“PPP is needed first of all by the state” – Newspaper Kommersant No. 157 (7358) dated 08.29.2022

Director General of the National Center for Public-Private Partnership (PPP) Pavel Seleznev in an interview with Kommersant, he spoke about the current state and problems of the market, the prospects for the project approach and ways to increase investment in infrastructure projects.

— How does the PPP market feel now? Did he manage to recover or did the new sanctions-related problems overlap with the echoes of the “covid” ones?

— Surprisingly, the PPP market developed both during the pandemic and after the start of a special military operation, when restrictive measures were taken against the country. The number of projects undergoing commercial closure is steadily increasing. Thus, from the beginning of the year and until August 23, 63 projects were launched under concessions and PPP agreements with a total investment of 231.7 billion rubles, of which 136.7 billion are funds from private investors. In general, the PPP mechanism has proved its flexibility and adaptability, unlike the classical state order. Thanks to changes in legislation, participants in PPP projects have been able to change the terms of concession agreements in terms of revising their cost – this measure has shown its relevance, and, in our opinion, it should be extended. An important factor was the ability to change the terms of concessions without the consent of the Federal Antimonopoly Service – in practice, we often encounter difficulties in these matters. Now we are preparing proposals to expand this mechanism to the public utilities and transport sectors, which are not subject to such relaxations.

Quite interesting is the fact that in June we saw a significant increase in activity in the PPP market: if usually 60–70 tenders and private initiatives are published at auction per month, then by the end of June we saw 106 such applications, in July – 88. In my opinion In my opinion, this is due to the fact that business has gradually begun to understand that concessions are the most secure form of interaction with the state, better than a lease or a government contract. Also, over the past couple of years, the average cost of projects has increased, if a couple of years ago it was 1.5–2 billion rubles, now the average cost of a project is 3–4 billion rubles, and this is not due to the rise in the cost of materials and equipment, but with the fact that business began to invest in more capital-intensive projects in the social sphere.

Investors are ready to invest in infrastructure subject to long-term demand – only the state can provide such demand today, so we expect that PPP mechanisms will continue to be actively used. If we turn to statistics, then the fastest growing PPP market is in China, where the demand for PPP projects is primarily formed by the state. Russia ranks second in terms of the number of PPP projects, but we are still far behind in terms of investment volume. As of the end of June, 7.9 thousand PPP projects are being implemented in China with a total investment of 13.1 trillion yuan, in Russia at the same date – 3.7 thousand projects with a total investment of 5.4 trillion rubles.

– What is it connected with? What are the main problems of the Russian PPP market now?

— One of the key problems of the Russian market is that businesses do not want to bear risks at the stage of project preparation, not understanding whether a concession agreement will be signed in the end, and if so, on what terms. For example, in Europe, as well as throughout the world, there are mechanisms to support the pre-project phase. At one time in Russia, the European Bank for Reconstruction and Development (EBRD) launched a financial instrument that involves the allocation of funds for pre-project work, and in Eastern Europe it created a pre-project financing fund, from which money was issued for the preparation of projects, which were returned as the project was implemented. We have been saying for many years that in order to increase the number of projects and the volume of investments, it is necessary, first of all, to improve the quality of the projects themselves – now it sometimes leaves much to be desired. And for this it is necessary to come up with a mechanism for co-financing or financing of the pre-project stage.

– From the side of the state?

– Oh sure. In fact, the state needs PPP first of all – after all, we are talking about public infrastructure. Now, together with VEB.RF, we are preparing proposals for the Ministry of Economy to create a financial instrument that will allow, either on a grant or on a repayable basis, to raise money for these purposes. It is possible that both options will be provided. For example, in the case of social projects, commercial payback is not very obvious, so state support for such projects is important, in particular, on a grant basis. Such institutions already exist in other areas. For example, the Russian Foundation for the Development of Information Technologies (RFRIT) allocates funds for the creation of digital projects. Infrastructure should also have such a mechanism – it will be of great help to the market, especially in the social sector. The total investment in all programs that provide for the use of PPP mechanisms is more than 1 trillion rubles. until 2024. In order to cover the needs of the market in the preparation of projects, about 20 billion rubles are needed. from the side of the state. If the state goes to meet the market and provides this kind of support, this will increase the speed of project preparation and improve their quality. The details of such a mechanism are still being discussed.

