Republika e Kosovës
Republika Kosova - Republic of Kosovo
Qeveria - Vlada - Government
Ministria e Financave
Ministarstvo za Finansije – Ministry of Finance
PUBLIC-PRIVATE PARTNERSHIP
DEVELOPMENT STRATEGY FOR
THE REPUBLIC OF KOSOVO
(2013 – 2016)
Working Draft for Stakeholder Consultation
Developed with the assistance of the
United States Agency for International Development
D R A F T June 2013
TABLE OF CONTENTS
I.
Executive Summary .............................................................................................. 1
II.
Background ........................................................................................................... 3
II.1. Public Private Partnerships in Kosovo ............................................................... 4
Kosovo PPP Legislation ........................................................................................ 7
Kosovo PPP Institutions ........................................................................................ 8
Kosovo PPP Review and Approval Process ........................................................ 10
Kosovo Donor Assistance to PPP Department .................................................... 11
Kosovo PPP Practice .......................................................................................... 12
III. Methodology.......................................................................................................... 14
IV. Key PPP Development Issues in Kosovo .............................................................. 15
VI.1. Stakeholder Initial Consultations..................................................................... 15
VI.2. SWOT Analysis Summary .............................................................................. 18
VI.3. Summary of Key Development Needs ............................................................ 19
VI.4. Detailed Description of Key Development Needs ........................................... 19
Key Need 1 – Increase the link of the PPP process to government policy and
expenditure planning mechanisms ...................................................................... 19
Key Need 2 – Building sustainable capacity to support PPP transaction
development ....................................................................................................... 22
Key Need 3 – Development of Private Finance Initiative (PFI) capacity by
expanding awareness of PFI’s as a PPP Option ................................................. 24
Key Need 4 – Maintaining a publicly available pipeline of upcoming and potential
PPP transactions................................................................................................. 25
Key Need 5 – Developing a systematic approach for oversight of PPP contract
management ....................................................................................................... 26
V.
Strategic Objectives and Strategy Actions ........................................................... 29
Strategic Objective 1 – Build PPP planning capacity by linking it with Medium
Term Expenditure and Medium Term Policy Priority Frameworks. ...................... 29
Strategic Objective 2 – Build sustainable project development and implementation
capacity in Kosovo by planning and establishing a Project Development Technical
Assistance Facility............................................................................................... 31
Strategic Objective 3 – Develop PFIs by expanding awareness of PFI’s as PPP
Option ................................................................................................................. 34
Strategic Objective 4 – Increase private sector outreach by developing and
publishing a Pipeline of upcoming PPP transactions ........................................... 36
Strategic Objective 5 – Strengthen PPP contract management by creating a riskbased system of oversight ................................................................................... 37
VI. Conclusion ............................................................................................................ 39
VII. Next Steps ........................................................................................................... 40
Action Plan Year 1 ..................................................................................................... 42
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D R A F T June 2013
ANNEX I TO PPP DEVELOPMENT STRATEGY FOR THE REPUBLIC OF KOSOVO
(2013- 2016) .............................................................................................................. 43
PPPs in Europe and the Region ............................................................................. 43
ANNEX II TO PPP DEVELOPMENT STRATEGY FOR THE REPUBLIC OF KOSOVO
(2013- 2016) .............................................................................................................. 46
PPP TAF OPTIONS................................................................................................ 46
LIST OF ABBREVIATIONS AND ACRONYMS
Acronym
CEI
EBRD
EDVAP
EPEC
CPPPD
GFSI
IPAK
MTEF
MTPP
PPP TAF
PFI
PIP
PPP
PPPC
USAID
Definition
Croatia’s Center for Monitoring Business Activities in the
Energy Sector and Investments
European Bank for Reconstruction and Development
Kosovo Economic Development Vision Action Plan
European PPP Expertise Center
Central Public Private Partnership Department
USAID-Funded Growth and Fiscal Stability Initiative
Investment Promotion Agency of Kosovo
Kosovo Medium Term Expenditure Framework
Kosovo Medium Term Policy Priorities Framework
PPP Technical Assistance Fund
Private Finance Initiative
Kosovo’s Public Investment Program
Public-Private Partnership
Public Private Partnership Committee
United States Agency for International Development
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D R A F T June 2013
I.
EXECUTIVE SUMMARY
Kosovo’s Public-Private Partnership (PPP) system is continuously evolving and
developing. The key bodies guiding this development process are the Public-Private
Partnership Committee (PPP Committee), an Inter-ministerial standing body chaired
by the Minister of Finance with authority over PPP transactions and PPP policy in
Kosovo, and the Central PPP Department (PPP Department) organized under the
Ministry of Finance. Under this guidance, Kosovo is building its capacity to reach out
to the private sector to provide needed infrastructure and public services through
PPP.
Kosovo’s experience in PPPs is still modest to date, with a limited number of
transactions having closed and several more in planning. Kosovo has a clear Policy
Directive on PPP, in place since 2008. The legal/regulatory environment for
Kosovo’s PPP system is modern and in compliance with EU directives, and, with the
PPP Committee (PPPC) and Central PPP Department (CPPPD), its institutional
environment is well established. With fiscal pressures growing and infrastructure
needs expanding, there is an ever increasing interest within Public Authorities to
consider PPP alternatives for infrastructure and public service delivery.
Consequently, the PPPC and CPPPD consider it vital to have a PPP Development
Strategy in place establishing a planned development path for PPPs in Kosovo in the
medium term.
This document comprises the PPP Development Strategy, addressing the period
from 2013 to 2016. It is developed based on review of the legislative and regulatory
framework and consultation with key stakeholders, governmental and nongovernmental, including representatives of donor organizations. It encompasses a
process of examination and identification of key development issues and, from these
identified key development issues to determine appropriate strategic objectives that
can be achievable and obtain results within the specified time frame and in light of
available resources.
