PPP Projects in the Slovak Republic. Bratislava, JUDr. Ján Azud

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1 PPP Projects in the Slovak Republic Bratislava, JUDr. Ján Azud

2 Who we are Ružička Csekes law firm has been present on the market since 1992 A member of CMS Alliance asocciated with Cameron McKenna Extensive international and local experience with providing advise to all regular PPP participants (governments, lenders, private sector) Cameron McKenna a leading provider of legal services in the PPP market in the UK, Central and Eastern Europe Local PPP experience: Advising the Ministry of Transport, Postal Services and Telecommunications during the tenders for concession for design, construction, financing, operation and maintenance of the D1 motorway (Phase 1 and Phase 2) and the R1 expressway Advising the Ministry of Finance during preparation of an analysis of Slovak legal environment designed to facilitate PPP projects in Slovakia Advising Národná diaľničná spoločnosť, a.s. (National Motorway Company) with respect to preparation of tender documents and negotiation of a contract with an electronic toll collection service operator

3 Content PPP Projects - Introduction PPP Projects in Practice Course of a PPP Project The Slovak Experience PPP Projects in the Healthcare Sector

PPP Projects - Introduction Public-Private Partnership (PPP): a long-term partnership of the public and private sector aimed at efficient provision of quality public infrastructure or service The

4 PPP Projects - Introduction Public-Private Partnership (PPP): a long-term partnership of the public and private sector aimed at efficient provision of quality public infrastructure or service The Definition of the European Commision (Green Book on Public-Private Partnerships): form of cooperation between public authorities (communities, regions, ministries, etc.) and economic operators (firms or consortia). The primary aims of this cooperation are to fund, construct, renovate or operate an infrastructure or the provision of a service.

5 PPP Projects - Introduction provision of public service long-term cooperation between a public and a private partner typically from 10 to 30 years (chiefly based on the life cycle of the infrastructure in question) involvement of the private partner into several phases of a project the private partner may for example design, construct, finance, operate and maintain the construction under a prescribed service and quality level a way to finance the project normally wholy or at least partially financed by the private partner the private partner receives compensation for the services provided payments from the public partner (availability payments in availability based projects) or directly from end-users (for example toll revenues in demand based projects), or combination of both sharing of project risks between the partners risks (in particular the construction risk, the availability risk and the demand risk) are taken over by the partner who is best suited to manage it for example, the private partner may bear the construction risk (including cost overruns), operation and maintenance of a hospital

6 PPP Projects - Introduction Public Sector RISK Public Private Partnerships Private Sector Public Authorities OM BOT DBFO BOO Privatisation Involvement of the Private Partner Typical PPP models: OM Operate Maintain BOT Build Operate Transfer DBFO Design Build Finance Operate BOO Build Own Operate

7 PPP Projects Upsides and Downsides Main Upsides: normally finished on time normally without cost-overruns more efficient / better / cheaper provision of public service compared to the public sector the public sector retains control over the project solution to budgetary restraints fixed price known in advance either party can focus on its core business room for innovation socio-ekonomic benefits Main Downsides: complexity and time for preparation higher cost of financing lower flexibility during the project based on a long-term contract strong public interest and scrutiny

8 When to Go for a PPP Project a need for a long term provision of a public service the private partner is likely to provide the service in a more efficient / cheaper way (Value for Money) clear and objective need for the project political support and wide consensus previously tested sector proper magnitude and complexity of the project lack of or restraints with respect to own finance targets and outputs of the project can be clearly and easily defined quality preparation (Feasibility Study) clear notion of financial requirements ability to form a suitable project team and willingness to engage experienced experts proper time period

9 What to Expect from a PPP Project in Practice Please Do Not Expect Too Much! Be prepared for things you have never encountered and you will not understand Try to forget what you know of regular infrastructure projects Be ready to lead a dialogue, face extravagant requirements and accept compromise Be ready to be flexible Be ready to be tough

10 Stages of a Project No legal definition of PPP projects in Slovak laws The definition of concession (includes both contractual types of PPP projects) - availability based and demand based No precise catalogue of rights and obligations of public and local authorities with respect to PPP projects Regulation of various stages of PPP projects is dispersed through different laws The most precise regulation is probably contained in methodical guidance of the Ministry of Finance Guidance on the Management of Preparation of a PPP Project Feasibility Study and Public Sector Comparator Contents and Requirements Guidance on Preparation and Implementation of a PPP project and Review Procedure Template for a PPP Business Plan and Selection Criteria Risk Management in PPP Projects

