Is there a role for the private sector in addressing the long-term housing needs of Ukraine’s internally displaced persons? According to a recent study conducted by the USAID Public-Private Partnership Development Program (P3DP), there is.
P3DP presented its study Facilitating Private Sector Participation in Delivery of Humanitarian Aid and Infrastructure Rehabilitation in the Housing Sector – Laying the Foundation for PPPs on August 3 at the Hotel Rus in Kyiv. The study was prepared by Professor Wolfgang Amann, an international consultant on infrastructure rehabilitation in the housing sector and social housing, with input from multiple local stakeholders.
Professor Amann traveled to Kyiv, Kharkiv, Odesa, and Dnipropetrovsk, where he collected data and held extensive discussions with local stakeholders, incluluding local governments, NGOs, construction and development companies, and donor organizations. At the event, he shared his key findings and specific recommendations for long-term IDP housing solutions with participants and presented private sector housing models targeting IDPs.
Professor Amann’s presentation was supplemented by comments and presentation of Natalia Dotsenko-Bilous, a Ukrainian lawyer who covered the legal aspects of PPP implementation in housing sector relevant to Ukraine.
The agenda, study and presentations by Professor Amann and Natalia Dotsenko-Bilous can be accessed at the links below:
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.
Solid 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.
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.
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.
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’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.
At the completion of P3DP’s three-day PPP “Train-the-Trainers”, the 21 participants announced their plans to establish the Ukrainian Association of PPP Trainers and Consultants. Their goal is to ensure that future and current municipal and business leaders in Ukraine acquire knowledge and skills necessary to create and manage viable PPPs. Participants also shared how their experiences in introducing PPP courses. KMBS presented how PPP modules are now incorporated into each of their MBA programs.
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.”
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.