The strategic objectives resulting from this process are the need to:
1) Link PPP planning with Kosovo’s developing budget and policy priorities
planning framework;
2) Build sustainable project development and implementation capacity in Kosovo
by planning and establishing a Project Development Facility;
3) Develop Private Finance Initiative (PFI) capacity by expanding awareness of
PFI’s as a PPP Option;
4) Increase private sector outreach by developing and publishing a Pipeline of
planned PPP transactions; and
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D R A F T June 2013
5) Strengthen PPP contract management by creating a risk-based system of
oversight.
The next phase of this Strategy will be implementation and performance monitoring.
It is envisioned that this Strategy will be revisited periodically, at a minimum annually,
to review for performance and needed updates and changes.
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D R A F T June 2013
II.
BACKGROUND
In today’s challenging global economy, a country’s ability to deliver needed
infrastructure and public services has become ever more critical to its economic
growth and stature in the investment community. Where there are insufficient
resources and investment to meet core infrastructure needs, this “infrastructure gap”
can present a serious challenge to the country’s outlook for economic growth, human
capital development, and social cohesion. States in Europe are increasingly looking
to Public-Private Partnerships as an alternative to deliver needed infrastructure and
public services.
As an infrastructure and public service delivery model, PPPs are designed so that
both the public sector and the private sector capitalize on their respective
advantages relative to the other in the development of infrastructure and provision of
public services. By allowing each sector to do what it has a comparative advantage
to do, public services and infrastructure can be provided more efficiently and costeffectively.
The growth of PPPs over the last several decades, and particularly the last ten
years, has been motivated by two key drivers—the need for enhanced quality of
service and the limited availability of public funds relative to infrastructure and public
service needs and expectations. More recently, PPPs have been developed and
used in part due to financial shortages in the public sector, and they have
demonstrated the ability to harness additional financial resources and risk
management efficiencies inherent in the private sector. PPPs are often used in
infrastructure sectors such as transport, public health, education, agriculture and
national security, and provide a wide range of public services, like
telecommunication, water plants, financial support, innovative financing, general
public services, educations and research.
Public authorities are increasingly turning to PPPs to deliver efficient and costeffective infrastructures and services. PPPs can help public sector agencies shorten
delivery times, share risks, achieve better value for money and increase innovation
in their infrastructures and provisioning of services. (Annex I to this Strategy provides
a brief look at PPPs in Europe and the region). Such partnerships allow private
sector organizations to apply their skills and experience to infrastructure
development and operation and mobilize finances for long-term infrastructure
investments.
As a new state with the youngest population in Europe and an economy still
transitioning from its central-planning past, Kosovo has an urgent need for increased
investment in infrastructure and public services. In the recent past Kosovo had
experienced consistent revenue growth, from 2007 to 2009 growing at an average of
14% per annum. However, in 2012 revenues appear to have decreased by €80
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D R A F T June 2013
million, placing significant additional fiscal pressure on government budget entities,
central and municipal, to prioritize current expenditure needs and defer lower priority
projects to future budget periods. To address this growing gap, Kosovo looks to
develop alternative sources of investment, including PPPs, to enhance its capacity to
deliver needed infrastructure and public services.
Having begun formalizing and regulating PPPs recently in the last decade, Kosovo is
entering a phase of enhanced PPP growth potential that poses greater and more
complex challenges to its PPP institutional capacity. These challenges have led the
two key institutions overseeing PPPs, the PPP Committee (an inter-ministerial
oversight body) and the PPP Department of the Ministry of Finance to take a
systematic approach in identifying key upcoming need areas and strategic actions to
address those needs. This Strategy embodies that approach and response.
II.1. Public Private Partnerships in Kosovo
In considering the opportunities that PPPs offer in addressing the infrastructure gap,
the Government also recognizes that PPPs are complex, long-term arrangements
that bring significant responsibilities in their identification, development and
implementation. Long-term transactions create long-term obligations for Public
Authorities. Indeed, significant political, legal, regulatory and institutional hurdles
must be overcome in order to move from a traditional, public sector model of public
service delivery towards one in which public and private sectors work together
effectively.
Not all potential infrastructure and public service projects are suitable for PPP.
Therefore, PPP must provide equivalent or better “value for money” than a traditional
public sector approach. Value for money does not equate to the cheapest bid or
lowest price for an asset, rather it means diligent and careful consideration must be
taken in opting for the best long-term solution for service delivery. Value for money
requires a life-cycle view be taken, with a robust analysis of the total long-term costs
of infrastructure and service delivery and concomitant public benefits.
In addition, once designed and awarded, PPP transactions require significant
resources and expertise to close and monitor performance throughout the life of the
agreement. Whereas traditional procurement of infrastructure may cover a few years
of construction monitoring to turnkey delivery, PPPs may cover decades.
In recognition of the significant responsibilities that PPPs bring with them, Kosovo
has established an elaborate framework of legislation, regulation, policies and
institutions to guide the identification, development and implementation of PPPs.
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D R A F T June 2013
Kosovo PPP Policy
By Policy Directive dated July 4, 2008, Kosovo established four policy objectives for
PPP:
1) The Government of Kosovo hereby declares its unambiguous support for the
implementation of public-private-partnerships as a means for stimulating
investment in public infrastructure and providing public services;
2) The Government of Kosovo and its institutions shall encourage and support
the participation of the private sector in the provision of public infrastructure
and services at both the central government and municipal level, wherever the
utilization of PPP will create better value for money;
3) In order to ensure that projects are sustainable and successful, while
simultaneously minimizing public sector risks and liabilities, the Government
of Kosovo is committed to implementing PPP in a systematic and orderly
manner, in accordance with international best practices; and
4) The Government of Kosovo is resolutely committed to implementing PPP
through competitive, fair, and transparent procedures and shall insist -without
exception- that all parties to a PPP comply faithfully with their concomitant
rights and obligations.
These policy objectives established and provided the policy position of the Republic