11 Stages of a Project Preparation of a Project Procurement Approval of a Project and Contract Signature Implementation of a Contract

Stages of a Project Preparation of a Project: Act on Public Works (Zákon o verejných prácach) Construction Act (Stavebný zákon) Environmental Impact Assessment Act (Zákon o posudzovaní vplyvov na

12 Stages of a Project Preparation of a Project: Act on Public Works (Zákon o verejných prácach) Construction Act (Stavebný zákon) Environmental Impact Assessment Act (Zákon o posudzovaní vplyvov na životné prostredie) Nature and Country Protection Act (Zákon o ochrane prírody a krajiny) Sector-specific regulations (Act on One-Off Extraordinary Measures related to Construction of Certain Motorways and Expressways, healthcare regulations) Methodical guidance issued by the Ministry of Finance Public Procurement Public Procurement Act Approval of a Project and Contract Signature Act on Public Administration Budget Rules Act on Local Administration Budget Rules Implementation of a Contract Construction Act (Stavebný zákon) State Property Administration Act (Zákon o správe majetku štátu) Act on Accounting (Zákon o účtovníctve) Tax laws

13 Preparation of a Project A thorough preparation is inevitable Internal identification of a proper project, distribution of responsibilities, setting up of project organisation and management, selection of advisors External - technical and legal preparation of documents for the project Pre-project documents business case, feasibility study Project documents EIA, zoning permits, construction permits Compliance with laws including the EC law is key Speedy adoption of ad hoc laws without consideration of broader context is not recommended Environmental compliance is critical Construction Act (Stavebný zákon) Environmental Impact Assessment Act (Zákon o posudzovaní vplyvov na životné prostredie) Nature and Country Protection Act (Zákon o ochrane prírody a krajiny) Land Identification and plan of acqusition and its implementation should be secured and carried out in sufficient advance

14 Procurement Considering the subject and scope of a contract, procurement will always have to follow the Public Procurement Act rules Given the specifics of the PPP projects, tenders will be lengthy, complicated and costly processess which will demand a lot with respect to preparation, capacities and flexibility of all parties The aim is to select the fittest partner and a project agreement acceptable to all project parties Concession agreement pursuant to the Public Procurement Act or aninnominate contract pursuant to the Commercial Code

procedure vs need to be flexible Need to reflect comments of the private partner

15 Procurement Methods Open procedure Restricted procedure Negotiated procedure Competitive dialogue Which one to choose In principle any will do Formalised procedure vs need to be flexible Need to reflect comments of the private partner and its funders Need to maintain transparency and comply with EU laws Competitive dialogue

16 Procurement Competitive dialogue Proper solution for particularly complex projects Preferred by EU law Enables to seek mutually acceptable solutions Allows for the private sector and lenders to present their comments and reflect them Supports identification and correction of errors Secures better value for money Traditional sequence Preparation of a contract notice and informative document Shortlisting and distribution of the informative document Interim submissions Dialogue Final tender documents Tenders and appointment of a preferred bidder Negotiation with the preferred bidder on a project agreement

17 Procurement Core of the dialogue project agreement (part of the informative document, part of the interim submissions, basis for the final tender documents) and related agreements Slovak laws neither detail the scope nor specify essentials of such agreements Contractual terms may be created on a principle of contractual autonomy Related agreements Direct agreement Independent engineer agreement Loan documentation Need to involve internal team and individuals who will implement the project and the agreement

18 )

19 Procurement Particulars of the project agreement Not a contract for work typically used on investment projects An agreement which is not agreed to only by its parties Key aspect - BANKABILITY Typical legal instruments and content throughout the European PPP market Conditions precedent predominantly financing Detailed allocation of responsibilities and risks of the parties Output oriented Detailed mechanisms of addressing the consequences of risks Increased focus on financial parameters of the project Normally without deterring sanctions

20 Procurement Competitive dialogue does the trick Practical problems associated with external factors and the very nature of the PPP projects Despite relative flexibility, innovative solutions need to be sought Market practice submission of tenders and appointment of a preffered bidder do not automatically mean that the project is completed Need to reflect requirements of lenders and time period between appointment of a preffered bidder and financial close Changes compared to the tender documents, the tender and the project agreement Changes to the price

Approval of a Project and Contract Signature Approval of a Project and Contract Signature Act on Local Administration Budget Rules (583/2004 Z.z.

