Oct 14, 2021
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Sergey Afanasyev: PPP helps to unite the interests of business and the state

In the photo: the delegation of the Khanty-Mansiysk Autonomous Okrug - Ugra at the Russian PPP Week 2021

In the photo: the delegation of the Khanty-Mansiysk Autonomous Okrug – Yugra at the Russian PPP Week 2021 (Photo: provided by the Yugra Development Fund)

The Russian economy is often accused of insufficiently active private initiative. But, paradoxically, the state can contribute to its development with the help of such a relatively new instrument for us as public-private partnership (PPP). Federal Law No. 224-FZ on PPP came into force in 2016, before that partnership between the state and business was built on the basis of Law No. 115-FZ on concessions.

One of the pioneers in the development of public-private partnerships among Russian regions is the Khanty-Mansiysk Autonomous Okrug. Already this year, a large perinatal center should be opened in Surgut, which was built on the principle of PPP under an agreement signed in 2014.

In 2018-2019, Ugra was recognized as one of the leaders in the development of this type of partnership in the country. With the help of this tool, more than a thousand jobs were created, investments were attracted for almost 20 billion rubles, and agreements were concluded for investment projects with a capacity of over 237 billion rubles.

One of the locomotives of PPP in the region is the Yugra Development Fund. This non-profit organization, the charter of which states that assistance in the formation of a regulatory legal framework in the field of public-private partnership, as well as the development, structuring, organization of financing, support for the implementation of infrastructure projects using public-private partnership mechanisms is its main task along with support and attracting investment, as well as supporting industry, agricultural cooperation and tourism.

From September 28 to October 1, the capital was hosting the “Week of PPP in Moscow”, which was also attended by a delegation from the Khanty-Mansi Autonomous Okrug. “Free Press” managed to communicate with Director of the Ugra Development Fund Sergey Afanasyev, who told how PPP differs from the usual state order, how projects are selected for implementation and what prospects arise when using this mechanism.

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– The interaction between the state and business within the framework of PPP is determined by two laws – Federal Law 115 and 224. But in Ugra, we also defined 11 design regimes by the 59th District Law, which we actively use. In general terms, concession and PPP allow sharing of risks between the private and public parties. Construction risks, risks of attracting financing and project design are on the private side. Moreover, public-private partnership allows you to combine the design, construction and operation of facilities that are needed by the state.

“SP”: – Over the past years, Ugra has been consistently among the top regions-leaders in terms of the level of development of public-private partnerships. Why is this area developing so much in this region?

– This is facilitated by two factors. The first and most important is the people and competencies that we have, grown over the eight years of the foundation’s activity. This is the competence of the Department of Economic Development, the Department of Industry and, in general, sectoral authorities.

And the second is, of course, the desire of the authorities themselves to implement projects as quickly as possible. If we talk about the 44th law, it is always the separation of design, construction and operation. Here, combining this together, even in the absence of budgetary funds in a specific period of time, we can provide an installment plan, compensate for funds through off-budget investments, and build an object on time. It is very important.

“SP”: – How does your fund select projects for implementation within the framework of PPP?

– There are two aspects here. The first is a public initiative when the state needs an object and it is trying to find an investor. And the second one is private projects. For this story, we have developed a special software called “Investment Budget”. Within its framework, we select the best projects that meet the requirements in terms of government programs, budgetary and social efficiency. This allows you to create a “bench”, to form the best competencies in a particular industry. We strive to select the best investors, and we invest budgetary investments directly in the most effective projects.

Photo: Surgut Center for Maternity and Childhood Protection
Photo: Surgut Center for Maternity and Childhood Protection (Photo: courtesy of the Ugra Development Fund)

“SP”: – How many public-private partnership projects have you managed to implement over the past two years?

– For us, the implementation of the project means that it has begun to provide government services. We have projects that started more than two years ago, and they are being commissioned this year. Over the past two years, about ten projects have been launched in various areas: social, housing and utilities, in the field of solid municipal waste disposal. Some of them, for example, the housing and communal services project in Nizhnevartovsk, are already in operation, some of the objects are at the stage of construction and design.

“SP”: – Yugra became the first region of Russia where the investment project for the construction of the MSW landfill will receive new financial support from the “Russian ecological operator”, the so-called green financing. Do you plan to include new projects of this kind in this financing scheme?

– For solid municipal waste, we have developed a program jointly with the Department of Industry and Natural Supervision of Ugra, which implies the creation of a network of support enterprises in Surgut, Khanty-Mansiysk, Oktyabrsky district of the city of Nyagan, Nefteyugansk and Nizhnevartovsk. In accordance with these projects, complex inter-municipal landfills will be created, which will include treatment, disposal and disposal of waste.