of Kosovo on PPPs, allowing for specialized institutions to prepare and approve the
PPP legislation and regulatory framework, with clear allocation of responsibilities and
procedures. Following the establishment of these policies, the PPP Inter-Ministerial
Committee and the PPP Unit were created and assigned responsibilities to develop
regulations and tools to implement PPP projects, including standard documents,
guidelines, raising awareness and capacities, the PPP project implementation
environment has been developed within international best practices.
The policy first objective addresses the need to invest in Kosovo’s infrastructure
and provide better quality public services. Kosovo recognizes that PPPs provide a
means of engaging the private sector and assigning risks to stimulate investment
and optimize certain capital investments and public services. PPP concessions can
tap into potential commercial revenue streams that provide an acceptable market
rate of return over time to compensate for heavy, up-front capital expenditures,
relieving the investment pressure on the government’s budget and debt. PFI’s can
provide similar relief in return for the public authority’s obligation to make availability
payments over the expected life of the infrastructure agreement. Both require
appropriate assignment of risks among the public and private sector players to
optimize design, construction, regulation, service delivery, and operation and
maintenance.
Approach to First Policy Objective: Addressed by providing the support for
the PPP environment, through the PPPC and CPPPD.
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D R A F T June 2013
The second policy objective addresses when PPP’s should be used: that they
should be used when they would provide value for money. Discussed above, value
for money as a concept correlates to an option analysis: PPPs should be used only
when it is expected to provide better results from a life-cycle perspective than other
delivery alternatives—e.g., public delivery, privatization, hybrid. In other words, PPPs
are not to be used simply to circumvent current budget restrictions. The partnership
must be demonstrably the optimal delivery option.
Approach to Second Policy Objective: Codified through the PPP Law,
Article 23, and into regulation through PPP Directive 1, Article 9. The value for
money analysis is a key aspect of the feasibility analysis that is required in the
preparation and evaluation of every PPP transaction.
The third policy objective addresses the “how” issue in implementing PPPs at a
macro-level for the country. PPPs must be implemented in a systematic and
orderly way, and in accordance with international best practices. This objective
suggests the need for significant advance planning in implementing for PPPs. Rather
than provide for PPPs to be developed ad hoc, Kosovo’s PPP system should provide
for a significant planning exercise as part of the process for defining PPP design,
type, and transaction sequencing. It should involve consideration of how the
infrastructure or service delivery fit into the country’s economic development and its
budget planning policies as a whole. In other words, PPPs should not just be
implemented where possible, but rather where they serve the country’s policies. As a
practical matter, if this planning process is carried out systematically and publicly, it
provides the public sector with the opportunity to critically assess how it fits in with
the country’s economic development policies and its budget plans. It also provides
private sector—the pool of potential partners and transaction support advisors—with
advance notice to prepare and plan resources for upcoming transactions in the
future. This advance notice will be critical to the country’s credibility in infrastructure
transactions and to the planning capacities of potential partners.
Approach to Third Policy Objective: Addressed through the procedures
prescribed within the PPP law and its directives.
The fourth policy objective addresses the “how” on a transactional level.
Transactions should be implemented competitively, fairly, and transparently and
should ensure compliance with the rights and obligations created under the project.
Kosovo’s legislation is designed to implement this policy objective, setting out
detailed competitive tender procedures for selecting private partners, a centralized
processfdea for review and approval of transactions and monitoring transaction
closure, and a process for managing implementation of PPP agreements over the
life of the agreement.
Approach to Fourth Policy Objective: Addressed by applying clear
competitive and transparent procedures applicable by the PPP law and Public
Procurement law.
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D R A F T June 2013
Kosovo PPP Legislation
Although the process to award concessions was governed by the 2005 Law on
Procedure to Award Concessions NO. 02/L-44 (2005 Law), the first standalone
legislation in Kosovo specifically addressed to PPP was the Law on Public-PrivatePartnerships and Concessions in Infrastructure and the Procedure for Their Award,
enacted in 2009. Abrogating the 2005 Law, the 2009 PPP law established key
institutions, the “PPP Inter-ministerial Committee” (PPP-ISC), headed by the Minister
of Finance and Economy, to provide centralized leadership in PPP and exercise
transaction review authority, and a PPP Central Unit organized under the Ministry of
Economy and Finance to provide support to the PPP-ISC and contracting authorities
and play a screening role in potential transactions.
In 2011, the new PPP Law was passed, in order to provide a clearer regulatory
framework, clarify the procedures for implementing Public-Private-Partnerships and
comply with EU directives and UNCITRAL Model Provisions. The new PPP Law
converted the PPP-ISC and PPP Unit into today’s PPP Committee and the Central
PPP Department within the newly restructured Ministry of Finance. As a result, the
PPP Committee’s approves all PPP projects prior to tendering and signing.
As defined by the new PPP Law, PPP means any contractual or institutional
cooperation between one or more Public Authorities and one or more Private
Partners whereby the Private Partner:
-
provides a public service or a public infrastructure on behalf of the Public
Authority;
-
assumes financial, technical, construction and operational risks, including
demand and/or availability risks, in connection with the provision of the
public service or the public infrastructure;
-
receives a benefit for providing the public service or the public
infrastructure in form of:
o payment made by the public authority from the budget of such
public authority;
o charges or fees to be collected by the private partner from users or
customers of a public service or a public infrastructure provided to
them; or
o a combination of such payment and such charges or fees.
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D R A F T June 2013
Kosovo PPP Institutions
The public institutions involved in PPPs in Kosovo are the Public-Private Partnership
Committee, the Central Public-Private Partnership Department
and Public
Authorities
Figure 1: PPP Organizational Chart
PPP Committee
Central PPP Department
Public Authority
Private
Partner
Private
Partner
Public Authority
Public Authority
Private
Partner
Private
Partner
Private
Partner
PPP Committee
Under the PPP Law, the PPP Committee is the lead body charged with oversight
and coordination of Kosovo’s PPP system and policy. The Committee is a standing
body of five senior government officials (ministers and deputy prime ministers).
Article 16 of the PPP Law provides that the Minister of Finance serves as the
chairperson, and the remaining four members are appointed by government
decision. Under current government decision of January 11, 2012, the other four
members of the PPP Committee are:

