Sharing PPP Experiences across Borders

How valuable are lessons of experience in PPPs from other countries? Legislative and regulatory environments differ, as do market conditions and the overall investment climate. So replicating a successful PPP in another country isn’t a simple as following the same steps or using similar contract or tender documents.

But that doesn’t mean lessons cannot be transferred. Even if conditions vary, the underlying principles of PPPs remain the same regardless of where it is executed. For example, a PPP is always a long-term contractual agreement between a government entity and a private company; it must be financially sound if it is to work; and risks must be identified, mitigated and allocated effectively. The details of how these principles are applied will vary depending on the regulatory and market conditions of each country. But the examples remain valid nonetheless.

In Ukraine, PPPs have been slow to catch on, initially because the business climate was so weak. The country’s neighbors were all more successful at implementing PPPs: Poland has 65 PPP project underway according to the Ministry of Economy’s PPP database, and Moldova’s first PPP established a radiology and diagnostic imaging center. But none of Ukraine’s neighbors have done as well with PPPs as its Black Sea neighbor, Turkey.

Read more on the World Bank Group’s PPP blog.

Solid Waste Management in Ukraine: Potential for PPPs

Landfill GasSolid waste management is a major problem in Ukraine. A 2014 Russian-language study by the International Finance Corporation (an update in English was just released but is not yet online) reports that Ukraine produces up to 13 millions tons of municipal solid waste annually with recycling rates in the 3 – 8 percent range. That means most solid waste ends up in its 6,700 landfills and dumps, many of which are unauthorized, overfilled, or fail to meet sanitary requirements..

Government has taken some positive steps to deal with the problem: it’s improved solid waste management legislation and plans to meet European Union standards for recycling. But Ukraine is grappling with an economic crisis, a simmering war with Russia, and 1.3 million internally-displaced persons in urgent need. Simply put, government doesn’t have the resources – not financial, technical, or managerial – to fix these problems anytime soon.

This spells bad news for ordinary citizens. Toxic pollutants contaminate water and soil, and landfills emit methane, a virulent greenhouse gas. Landfills are running out of space. And the economic cost of not recycling – in terms of lost raw materials – are significant.

Clearly, government needs to develop and implement a sound solid waste management strategy. Part of that strategy should include partnering with the private sector through public-private partnerships.

How Can PPPs Help Ukraine’s Solid Waste Management Sector?

The private sector can offer a number of services that government alone would find difficult to provide itself. These include:

  • Building and managing recycling facilities to recover glass, plastic, metal, and cardboard;

  • Developing and operating incineration and landfill gas recovery facilities to generate heat and/or electricity;

  • Designing, building and managing modern landfills, including waste collection and transportation.

Several Ukrainian cities, namely Vinnytsia and Ivano-Frankivsk, are already developing PPPs to capture landfill gas and use it to generate electricity.

Is the Private Sector Interested?

The private sector has shown cautious interest, at best, in solid waste management in Ukraine. Some reasons the private sector might consider participating in a solid waste PPP are:

  • With a sufficiently high tipping fee, which covers the costs of managing landfills, a multi-year PPP can be a source of stable, long-term income for the private operator.

  • Ukraine has significant amounts of waste that have not been tapped for recyclables or landfill gas. An efficient private sector player would have the opportunity to exploit these resources profitably.

  • Because of uncertainties over the price and availability of imported gas, mostly supplied by Russia, the Ukrainian government is eager to identify new ways to generate heat and electricity. Solid waste can be used to generate both.

  • Ukraine has a special Green Tariff for electricity generated from renewable resources. The amount depends on the source of power generation.

Can this work? There are many examples of successful PPPs in the sector. One example is a landfill in Berhampur, India, where the operator will process 150 tons of waste per day. Another example is in Wenzou, China, a city of 2 million, where a PPP converts waste to electricity.

