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Parisian PPP debate

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Panelists at Paris seminar

Alexei Zverev - EBRD's Senior Counsel

A seminar on concession laws in the region

Among the many measures of success in transition to a market economy, one important indicator is the ability to make available a broad array of financing options for infrastructure projects and public services. Alternative financing reduces the burden on public budgets – a direct, measurable benefit. But there are other important benefits too, such as competition, private sector efficiency and innovativeness. Ultimately, it's about the availability of flexible choices.

This made the conference organised by EBRD lawyers from the Office of the General Counsel and the law firm Gide Loyrette Nouel – on "Working with Concessions in Transition Countries" – of pressing interest for all countries in the Bank's area of operations. The 25 April session, held at the Ministry of Economy, Finance and Industry in Paris, was dedicated to the recent EBRD Assessment of Concession Laws sponsored by the French Government.

Concessions, or PPPs (Private-Public Partnerships) are commercial arrangements between private-sector companies and the public sector. The private partner's role can range from, at the high-risk end, being the buyer in the privatisation of a state asset and taking full responsibility for it, to, at the opposite end of the scale, simply taking on a management contract for a state-owned enterprise and not being exposed to much risk if it fails. Between these two extremes, a spectrum of arrangements exists in which the private-sector partner undertakes some obligations and some risk. Such arrangements require a sophisticated legal environment to allow for the right balance of interests of both public and private sector partners on a particular project.

The Bank has financed eight water-treatment PPPs in eight different countries

Enthusiasm for these types of financing is high at the EBRD. The Bank has, for instance, financed eight water-treatment PPPs in eight different countries and is considering other opportunities in the electricity, municipal services and transport. The EBRD's President, Jean Lemierre, opened the seminar, which he explained would give the 100-strong audience "a flavour of the technical assistance that the Bank can provide in the legal sector, through its Legal Transition Programme", by describing PPP financing options as "an important tool in fostering transition."

"Such partnerships are only possible when authorities are committed to market economics and to encouraging private-sector participation," he added. "Every week we hear new success stories relating to Public Private Partnerships, which are a clear illustration of the transition efforts of the relevant countries. " However, he also warned those contemplating PPP projects to beware of the danger of corruption.

PPP arrangements need to be governed by clear laws

Naturally, all PPP arrangements need to be governed by clear laws that protect both sides and, if everything goes wrong, allow either the government or lenders to step in and take over the running of the project. Of the Bank's 27 countries of operations, only 19 have specific concession laws so far. Four more have drafted laws which have not yet come into practice. Others rely either on general laws or on sector-by-sector legislation governing, say, highways, or water distribution, as back-up for their PPP contracts.

The point of the EBRD's assessment of the concession laws so far passed in the Bank's countries of operation was to see how well drafted they were, by comparing them with international best practice in seven areas, and determining how they could be improved. Alexei Zverev, Senior Counsel in the Bank's Legal Transition Team (LTT) and operation leader for the assessment project, said the team had decided, for the purpose of this evaluation, to stick with the laws as they appear on the books rather than to look at how they are implemented in each country. "But we plan to do this soon," Zverev added.

The results? Only Lithuania – which already has a concessions law that the EBRD helped put together – scored as "highly compliant" with international standards. In other countries, results were more variable. Even those that scored high in one area might lag in another. "The laws may be well developed as far as one or two core areas are concerned and virtually silent on other extremely important issues," Zverev said.

"Assessment is not the goal in itself," Zverev added, noting that he expects several countries to sign up for EBRD assistance in redrafting their laws as a result of this analysis. "This is the means for the identification of further reform needs in a given country."

10 May 2005