Prime Minister’s representative, Member

Minister of Infrastructure, Member

Minister of Trade and Industry, Member

Minister of Economic Development, Member
While providing leadership in the development of PPP policies, projects and
programs, the PPPC has the following rights and responsibilities:

Development and management of the national PPP program;
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D R A F T June 2013

Development of general PPP policies;

Issuance of implementing regulations and clarifications regarding rules,
procedures and standards for PPP projects and project documents,
which shall be binding on all Public Authorities;

Issuance of decisions to Public Authorities for the purpose of ensuring
the proper implementation of laws and regulations related to a PPP
Project;

Review and approval or disapproval of Project proposals on the basis
of value-for-money and other considerations in the public interest;

Identification of a Contracting Authority for specific Projects;

Acting as a Contracting Authority for specific Projects;

Approval or disapproval Economic Supports for Projects;

Oversight and review of performance compliance and project
execution;

Review and approval of proposed amendments and modifications to
Agreements on the basis of value-for-money and similar
considerations;

Maintenance of a national PPP registry;

Making decisions relating to the use of funds deriving from PPP
appropriations; and

Making other relevant decisions relating to PPP.
In addition, where necessary the PPP Committee may act as the contracting
authority itself in a transaction, though this is usually performed by the relevant
budget entity responsible for the transaction subject matter area.
PPP Department
The PPP Department is organized under the Ministry of Finance and provides
support for policy implementation. Its mission is the promotion and support for
implementation of public private partnerships in many economic sectors with the aim
of providing more efficient infrastructure and public services at lower cost. The PPP
Department reports and is accountable to the PPP Committee and is responsible for:
1) Providing technical assistance, advice and support to Public Authorities and
the PPP Committee on all matters relating to PPP:
2) Making recommendations regarding the PPP legal, regulatory, institutional
and policy framework;
3) Developing and promulgating procedures and standards based on best
international practices;
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D R A F T June 2013
4) Reviewing and issuing opinions regarding the viability of proposed projects
and make recommendations to the PPP Committee and Public Authorities;
5) Disseminating information regarding the PPP program and individual projects;
6) Outreaching to stakeholders and public education campaigns on PPP;
7) Coordinating activities relating to PPP in all economic and social sectors.
The PPP Department is also permitted to:
1) Require that Public Authorities provide details of projects being proposed,
being prepared for tender, given for tender or for negotiations or that are in
the process of implementation;
2) Issue standards and recommended PPP practices and procedures;
3) Prepare and distribute information and guidance on PPP;
4) Submit proposals for the strengthening of the legislative, regulatory,
institutional and policy framework for PPP to the PPP Committee;
5) Coordinate technical assistance on PPP and specific PPP projects provided
to contracting authorities;
6) Scrutinize project-proposals, tenders and contracts and systems of contract
management;
7) Monitor and issuing opinions regarding the level of compliance of the
Contracting Authority and the Private Partner with the terms of an Agreement;
8) Issue technical opinions to the PPP Committee and Contracting Authorities;
9) Regularly evaluate the performance and impact of the PPP system;
10) Determine whether a PPP project justifies the expenditure of additional
Ministry of Finance or other resources outside of the Contracting Authority;
11) Participate in the development, implementation and management of any fund
or other similar instrument established to provide funding of capacity related
to the development and implementation of a PPP project.
Public Authorities
Public Authorities that may engage in PPP transactions under the PPP Law are:
1) One or more ministries or agencies of the Government of Republic of Kosovo;
2) One or more municipalities;
3) One or more publicly-owned enterprises or other bodies governed by public
law; and
4) An association of such authorities or bodies.
Kosovo PPP Review and Approval Process
The PPP Law and PPPC Directives establish a layered review process for
identifying, developing, approving, and conducting PPP transactions.
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D R A F T June 2013
Figure 2: Kosovo PPP Process
Kosovo PPP Process
Select candidate project
prepare Pre-feasibility
PHASE 1:
PPP Pre feasibility
Review of Pre-feasibility
Conduct feasibility study
PHASE 2:
PPP Feasibility
study, draft
contract and
tender documents
Prepare draft contract
Prepare draft tender
documents
Review documentation
Approval/Disapproval
PHASE 3:
Implementing PPP
tender
Implement tender
Submit PPP
Qual.&Proposal
Negotiate & Sign PPP
Contract
Contract review
PHASE 4:
PPP contract
management and
performance
monitoring
Contract
Approval/Disapproval
Deliver Services
Manage PPP Contract &
Monitor PPP
Kosovo Donor Assistance to PPP Department
USAID has provided significant assistance in the development of Kosovo’s PPP
system and provides continued support through its Growth and Fiscal Stability
Initiative (GFSI) program. GFSI provides support to the PPP Department through
technical advisory assistance to develop transactions by working with public
authorities in assessing pre-feasibility and transaction viability and also providing
guidance and direct one-on-one training in transaction development. GFSI also
provides capacity growth support to the Department, by helping in the development
of general PPP training and outreach for delivery to public authorities.
With GFSI support, the PPP Department is in the process of finalizing Guidelines on
PPPs in Kosovo setting out recommended procedures and tasks for the four phases
of PPP transactions as reflected above: 1) Pre-feasibility Analysis; 2) Development
and Review of Transaction Documents; 3) Conducting the Tender; and 4) Managing
the PPP Contract. The Guidelines provide needed process detail on identifying,
developing, conducting, and managing transactions.
Based on the draft Guidelines, and with support from USAID GFSI, in 2012 the PPP
Department also developed a multiple day training to deliver to public authorities on
the PPP process. The training is a two-day training that is adaptable for condensed
delivery to specific audiences based on need. It is generally a beginning level
course. The PPP Department provides delivery of this training to various interested
participants from among public authorities approximately once per month. The PPP
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D R A F T June 2013
Department is planning the development of more specific, deep-dive courses specific
to PPP project phases.
Kosovo PPP Practice
While Kosovo is still in the early phase of developing and implementing PPP
transactions, it has made large strides toward building that capacity, enacting and
refining standalone legislation regulating PPPs and creating dedicated central bodies
for PPP policy and transaction guidance—the PPPC and the Central PPP
Department.
These developments have served as significant steps in building PPP capacity in
Kosovo. As a result, since passage of the first PPP law in 2009, Kosovo has been
able to conduct and close two PPP transactions: one complex transaction for design,
build, finance, operate and transfer of the Pristina International Airport “Adem
Jashari” and one for provision of urban bus service in Peja Municipality. A PPP for
provision of waste collection services in Suhareka Municipality has been awarded
and is pending contracting.
The following lists existing PPPs and potential upcoming PPPs for consideration:
Table 1a: National Level PPP Transactions and Potential Upcoming Projects
Transaction
Type
Size
Pristina Airport
Concession
Years
Rt 7 Motorway Service
Areas
Concession / 20 years
Route 7 O&M
Concession
/
20
Status
Over
Million
€100
Over
Million
€12
Implementation/Constru
ction
Approved by
Committee
Prospective;
Planning
12
PPP
Under
D R A F T June 2013
Table 1b: Local Level PPP Transactions and Potential Upcoming Projects
Transaction
Type
Size
Status
Peja Urban Bus
Concession /10 years
€2 - 5 Million
Implementation
Operation
Waste
Concession / 10 years
€2 - 5 Million
Award stage
Underground
Concession / 30 years
€5 - 10 Million
Submitted to CPPP for
approval
Gjilan School Support
Facility
Concession / 15 years
Under €1 Million
Approved by CPPP
Gjilan Urban Bus
Concession / 10 years
Pristina Urban Bus
Concession / 10 years
€10 - 50 Million
Feasibility Study
Viti Green Market
Concession / 30 years
Under €1 Million
Feasibility Study
Lipjan City Square
Concession / 5 years
€5 - 10 Million
Revision of documents
Prizren
Center
Concession
Prospective;
Planning
Under
Concession
Prospective;
Planning
Under
Suhareka
Management
Pristina
Parking
Commercial
Prizren Cemetery
13
/
Feasibility Study
D R A F T June 2013
III. METHODOLOGY
Why the need for a strategy?
Kosovo’s PPP system has grown steadily over the last five years with substantial
technical support and guidance from the USAID and development of a highly
professional team at the Central PPP Department. Public revenues will not be able
to cover Kosovo’s continuing infrastructure and growing public service needs. As a
result, Kosovo will continue to rely on growth and expansion of its PPP system to
help address these needs.
The PPP Department has initiated this strategy exercise with the aim to define a
systematic, objective-oriented approach for the coming phases of PPP development
in Kosovo over the next three years. The strategy process offers the PPP
Department and PPP Committee an opportunity to step back from day to day needs
and operations and to evaluate what larger issues they face, what objectives should
be pursued, and what path should be taken to achieve those objectives. By
examining the current system, identifying key issues, and developing strategic
objectives to address these issues, the PPP Department expects to focus its energy
and resources to maximize PPP contribution to Kosovo’s infrastructure and public
service needs.
The Strategy development process consists of review of legal and regulatory
framework and consultation of key stakeholders to identify and discuss issues and
explore potential actions to address those issues optimally. The consultation
encompassed planned meetings with key government and non-government
stakeholders in PPP to identify needs and opportunities for PPP development in
Kosovo. As a result of these discussions, the PPP Department conducted a SWOT
analysis for PPP development in Kosovo, identified of key needs affecting PPP
development, and developed strategic objectives in response to these needs.
The follow up to this Strategy will be implementation and periodic performance
monitoring consistent with the requirements of the Strategy. Upon review, the
Strategy’s key needs, strategic objectives should be evaluated by the PPP
Department to determine whether they remain current or relevant and whether
additional or new needs or challenges have arisen that require revision of the
Strategy.
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IV. KEY PPP DEVELOPMENT ISSUES IN KOSOVO
VI.1. Stakeholder Initial Consultations
At this phase of strategic planning, the PPP Department has consulted with a core
group of key stakeholders at the government, private, and donor levels to identify
and refine current need areas for PPP development. The Department has consulted
with the following:

GFSI PPP Support Team

Ministry of Finance
o Budget Department (Central and Municipal)
o Macroeconomic Unit
o PIP

Ministry of Infrastructure
o Transportation Department
o Investment Promotion Agency of Kosovo (IPAK)

Kosovo Association of Municipalities
Representatives of:

European Bank for Reconstruction and Development (EBRD)

West Balkans Infrastructure Fund (WBIF)

Regional Development Agency-Central/Pristina

UNDP

IFC

World Bank

AmCham

Kosovo Chamber of Commerce
The PPP Department also discussed PPP strategy-related issues with the Ministry of
Local Government Administration and with representatives of the Association of
Banks.
The strategy development process also included review of key laws and regulations
affecting PPPs in Kosovo:
PPP Specific Legislation and regulations:
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D R A F T June 2013

Law on Public Private Partnerships
o Directive 1 – Procedures for Review and Approval of PPP Projects
o Directive 2 – Project Management Teams
o Directive 3 – Review and Approval of Municipal PPPs
o Directive 4 – Publication of PPP Notices

Law on Public Financial Management and Accountability

Law on Public Procurement
Other Legislation Directly Affecting PPPs:

Law on Local Self Government

Law on Local Government Finance

Law on Public Debt

Law on Publicly Owned Enterprises

Law on Mines and Minerals
Policy Framework Documents and Sector Strategies

EDVAP

MTEF 2013-2015

Kosovo Strategy on Multi-Modal Transportation (2012-2021)

Kosovo Energy Strategy (2009-2018)

Kosovo Heating Strategy 2011-2018)
Findings from consultation meetings
During these consultation discussions a relatively short list of key development
issues were repeatedly raised. All stakeholders consulted welcomed a strategic
approach being adopted by the PPP Department. The issues raised most
consistently and concretely during these consultations were:

Low level of PPP planning at budget entity level /ad hoc nature of PPP
transactions/lack of resource planning to support transaction design;

Lack of capacity at budget entity level to handle PPP transaction
identification and design

Low level of comprehension of PPP opportunities at public authority
level

Low level of awareness within private sector of PPP opportunities
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D R A F T June 2013

Concern by banks of creditworthiness of municipalities

Absence of PFIs / Likely lack of PFI capacity at municipal level
Donor leverage opportunity:

In PPPs, EBRD will create regional Infrastructure Development Fund
later this year to address transactions in road maintenance, municipal
energy efficiency, and waste management. EBRD assistance will
include taking minority interests and working with local banks to reduce
finance risk by agreeing in advance on guaranty amount.
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VI.2. SWOT Analysis Summary
Based on key stakeholder consultations, the PPP Department conducted a SWOT analysis on PPP development in Kosovo,
summarized as follows:
Strengths






Modern legislation reasonably consistent with EU and EBRD
requirements
Membership in EPEC, provides access to best practices
Centralized PPP Department – provides focal point of PPP
awareness, promotion, guidance, and transaction screening
Experienced experts at Central PPP Department
Successful transactions closed and underway at central and
municipal levels
Several upcoming transactions on the way (MSA, Pristina Bus,
Pristina Parking, Gjilan Bus)
Weaknesses







Opportunities










Offering efficient public infrastructure and services
Reduction of the Infrastructure Gap
Restructuring of the economy via Private Sector Participation in
Public Infrastructure and Services
Possibility to attract foreign investment in PPP transactions
Successful transactions bring more investors
Possibility of strengthening local SMEs through PPPs
Donor assistance on strategic advisory will likely continue in the
short and possibly medium term
Creation of Project Development Facility (PDF) with donor and
government support
Development of pipeline of transactions over medium and long
term
Expansion of PPP practice to encourage PFI development
opportunities
Relatively high transaction costs to develop and implement PPPs inhibits
sustainable PPP development
Low capacity at contracting authority level to develop PPP transactions
without strategic advisory assistance provided by donors, CPPPD or
contracted advisory services.
Lack of adequate expenditure planning for transaction advisory services
Low awareness/understanding of PPP within Public Authorities and private
sector
No publicly available pipeline of upcoming PPP transactions to allow potential
investors to plan
Oversight process for contract management can be further developed to
handle anticipated increase in number of PPP transactions
No clear connection between PPP planning process and MTPP and MTEF
Threats