In this regard, attracting the public law company Russian Environmental Operator is very important, because it will provide the best conditions in terms of financing. They issue a bond loan at 3-4% per annum, redeem it, and this facilitates the financial model of any project.

On September 23, the Industry Department signed an agreement on a project in Surgut, but other projects, such as in Khanty-Mansiysk, are quite worthy of PPK

REO drew attention to them. It is important to understand that this is the expression of the will of the investor – on the one hand, he must agree to the RER PPK to provide him with a loan, and on the other hand, he himself must meet certain criteria put forward by the environmental operator.

Such project financing is a very important step on the part of the federal authorities and the REO PPK, as it will significantly ease the pressure on tariffs.

In the photo: universal sports complex, Khanty-Mansiysk
In the photo: a universal sports complex in Khanty-Mansiysk (Photo: provided by the Ugra Development Fund)

SP: – In Russia there is a tendency to pay more attention to big business and large-scale projects. Is public-private partnership suitable for small and medium-sized businesses? Are there examples of such partnerships that are being implemented by the Ugra Development Fund?

– In fact, there are no obstacles for small and medium-sized businesses to enter such projects. If we talk about a medium-sized business, then it can be a billion rubles in revenue per year, this is already a fairly large enterprise. We have, for example, a landfill in Nefteyugansk with a revenue of 200-300 million a year. So it is quite possible to say that small and medium-sized businesses are already participating in our projects.

And such projects as a sports and recreation center are inexpensive pre-fabricated buildings worth 200-300 million rubles, and any small business may well go there. Moreover, small business is interesting from the point of view of related services that the object of the concession agreement has. On the other hand, the investor himself is interested in small business appearing around his project, this greatly facilitates his tasks.

In the photo: universal sports complex, Khanty-Mansiysk
In the photo: the universal sports complex in Khanty-Mansiysk (Photo: provided by the Ugra Development Fund)

“SP”: – Some believe that our state has too large a share in the country’s economy. Is PPP a strengthening of the role of the state or, on the contrary, is it a way to encourage private initiative?

– Of course, this is a way to encourage private initiative. Public-private partnership implies that we give part of the risks to the investor’s side, but at the same time we give him the appropriate profitability and compensation for the costs he incurs. Moreover, we guarantee this for a sufficiently long period.

In essence, in PPP you get the opportunity to create or reconstruct an object, and then use it in accordance with its purpose and with the conditions that are spelled out in the concession agreement. There are often many opportunities for an investor to use the property for commercial purposes.

For example, if we are talking about solid municipal waste landfills – this is recycling, about sports and recreation centers – these are various sections, coaching services, services for providing a hall for rent. Even in educational facilities, which are probably the most regulated among the objects of the concession agreement, it is still the provision of additional educational services, for example, linguistic rooms, something else.

Photo: inter-municipal MSW landfill in Nefteyugansk
Photo: inter-municipal MSW landfill in Nefteyugansk (Photo: provided by the Ugra Development Fund)

“SP”: – Business is usually interested in making a profit, and the state should deal with infrastructure projects, solve social problems. Can PPP help to combine these difficult compatible approaches and thus solve the infrastructural problems of the regions?

– I think it is possible, and I will explain why. I would disagree with the fact that for a business, making a profit is the main goal. Rather, it is a vehicle for capitalizing your business. That is, the most important thing for a business is its cost. The profit allows this value to increase. And it is precisely such stable cash flows that allow us to increase value and further develop various areas of business.

So sharing risks and getting additional funding is always a good thing. Around this stable cash flow, guaranteed by the state, extra-budgetary cash flows arise, which allow attracting small and medium-sized businesses, micro-enterprises, and create new jobs. This multiplier effect will be much greater than if we simply gave the land plot to the investor and go about as you like, or if the state built a separate building and operated it like a budgetary institution.

“SP”: – What are the main problems and difficulties you face?

– Problems sometimes arise. But, you know, as they say, there is no problem – there are tasks. For example, a serious problem that we face when preparing projects in the field of municipal solid waste is land plots. We have a small amount of land suitable for the construction of landfills, so we have to prepare plots, and this is always a rise in price.

We often have questions about the regulation, which is in the 115th and 224th federal laws. Sometimes you have to argue in courts with supervisory authorities, with investors about whether one hundred percent compensation is possible, or on other issues.

Of course, there are problems, but it is important that we regularly hold PPP forums, and at these sites all these problems are discussed. Supervisory authorities hear us, and every time we move forward step by step.

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