 PPP initiatives and “symptoms” in Lithuania In the form of: Standard public procurement (service contracts); Asset swap contracts; Joint ventures; Consortium agreements; Long term rent (operator) contracts; Privatization.

7 A FEW RECENT PRESS RELEASES

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10 PPP initiatives and “symptoms” in Lithuania (cont’d) Technology and science cluster “Saulėtekis valley”, current, Vilnius – (legal obstacles); Construction of Siemens universal sports hall in Vilnius (sharing losses); Kaunas schools PPP, Kaunas (terminated at political level).

11 PPP initiatives and “symptoms” in Lithuania (cont’d) Success stories: Vilnius SPA, 2003, Druskininkai; Europa City hotel, 2006, Druskininkai; Long term rent of utility service providers in Vilnius, Druskininkai and several other cities across country; Other.

12 PPP initiatives and “symptoms” in Lithuania (cont’d) Current projects: Vilnius healthcare (clinics) PPP, Vilnius; Vilnius schools PPP, Vilnius; Vilnius Tram PPP, Vilnius. Ideas and plans: Ignalina nuclear power plant; Santariškės medical valley; Universal sports halls in Kaunas; Universal sports halls in Panevėžys, etc.

13 A LEARNING PROJECT - Vilnius schools PPP At the beginning: A tender for advisors was announced 1.5 years ago (summer 2005); Expected timing and scope of the project – as fast as possible and as many EI as possible; Expected time of sample results - August 2006; Expected investment per school ~ LTL 2 mill.; Expected services – all (from reconstruction and building maintenance to leisure and community hours); Expected framework – Concession Law.

14 A LEARNING PROJECT - Vilnius schools PPP Examination and selection of EI Feasibility study Tendering and Contracting I Stage II StageIII Stage IV Stage Selection criteria Technical examination Selection PSC Shadow tariff analysis (PPC) VfM analysis Legal feasibility Risk assessment & risk allocation Soft marketing Invitation Competitive dialogue Binding proposals Selection Negotiations Contracting and implementation Inception stage (planning) PR and promotion

15 A LEARNING PROJECT - Vilnius schools PPP The result: The Pilot project – 2 lots of total 15 schools; Expected start of Pilot project – summer 2007 (2 years after the selection of consultant); Expected investment per school ~ LTL 4-8 mln.; Services – just reconstruction, facility management and financing (DBOF/PFI); Expected framework – competitive dialogue procedure under the Law on Public Procurement (DBOF/PFI).

16 A LEARNING PROJECT - Vilnius schools PPP What we have learned: PPP is a concept, a guideline for effective public sector planning and decision making process related to capital intensive, complex and long-term investment projects in public service and infrastructure area rather than a new financial instrument.

17 A LEARNING PROJECT - Vilnius schools PPP What we have learned (cont’d): We are starting from “the wrong foot”...

18 A LEARNING PROJECT - Vilnius schools PPP Source: EU Guidelines

19 A LEARNING PROJECT - Vilnius schools PPP What we have learned (cont’d): We do not need to re-invent a bicycle...

20 A LEARNING PROJECT - Vilnius schools PPP The options for choice Source: EU Guidelines

21 A LEARNING PROJECT - Vilnius schools PPP Typical PPP Structure

22 RECOMMENDATIONS Get Central Government involvement and commitment – establish an effective PPP knowledge and administration body; Identify resources (perform inventory of the State property), capital expenditure needs and set investment priorities; Coordinate/centralize State property management; Resolve purchase VAT issue for public institutions (contracting authorities). Is an exemption for PPP projects eligible/feasible? Government level:

23 RECOMMENDATIONS Government level (cont’d): Elaborate on legal realization of PPP schemes. Particular attention to “step in” realization, which mitigates the risks of financing institution in case of vendor default; Elaborate on Government contribution to PPP projects mechanisms through co-financing and/or risk hedging (guarantees, etc.).

24 RECOMMENDATIONS Contracting Authority level: Do not try to re-invent a bicycle - learn from and adopt PPP practice and guidelines of other countries; Involve all stakeholders and pay special attention and use resources to ensure sufficient communication (publicity) and transparency; Position a PPP project in the market; Facilitate competition among potential vendors to get best value for money; Establish a win-win, not win-lose relationship with a private partner.

25 THE END The rest is a matter of education, choice and professional management.

26 THE END Thank you for Your attention. Arvydas Saročka, Managing Partner UAB “Verslo procesų valdymas”, Tel.: ,