Global economic malaise impacts Kosovo as in attracting Foreign Direct
Investment
Failure of successful high-profile project could chill private investment
Donor technical support for strategic advisory in transaction formation likely to
terminate in medium term
Transactions not adequately linked with policy and expenditure framework
may result in unplanned obligations
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VI.3. Summary of Key Development Needs
In response to the first round of consultations and SWOT analysis, the Central
PPP Department agreed on a list of Key needs that should be addressed within
the Strategy. These needs are summarized as follows:
Key Need 1
Increase the link of the PPP process to government policy and
expenditure planning mechanisms
Key Need 2
Building sustainable capacity to support PPP transaction
development
Key Need 3
Development of Private Finance Initiative (PFI) capacity by
expanding awareness of PFI’s as a PPP Option;
Key Need 4
Maintaining a publicly available pipeline of upcoming and
potential PPP transactions
Key Need 5
Developing a systematic approach for oversight of PPP contract
management
VI.4. Detailed Description of Key Development Needs
The following provides a detailed description of key development needs
identified by the PPP Department at this phase of the Strategy process.
Key Need 1 – Increase the link of the PPP process to government
policy and expenditure planning mechanisms
Governmental priority and budgeting planning processes offer an opportunity to
identify and prioritize potential PPP and PFI transactions early. A system that
establishes clear priorities of government and requires advanced planning on
infrastructure transactions can also gather and provide information useful to
assessing whether such projects may be viable through PPP. Such a system
requires an enhanced degree of guidance at the central government level (PPP
Department) and greater awareness of PPP at the budget entity level in
forecasting capital projects.
Kosovo’s policy and budget planning framework currently consists of several
tools: 1) the Medium Term Expenditure Framework, which combines revenue
and economic forecasts with strategic priorities of budget entities to develop
projected budget needs in the medium term (3 years); 2) the Economic
Development Vision Action Plan, which clarifies government priorities at the
activity level; 3) the Public Investment Program, which seeks information
about planned investments in the medium term; and 4) the Medium Term
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D R A F T June 2013
Policy Priorities Framework, which Kosovo is presently developing to
establish policy priorities at the budget entity level through an annual review
and reporting process linked to the MTEF.
MTEF. Kosovo has established a process of budgeting and forecasting through
an annually refreshed Medium Term Expenditure Framework (MTEF), compiled
and developed by the Ministry of Finance by mandate of the Law on Public
Financial Management and Accountability (03/L-048). The annual MTEF
statement is a key document linking the Government's strategic priorities and
annual budget for planning and resource allocation and for three year planning
of the Kosovo budget. The MTEF exercise establishes general and budget
entity-specific policy priorities for a 3-year period going forward and compares
them with the macroeconomic fiscal and revenue forecasts for the period to
establish a plan for aggregate budget expenditures projections by budget entity
and by entity-level priority for the period. The most recently completed MTEF
(2013-2015), for the period 2013-2015, established four pillars to policy priories:

Growth and sustainable economic development;

Good Governance and strengthening the rule of law;

Human resource development;

Social welfare growth for all citizens.
In line with these policy pillars the MTEF 2013-2015 commits that that
government will continue to finance the following sectors within the budget
framework for the period: “public infrastructure, energy, agriculture, reform of
public order and safety sector, more efficient use of financial resources in
education and public administration reform, health and social welfare.” The
MTEF 2013-2015 sets a metric of capital expenditures not to exceed 40% of
allocations.
At the budget entity level the MTEF 2013-2015 sets out entity strategic priorities
and projects allocations for each priority. Descriptions among entities vary
significantly in specificity with some budget entities establishing concrete capital
projects along with specific projected amounts, while others establish budgeted
amounts as an aggregate among several potential projects.
MTPP. Kosovo is developing and implementing a tool to establish a policy
priority planning framework that is linked to the MTEF, but which expands
consideration of policies to those beyond priority policies covered by budget
funding. Managed by Office of Strategic Planning of the Prime Ministers’ Office,
the Medium Term Policy Priorities (MTPP) framework, establishes mediumterm policies and sets government priorities for the medium term period (three
years going forward). In addition to policies that are to be supported from
Kosovo’s budget, it includes policies to be funded from other sources, including
donors, other development partners and alternative mechanisms such as PPP.
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D R A F T June 2013
The process solicits from budget entities an explanation of their respective
policy priorities in the context of their expenditure constraints set out in the
MTEF and the anticipated source of funding, budget or alternative sources. The
MTTP seeks to establish an annual process to clarify and systematize policy
priorities at a nationwide level.
The MTPP framework is in early development, with the 2014-2017 period being
the first period of coverage. As this priority elaboration process continues to be
developed it will be providing valuable information for awareness of PPPs as an
investment alternative and serve as a robust platform for advance planning of
PPPs.
EDVAP. Another policy document at the central government level is the
Economic Development Vision Action Plan (EDVAP). The most current EDVAP
2012-2014 sets high level objectives of a 7-8% real economic growth rate in the
medium term combined with reduction of unemployment by 8-10% per annum.
EDVAP 2012-2014 establishes strategic policy priorities five sector pillars that
appear to share some conceptual overlap with the overall policy pillars
expressed in the MTEF:

Maintaining Macro-Fiscal Sustainability;

Investments,
Support;

Development of Public Infrastructure;

Revitalization of Agriculture sector;

