Oleksiy Shostak, the mayor of Malyn, a city located in north central Ukraine, smiled with satisfaction as he watched a group of third graders leaving Malyn School #1. This past winter, three schools in the city switched from natural gas to biofuel heating.
Shostak glanced at the boiler house, which provides heat for the schools’ 1,700 students. “I think the city will have no trouble meeting the new restrictions on imported natural gas,” he said. “This will also allow us to cut municipal heating costs.”
In 2012, Russian natural gas was increasing in price and supply was becoming vulnerable to political disagreements. That’s when the Zhytomyr Regional Council turned to the USAID Public-Private Partnership Development Program for help to convert municipal boiler houses from imported natural gas to locally produced biofuel. The council needed help to attract funds and expertise from the private sector.
Switching to locally available biofuel, such as wood or straw pellets, had the potential to reduce expenses while ensuring a reliable supply of heating fuel. USAID selected Malyn, which is located in Zhytomyr oblast, for a pilot project to test a newly developed business model known as a public-private partnership (PPP), which leverages the expertise and resources of the private sector.
“Zhytomyr oblast has a wealth of wood and agricultural byproducts, and it is shame to waste it by using natural gas for heating,” said Georgiy Geletukha, head of the Bioenergy Association of Ukraine. “With these resources, it shouldn’t take Ukraine long to substitute up to 18 percent of its natural gas use with local biofuel.”
P3DP shared its experiences from the pilot PPP biofuel project in Malyn at the clean energy workshop organized by the USAID Municipal Energy Reform Project (MERP) in Kamyanets-Podilsky. P3DP presented lessons learned, challenges and key success factors of the project. About 60 people attended, including local government representatives and the Association of Ukrainian Cities.
The success of P3DP’s biomass heating PPP was presented at a roundtable on PPPs in biomass/gas projects organized by the Local Alternative Energy Solutions in Myrhorod (LAESM) Project. P3DP shared experience and lessons learned with local officials and representatives of business communities, emphasizing the benefits of PPPs and outlining the development process.
IFC is conducting a feasibility study of a road concession project that will connect Kyiv’s ring road to the highway to Kharkiv. The State Agency for Investment and National Projects has asked for P3DP’s support in the legal analysis for the project. The concession road is expected to greatly reduce congestion around the city, which lies on major transportation routes.
P3DP’s knowledge and experience of the PPP process in Ukraine has been recognized by the National Projects Agency (NPA) and the International Finance Corporation (IFC), the private sector arm of the World Bank Group. The NPA asked P3DP to help identify regulatory obstacles to the Kyiv Ring Road Project and to propose changes in legislation to address them. P3DP will also join a working group along with IFC, NPA, and Ukravtodor, the state governing body of roads in Ukraine.
Last month, IFC began a feasibility study for a road concession project to connect Kyiv’s ring road to a major highway, which will require building either a tunnel or a bridge. The project will improve the flow of commercial traffic around the city, which intersects with several major transportation corridors in Central and Eastern Europe. The feasibility study will be submitted to the Cabinet of Ministers of Ukraine by the end of first quarter of 2014.
Legislation that P3DP will examine includes the public procurement law, the road concession law, and the PPP law, among others. It will review how legislation impacts the process for selecting a concessionaire, public spending, contracting issues, permits, land rights, construction and other issues. P3DP’s Tatiana Korotka has drafted a terms of reference for this analytical work for review and comment.
P3DP’s involvement enables it to have valuable input to an important infrastructure project that will have a major economic and environmental impact in Ukraine. Its expertise, gained through previous legislative work and on pilot PPP projects, will now have a broader impact.
Malyn, a city of 27,000 in Zhytomyr Region, plans to use renewable biofuel to heat schools. Condensed straw pellets produced from agricultural waste can be used to replace non-renewable energy sources, thereby saving costs and reducing carbon emissions. Photo: Simone
A major milestone was achıeved on October 30 when the MOEDT’s PPP Unit approved its first PPP project, the Malyn Municipal Heating with Renewable Energy PPP. The decision clears the way for Malyn to proceed with the competıtıve tender, which it plans to announce in November.
The PPP Unit, which was established within the MOEDT with P3DP support, plays an important role in PPP development in Ukraine. In addition to defining Ukraine’s policy on PPPs, it mapped out a methodology that ensures that potential private sector partners will have key information necessary for participating in tenders. This includes technical, legislative and market reviews, environmental and social impact assessments, and a financial model. The PPP Unit also ensures that the proposed PPPs adhere to Ukrainian legislation and result ın brıngıng value to Ukraınıan cıtızens. The Unıt’s involvement in the PPP process increases confidence in the project’s transparency, viability, and bankabılıty.
The Malyn project is on track for becoming Ukraine’s first clean energy PPP. Malyn, a city of 27,000 in the Zhytomyr Region, plans to use renewable biofuel to heat schools, which will reduce energy costs by about 10 percent and reduce carbon emissions by 11,000 metric tons. Over 1,600 children will benefit from more reliable heating, while enabling the city to strengthen its environmental and financial resilience in the face of budget constraints. Local businesses will also benefit.
P3DP will continue its work with Malyn officials in preparing the stakeholder communıcatıon program and package of tender documents. It will also continue its work with the MOEDT to build the knowledge and skills it needs to assess and support future PPP projects.