Another problem is that not all projects reach signing. Let me remind you that on average, from 60 to 100 competitions and private initiatives are published monthly, while not a thousand projects, but only about a hundred, go through commercial closure by the end of the year, and even fewer reach financial closure. In particular, this is due to the fact that the parties do not always have the necessary competencies or simply speak different languages. For example, a business asks for the information necessary to prepare a financial model for a project, but a region often cannot provide it for various reasons. This is largely due to the fact that traditionally the market has developed more due to private initiative and the activity of banks.

Today we understand that Russia needs a programmatic approach to the development of PPPs: if we want to create a kind of project factory, then all participants must clearly understand the rules of the game. We are already seeing the first attempts at such a systematic approach.

– What is this approach?

– As an example, we can cite the program for the construction of schools on PPP (the state program “Development of Education”). Why did you manage to launch dozens of projects across the country in a short time? The government systematically approached the problem of reducing the second line in schools – approved the program, determined a single operator (GK ProShkola), the budget, the required number of schools in certain regions, and also attracted the system development institute VEB.RF, followed by Other banks immediately followed suit. The creation of digital infrastructure played a big role in the launch of this program. When the regions began to actively participate in the program, we realized that the process of preparing projects should be carried out in a single digital environment. As a result, we created a project office on the Rosinfra platform, which allows us to involve all project participants in the process – this is both a common document flow and a single preparation track, that is, the whole process is standardized and automated. Now concessions, which take an average of one and a half years to prepare – from idea to financial close, can be prepared in a few months. This is a big breakthrough for the PPP market – there has been a mental, managerial shift. If earlier work was carried out from project to project, now the state has begun to treat PPP systematically.

A systematic approach, within the framework of which state programs provide for co-financing of PPP projects, is now being implemented in other sectors – urban electric transport, ecology, sports, higher education, and geriatrics. In most of these programs, VEB.RF plays an important role as a development institution and financial institution. We hope that a similar program will be launched in the healthcare sector. It is known that the Ministry of Health is ready to co-finance regional concessions for the construction of polyclinics from the budget within the framework of the Health Development Program. The federal center allocates 500 billion rubles for the development of primary care as a whole. until 2024, and now the regions have the opportunity to allocate funds for construction under a state order or under a concession. Now we are faced with the task of building a professional dialogue with the regional ministries of health and convincing them that concessions are more promising than government contracts.

— Is it possible to form a separate state program in the future?

— We have such an initiative – to propose a federal program for the development of PPP, which will specifically indicate the areas and quantitative indicators: how many projects, in which industries and in what years should be implemented with the involvement of private funds. Moreover, we see demand from regional authorities – the regions are already to some extent following this path, annually publishing lists of projects that they are ready to implement under concessions. However, this is the initial stage of such a programmatic approach – it is not enough to publish a list, it is necessary to show the readiness of the state to support these projects, including financially. To implement such a systematic approach on the market, the program must have an operator who will build a unified project preparation process – this role could well be taken by a development institution represented by VEB.RF.

In general, we are moving in this direction, but we must understand that the market is changing – the time of projects that were focused on consumer demand (for example, toll roads) is ending, as the solvency of the population is falling. Today, it is quite risky to build a financial model based on the return of funds from the payment of the population. Therefore, ideas arose to launch new PPP mechanisms in order to more actively involve private business in infrastructure projects.

– What are the options?

— First, new forms of PPPs have emerged, such as offset contracts. Of course, there are still few of them, not all regions are yet sufficiently aware of this mechanism, but in general we see a trend towards their development. There is also a request for the use of concessions in the construction of infrastructure for industrial production – unfortunately, there are practically no such projects so far. And now, in order to ensure technological sovereignty, the time has really come when it is necessary to actively promote PPP in industry and science – these areas are interconnected, so we are thinking about how to include science in the process of preparing and implementing PPP projects.

Interviewed by Evgenia Kryuchkova