Human Capital Development.
Investment
Environment,
and
Private
Sector
Where the MTEF is organized by budget entity, EDVAP is organized by its
policy pillars for economic development. Under each of these pillars, EDVAP
2012-2014 sets out specific objectives and, under each objective, specific
activities, time frames, indicators, and projected budget implications. The
EDVAP is not a budget tool, but rather a framework document reflecting policy
priorities of the government in economic development over the medium term
through 2014.
For infrastructure project planning, the most current EDVAP and MTEF
documents contain similar, though not identical, information. At present, the
EDVAP is broader in scope at the activity level, as it explicitly includes
transaction information beyond budget implications, such as transactions
funded or partially by donors and PPP transactions.
PIP. Significant information about Kosovo’s planned capital projects is
contained in Kosovo’s Public Investment Program (PIP), a software application
and government process where budget entities at the central and municipal
levels are required to input capital project information into planning software
that covers a period of three years forward. PIP capital projects go through
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layers of review at the sub budget entity level, budget entity, Ministry of
Finance, Government, and Assembly levels. The resulting list will be projects
that have funding appropriated through the Kosovo Budget. As such the
Kosovo PIP contains a significant number of infrastructure projects, many of
them schools, hospitals, and government buildings, particularly at the local
level, that might otherwise be considered for potential PPPs. Moreover, the PIP
exercise at the budget entity level provides a natural entry point for
consideration of PPPs as an option for infrastructure projects.
While the EDVAP identifies a few potential PPP transactions (PPPs for
municipal bus stations; possible PPP to revitalize Brezovica Ski Resort), this is
not the result of a systematic process to identify, prioritize, and filter potential
transactions; rather it reflects an observation that budget funds do not exist for
particular transactions, and therefore these transactions might be appropriate
for concession PPP. MTEF itself is not designed to identify specific PPPs but
rather project expenditure needs in the medium term. Neither of these critical
planning processes solicits information systematically to permit an exhaustive
list of planned potential PPP transactions within the context of Kosovo’s
strategic priorities. In practice, PIP appears to be used as a budget advocacy
tool and as such does not provide sufficient information to determine viability or
appropriateness of PPP for any particular project.
Thus, as it is now, MTPP, MTEF, EDVAP, and the PIP system do not
incorporate detail sufficient to allow for effective PPP early identification and
planning. As will be set out below in discussion of the strategic objectives,
below, if PPP planning is linked to these planning processes, it would allow
budget entities and the PPP Department to better identify and plan for
appropriations needed to develop these transactions.
Conclusion for Key Need 1: The Strategy should consider a strategic
objective to link PPP planning with Kosovo’s process of establishing
medium term priority policies and the MTEF process of planning
expenditures.
Key Need 2 – Building sustainable capacity to support PPP
transaction development
In several of the PPP transactions listed above significant strategic advisory
assistance has been, and continues to be, provided by Central PPP department
and USAID through its GFSI program.
CPPPD provides PPP assistance to all Public Authorities that are interested
and request assistance at different phases beginning from project identification
and initiation to preparation of tender documents.
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USAID’s assistance is designed to build capacity within Kosovo’s Public
Authorities to develop PPP transactions through experience. Strategic advisory
consists of support to prospective contracting authorities, be they ministries or
municipalities, to evaluate the suitability and potential viability of a proposed
transaction for PPP and pre-feasibility screening. In cases that are progressing
forward it includes support for developing feasibility studies and legal due
diligence, drafting of tender documents and PPP agreements, and support
during the tender process.
Generally, the expertise to identify, screen and develop PPP transactions is
underdeveloped within both central and municipal budget entities. Availability of
this expertise at the PPP Department greatly enhances the quality of proposed
PPP transactions that go forward and likelihood of their success. For more
complex transactions, strategic advisory assistance also includes support to
develop terms of reference and quality assurance management for the
contracting authority to engage outside transaction advisors. Transaction
advisors are typically engaged to handle at a significantly more technical or
industry-specific level the legal, financial, technical, and marketing aspects of
the transaction. Support to design the engagement of an outside Transaction
Advisor was provided by USAID through the PPP Department (then the PPP
Unit) in the Pristina Airport transaction. CPPPD has prepared a Terms of
Reference template, to be used in conjunction with necessary forms approved
by Public Procurement Regulatory Commission, based on Procurement Law,
for contracting of a transaction advisor to perform services of preparing a
complete feasibility study and transaction advisory.
As donor support for strategic advisory services is graduated, which it
eventually will be, Kosovo is likely to face a challenge in providing strategic
advisory support to prospective contracting authorities. More complex
transactions require significant funding to engage outside transaction advisors
at market rates, which funding is not often effectively planned in advance to be
available in the Public Authorities’ respective budgets.. In order to assure that
appropriate transaction support is to be provided for PPP project
implementation, the Government of Kosovo needs to examine means to
provide funding for providing transaction advisory services.
Transaction advisory services command significant expenditures as well since
they involve engaging professional firms that are highly qualified in the sector or
subsector. This expenditure requires advance planning for budget
appropriations to be available in time for a transaction. As revenue flatten and
potentially decrease, the availability of budget funds to engage transaction
advisors for complex transactions will decrease. It will increasingly become
necessary to develop self-sustainable capacity to continue providing these
critical support functions.
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Therefore, these pressures in Kosovo evidence an upcoming technical gap—
the ability for the PPP department to sustainably provide transaction advisory
services to public authorities in identifying and initially evaluating transactions;
and a present financial gap—the availability of funds for public authorities to
engage outside transaction advisors to assist in the design and marketing of
complex PPP projects.
Conclusion for Key Need 2: The Strategy should consider a strategic
objective addressing the need for sustainable provision of strategic
advisory and transaction advisory support for PPP transaction
development as donor support winds down.
Key Need 3 – Development of Private Finance Initiative (PFI)
capacity by expanding awareness of PFI’s as a PPP Option
So far, the PPP transactions planned and concluded in Kosovo consist only of
concession-based PPP transactions, transactions providing for recovery of upfront infrastructure investment through user fees or commercial revenues (or
both) available from the operation and maintenance of the infrastructure
project. PFI transactions—or Public Contracts, following the rubric of the PPP
Law—where the Public Authority itself makes availability payments over time to
the private partner, have so far not been planned or developed.
Instead, for capital projects for which no, or insufficient, commercial revenue
stream may be available, Kosovo budget entities instead carry out projects on a
procurement basis, engaging in transactions as budget funds to cover capital
expenditure become available through budget appropriations rather than
through PPP. This approach limits infrastructure investment to immediately
available funds.
The pressure to deliver needed public infrastructure has also led to several
Public Authorities in exploring and pursing PPP options to build public facilities
and combining them with commercial revenue generating opportunities, such
as developing public buildings and providing space for commercial activities
and revenue streams to offset the investment cost and provide an adequate
return to the private partner. With greater fiscal planning, however, it may
become feasible to examine possibilities for such transactions to be conducted
as PFIs.
In many other countries PFIs provide significant benefits in infrastructure
development. Croatia, for example, has a well-developed practice of
implementing PFI’s to contribute responsibly to infrastructure development
needs in key social need sectors, such as schools and hospitals as well as for
design and development of public buildings.
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Greater attention to PFI opportunities would allow many of needed projects to
be designed and built (or renovated) in return for payments to be made by the
Public Authorities over the life of the asset. As with concession-type PPPs,
PFI’s will require a showing of value for money—that the provision of a public
infrastructure or services results in a higher economic, social and financial
benefit, including cost, price, quality, quantity, risk transfer, compared to the
provision of such public infrastructure or services in any other form. PFI
commitments will also enhance the need for financial planning controls, as PFIs
represent Public Authority commitments. For the Public Authority to make PFI
engagements, the planning process for these transactions will be vital to
manage their impact on the budget.
Conclusion for Key Need 3: The Strategy should consider a strategic
objective to stimulate and support greater awareness and consideration
of PFI-type PPP transactions.
Key Need 4 – Maintaining a publicly available pipeline of upcoming