Managing Risks

The risks of a solid waste management PPP in Ukraine are high. How these risks are allocated depend on the specific PPP and on which partner is best positioned to handle them. A thorough feasibility study and effective communication with potential private partners, NGOs, other stakeholders and the public can identify these risks so that they can be properly managed. Some potential risks include:

  • Regulatory risk. Legislation impacting PPPs, concessions, tariffs, and budgets is still developing. There is a risk that regulatory changes could impact the business model for the worse. Critical regulations, therefore, should be identified and contract terms developed to ensure that unexpected changes do not undermine the economics of the PPP. This could include tariffs, special green tariffs, tipping fees, permits, and others.

  • Environmental risk. Although the private sector can assume responsibility for environmental risks when building and operating modern landfills, it will not want to be held accountable for previous pollution. A thorough environmental review is essential.

  • Technical and logistical risks. The private operator is better positioned to assume risks with construction, developing a sound logistical system for collecting and transporting waste, or developing efficient recycling systems.

  • Risk of underestimating waste volume. Revenue forecasts depend on accurate estimates of waste volume. Overly optimistic estimates could lead to operator losses.

In sum, the Ukrainian government needs the financing, business savvy and technical expertise from the private sector to develop its solid waste management sector. PPPs should be a key component of a sound solid waste management strategy.

Learn more:

Handshake Issue 12: Waste and PPPs by World Bank Group Public-Private Partnerships

Global Grain Operator to Invest in Modernizing Ukrainian Port

The Ministry of Infrastructure announced that the Soufflet Group, a leading player in global grain markets, will develop the SE Illichivsk Sea Commercial Port. An MOU was signed that outlined Soufflet’s intention to implement the infrastructure development project over the next few years. P3DP is supporting efforts to develop industrial parks and related infrastructure.

Health Ministry to Introduce Electronic Healthcare Management System

Photo: molbuk.ua

Ukraine’s Health Minister announced plans to introduce an electronic healthcare management system within one year. A single register with data on patients, doctors, and all clinics and emergency care hospitals is to be created. In addition to national agencies, municipal governments are looking for ways to overcome budget constraints to introduce e-Government programs that improve citizen services.

Ukraine to Present Privatization and Fiscal Reform Plan

Ukraine’s Prime Minister announced preparation of a plan on privatization, fiscal reform and restructuring of the energy sector. He underscored that the plan will emphasize transparent, fair and open tender competitions to increase foreign investment in strategic infrastructure and the economy. The plan will be presented at an international business conference on July 13 in the USA.

Alternatives to Address IDP Long-term Housing Needs Being Assessed

At the IDP Shelter Cluster Meeting in Kyiv, local and international agencies, programs, and NGOs shared information on growing IDP housing needs and provided technical updates on ongoing and planned assistance. P3DP described efforts to identify specific long-term housing projects that incorporate private sector participation.

New Regulation Designed to Accelerate Reform in Ukraine

The Verkhovna Rada adopted Regulation #2986 On the Plan for Legislative Support to Reforms in Ukraine. The plan was developed by 90 members of parliament with assistance of the international donor community, including active support from P3DP. The regulation facilitates implementation of the National Strategy 2020, the EU Association Agreement and Coalition Agreement.

Viability of Alternate Energy Projects Boosted by Amended Legislation

Reforms approved by the Rada increase investment attractiveness of alternative energy projects. Draft law #2010-d better aligns green tariff rates with European practices and loosens requirements to use Ukrainian-produced equipment. The amendments support municipalities’ efforts to attract private sector investment needed for replication of P3DP’s alternative energy PPP pilot project in Malyn.

Ukraine Branch of International Chamber of Commerce (ICC) Championing Development of PPPs

P3DP presented an overview of PPP environment in Ukraine during an International Chamber of Commerce regional round table in Odesa. ICC recently established a PPP Commission designed to provide technical and political support for PPP projects initiated by their members. Recent initiatives address improvement of port facilities and establishment of technology parks with private sector participation.

Minister of Infrastructure Highlights Need to Improve Ukraine’s Ports and Waterways

P3DP participated in the Q&A session organized by the EBA with Ukraine’s Minister of Infrastructure. The Minister stressed the importance of rehabilitating key ports and improving commercial access to the system of waterways. Restructuring of the State Road Agency was also cited as a priority step toward improving infrastructure needed for economic development.