Municipalities and regions notify the Ministry of Finance on a launch of an award procedure and request Ministry of Finance s positions on draft agreements

21 Approval of a Project and Contract Signature Approval of a Project and Contract Signature Act on Local Administration Budget Rules (583/2004 Z.z.) Project approval rules are specified only for construction works concesions Conditions under which a contract may be entered into are set out in law Municipalities and regions notify the Ministry of Finance on a launch of an award procedure and request Ministry of Finance s positions on draft agreements from the perspective of their consequences on public debt reporting in a uniform standard applicable in the EU Methodical guidance issued by the Ministry of Finance - IRA

22 Implementation of a Contract Before financial close After financial close During construction Project manager (contract manager), team responsible for protection of interests of the public authority individuals who participated on the project in its preceding phases Preparation of tools enabling smooth performance of the contract by the public authority during the operation period Continuation of partnership and dialogue During operation Project manager (contract manager), team responsible for protection of interests of the public authority individuals who participated on the project during the construction phase Consequent application of the tools Continuation of partnership and dialogue

The Slovak Experience Major investment projects motorways; electronic toll collection Smaller projects repair and maintenance of 2nd and 3rd class roads in KE region; media complex; Central Military

23 The Slovak Experience Major investment projects motorways; electronic toll collection Smaller projects repair and maintenance of 2nd and 3rd class roads in KE region; media complex; Central Military Hospital in Ružomberok, revitalisation of railway stations; multimedia complex in KE. Positive international feedback Negative label at home Success stories: R1 completion of expressway between Nitra and Banská Bystrica financial close in August 2009 D1 completion of tunnel sections of Failures: motorway in the Žilina region financial close expected in spring 2011 D1 completion of motorway to Košice Central Military Hospital Ružomberok

willingness to play the hard ball and cancel the project if

24 Reasons of Success R1 and D1 Pragmatism, flexibility and willingness to find a way Rational commercial approach, willingness to play the hard ball and cancel the project if necessary Political support Magnitude of projects Experienced advisors

support Magnitude and complexity of the project, improper

25 Reasons of Failure - D1 Time pressure Limited scope for negotiation Hostage of political rivalry Loss of political support Magnitude and complexity of the project, improper time period Short-sighted addressing of environmental issues

26 PPP Projects in the Healthcare Sector Tested teritorry Many success stories abroad Buildings, cars, services, equipment Privatisation-like benefits with lower political costs

27 Various Options for PPP Projects in the Healthcare Sector Design and construction Non healthcare services Supporting healthcare services Specialized healthcare services Hospital management Design Construction Healthcare technology Investment financing IT services and equipment Maintenance Catering Laundry Room service Laboratories Diagnostic tests Healthcare technology maintenance Hemodialysis Radiotherapy Suregery Internal Other Hospital or hospital network management

Rázsochy PPP is an option All pros and cons need to be carefully considered as in any other PPP project Need to clearly identify the scope Need to assess

28 Rázsochy PPP is an option All pros and cons need to be carefully considered as in any other PPP project Need to clearly identify the scope Need to assess feasibility and value for money Need of clear notion about financial demands Need of wider consensus on a public and expert level and subsequent support for the project

Thank you very much for your kind attention! Ružička Csekes s.r.o. Vysoká 2/B 811 06 Bratislava T: + 421 (0)2 3233 3444 F: + 421 (0)2 3233 3443 office-ba@rc-cms.

29 Thank you very much for your kind attention! Ružička Csekes s.r.o. Vysoká 2/B Bratislava T: (0) F: (0) office-ba@rc-cms.sk Ružička Csekes s.r.o. Vysoká 2/B Bratislava Slovak Republic JUDr. Ján Azud Junior Partner jan.azud@rc-cms.sk T: (0) F: (0)

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