HOW A SMALL ECONOMY CAN PREPARE ITSELF FOR PPP
The Main Challenges
The Kyrgyz Republic is a landlocked mountainous country with a population of some 6 million people, located in Central Asia. It was part of the Soviet Union and became independent in 1991. The country is in dire need of modernizing its social and economic infrastructure which originates mostly from the Soviet era and has become deteriorated. The government has identified the PPP mechanism as a critical delivery scheme to accelerate investments and improve the quality of public service provision.
Implementing PPPs in the Kyrgyz Republic is challenging. It is a lower middle-income country with a small economy and limited fiscal space. The capacity of the public administration is weak and access to project finance is marginal in view of the country risk profile, currency volatility and absence of a well-developed financial sector.
The government adopted a PPP Law in 2012 and arranged support from ADB to strengthen the enabling environment for PPP. The ADB retained a team of national and international consultants to provide long-term technical assistance and appointed Marcel van den Broek as Team Leader.
The Project
The immediate priorities included the further development of the regulatory framework through a range of government regulations to provide operational guidance on the basic policies and process that govern PPP. In parallel a continuous capacity building program though trainings and workshops to a dedicated group of government officials. And the team of consultants was proactively engaged in the identification and screening of possible PPP projects, recognizing that without actual projects, the PPP framework would remain theory and not lead to the necessary reforms.
Shortly after commencement of the technical assistance program, the government announced their PPP endeavors through a high-level PPP Forum. The forum that included representatives from the government, ADB, international developers and PPP officials from other countries. The event aimed to demonstrate the government’s commitment to the PPP program as emphasized by the Prime Minister’s opening statement and raise awareness and sensitization on the benefits of PPP and its critical success factors, most notably the need for thorough project preparation.
Building on this reality check, and instigated by the ADB, the government established in 2014 a USD 4 million Project Development Support Fund to enable public agencies to fund the necessary feasibility studies for preparing PPP projects. Furthermore, the government established the Investment Promotion Agency including a dedicated PPP unit to coordinate and support the different PPP projects. In 2015 the website was launched to communicate the government’s PPP program and in 2016 the government adopted formally the country’s PPP strategy. The PPP Law was further improved and fully aligned with international best practices including mechanisms for checks and balances to minimize the risk of PPP failures and including appropriate procedures and requirements for competitive tender procedures.
Five years after the enactment of the country’s PPP Law the first PPP contract was signed, the development and management for 10 years of 4 hemodialysis centers. The contract, relevant for improving the country’s health care, was awarded to a German company following a competitive tender process with support from IFC as transaction advisor. This contract was followed by further successful tenders for the introduction of E-ticketing in Bishkek and the modernization of a public cinema.
Project Features
Client: ADB
Beneficiary: Ministry of Economy
Funding Agency: ADB
Period: 2013 - 2017 and 2019 to date
Activities Performed:
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Project Screening (reviewed some 20 initiatives in various sectors for PPP suitability)
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Drafting amendments to PPP Law and PPP related regulations
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Drafting PPP Manual and specific guidelines/regulations (including Fiscal Risk Guide
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Organising High-level PPP Forum
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Training and capacity building (including the design of a Kyrgyz Certification program)
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Design of financial instruments (including Project Development Support Fund and the Kyrgyz Infrastructure Finance Fund)
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Design PPP Strategy
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Results
The development of PPP in the Kyrgyz Republic is exemplary for small scale economies. This conclusion is based on the following assessments.
First and foremost, the government of the Kyrgyz Republic has managed to develop a PPP Framework that is conducive to developing and implementing PPP projects. The environment for PPP has been qualified in 2018 by independent review as the best in the region and is considered to be developed, whereas in 2012 it was still considered to be nascent.
Secondly, the different implementing agencies have been most active with the identification of possible PPP projects amounting up to some 45 project initiatives. This is commendable in view of the limited size of the Kyrgyz economy and the limited experiences with PPP. Obviously not all of these initiatives have been considered worthwhile for further development though almost half of them have received green light to proceed to the preparation phase. 18 initiatives have been subjected to a Feasibility Studies and out of these, already 3 have been successfully tendered. The common denominator for these projects is the relatively small scale recognising the constraints to accessing project finance.
This commendable achievement does not mean that there are no areas for further improvement. The main activities for further strengthening the enabling environment for PPP include:
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Operationalize the envisaged PPP Agency to further promote PPP and enhance the effectiveness of PPP preparation;
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Further refine operational guidelines for guiding, reviewing and approving feasibility studies and tender documents in order to increase the quality of project preparation and effectiveness of the necessary checks and balances;
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Continue strengthening the capacity for developing and implementing PPP specifically through enrollment in the APMG’s Certified PPP Professional program;
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Continue to increase PPP awareness and sensitize stakeholders with particular focus on the government’s noteworthy accomplishments;
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Develop and implement financial instruments to facilitate / increase the access to non-recourse finance in order to allow also the development of more large-scale PPP projects.