and potential PPP transactions
With the development of PPP transactions over the last several decades, many
countries have begun developing, maintaining, and publishing a “pipeline” of
PPP transactions. This pipeline is generally a list of planned upcoming PPP
transactions, usually by sector, that provides information about what kind of
transactions are being planned by the Public Authorities and what relative time
frames such transaction are expected to take place.
Why is a PPP pipeline desirable? Generating this information and making it
publicly available serves several valuable purposes. First, developing and
maintaining a PPP pipeline requires the government to go through a process of
screening and identifying potential transactions and evaluating them from a
sector-level and country level perspective, providing a quality review process
prior to committing substantial resources to transactions, as opposed to an ad
hoc approach where each transaction is considered in isolation. A pipeline
approach allows identification and evaluation of issues that may arise where
multiple transactions are being prepared at the same time that risk competing
for limited available resources, giving opportunity to minimize the risk of
exceeding local transaction capacity or proceeding with transactions that are
not consistent with sector or country-level priorities.
Developing a pipeline for PPPs also helps generate demand as part of the
government’s engagement with the private sector for investments. A well
maintained PPP pipeline provides potential investor partners in the private
sector with advance notice of planned transactions. This allows investors
themselves to plan for an upcoming potential transaction, for example, by
organizing and planning resources to be available for a specific investment
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D R A F T June 2013
timeframe and locating potential partners for more complex transactions. It is a
standard practice in many developed and developing countries.
Finally, producing and maintaining a PPP pipeline helps generate needed
credibility for developing and transitional economy like Kosovo, where the depth
of successful transaction experience may be relatively light compared to more
experienced markets competing for investment. A well maintained and
polished PPP pipeline signifies that the government is taking diligent action to
plan transactions, improving the likelihood of successful transactions and
improving competition among potential private partners.
Conclusion for Key Need 4: The Strategy should consider a strategic
objective to develop, maintain, and publish a robust pipeline of upcoming
PPP transactions.
Key Need 5 – Developing a systematic approach for oversight of
PPP contract management
PPP transactions cover a substantial period of time, generally matching the
expected useful lifespan of subject infrastructure, often decades. Once a
transaction is planned, designed, tendered, contracted and financially closed,
the contracting authority undertakes to manage the agreement’s
implementation, first through construction phase, and then through the phase of
service or operations and maintenance for the life of the agreement.
There are two process levels of the management process: direct contract
management at the contract authority level—i.e., between the contract authority
and the private partner—and oversight of that contract management at the PPP
Department level. Direct contract management is highly specific to the
respective contract, based on its output requirements, time, cost, quantity, and
quality. The contract manager also will need to deal with countless issues that
will inevitably arise over the life of performance of the agreement that were not,
or could not have been, foreseen and addressed in the agreement. The
oversight process is designed to place performance expectations and reporting
requirements over the contract manager to ensure that contracts are managed
in a planned and standardized way.
Oversight of this contract management process is a fundamental part of healthy
PPP systems. Disparate contracting authorities at the central and municipal
levels of government, if left without oversight, will invariably develop disparate
practices and levels of quality in contract management. Since PPPs involve
public assets and public services, and often involve exercise of monopolistic
activities and access to public resources, effective management of these
agreements will remain a paramount public interest for the life of the
agreement. While technical aspects of contract performance may be managed
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D R A F T June 2013
more easily by a line ministry, department, or municipality, public fiscal and
user interests tend to prove more challenging.
The Law on PPP, in Article 19.2.4, requires the establishment of a
professionally qualified contract management team to monitor and enforce strict
compliance by the Private Partner with the terms of the Agreement. The PPP
Committee has established rules of contract management in its Administrative
Directive 2. Under PPP Directive 2, the contracting authority is required by the
PPP Law to appoint a Project Management Team, which remains in existence
for the life of the agreement and reports to the contracting authority leadership
and to the PPP Committee through the PPP Department. The PPP Department
is required to establish a terms of reference for the project management team.
The Directive provides for the Project Management Team at the contract
authority level to report “on a regular basis, or as may be requested” to the
public authority and to the [PPP Committee] through the [PPP Department].
However, there are no standardized requirements, processes, guidelines or
templates for this reporting. Contract management is also addressed as a
chapter in the PPP Department’s upcoming PPP Guidelines, yet the Guidelines
do not provide detail on the role and function of oversight as a standardized
process.
At present, with a small number of completed transactions, the oversight
burden on the Central PPP Department is not substantial and can generally be
handled individually. However, as we accumulate more long term PPP
transactions over time, contract management and oversight requirements will
become more complex, and the burden of overseeing many contracting
authorities on multiple PPPs will become increasingly challenging for the
CPPPD. In anticipation of this eventuality, the CPPPD should consider
developing a standardized process based on risk-management principles for
periodic contract authority reporting to the PPP Department.
Risk management principles would suggest a standardized process for capture
and reporting of basic performance information to the oversight authority and
for archiving or analysis by the oversight authority of information reported
depending on the type of information reported. Low attention would be paid to
basic performance data and the information would be archived and readily
retrievable for analysis. However, reporting requirements would also include
key performance metrics and potential exceptions that indicate changes in
quality of performance or trend toward potential future performance problems.
For these key performance metrics and exceptions, the oversight authority will
pay heightened attention. These include specific issues, such as repeated
failure to meet required standards or key performance indicators, increased
likelihood of default, or prospect of having to renegotiate. With a risk-based
system of oversight, the PPP Department would receive and archive data on a
standardized and regular basis and only need to pay greater attention where
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need areas arise. Where greater attention is warranted, the oversight authority
then has the option to engage with the contract management body to develop
intervention strategies appropriate to the situation presented.
By planning and establishing an oversight system based on risk-management
principles, the PPP Department would be creating an effective system of
monitoring capable of handling a greater load of transactions, generating
intervention only where needed to address potential and actual issues as they
arise.
Subsection Conclusion: The Strategy should consider a strategic
objective that formalizes a contract management monitoring process
based on risk management principles
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V.
STRATEGIC OBJECTIVES AND STRATEGY ACTIONS
Starting from a solid foundation in its initial phase of PPP growth, Kosovo
needs to continue building sustainable capacity to develop and support PPP
transactions. As discussed above, at present Kosovo has developed a strong
initial practice of developing and implementing PPPs, but relies significantly on
donor technical assistance that will eventually be completed. Through review of
the legal framework impacting PPPs, current policy documents, and interviews
with stakeholders, this strategy effort has identified several issues that should
be addressed at this stage of development. This strategy correspondingly
suggests several objectives that Kosovo may pursue in order to address these
identified issue areas.
Figure 3: Key Needs and Strategic Objectives
KEY NEEDS
STRATEGIC OBJECTIVES
1 Increase the link of the PPP process
Build PPP planning capacity by linking it
with Medium Term Expenditure and
Medium Term Policy Priority
Frameworks
to government policy and expenditure
planning mechanisms
2 Building sustainable capacity to
Build sustainable project development
and implementation capacity in Kosovo
by planning and establishing a Project
Development Facility
support PPP transaction development
3 Development of Private Finance
Initiative (PFI) capacity by expanding
awareness of PFI’s as a PPP Option
Develop PFI capacity by expanding
awareness of PFI’s as PPP Option
Increase private sector outreach by
developing and publishing a Pipeline of
planned PPP transactions
4 Maintaining a publicly available
pipeline of upcoming and potential
PPP transactions
5 Developing a systematic approach for
Strengthen PPP contract management
by creating a risk-based system of
oversight
oversight of PPP contract
management
The following describes these Strategic Objectives and suggests how they may
be achieved.
Strategic Objective 1 – Build PPP planning capacity by linking it
with Medium Term Expenditure and Medium Term Policy Priority
Frameworks.
Kosovo is continually developing its planning process each year, with the MTEF
looking three years into the future for anticipated expenditure needs planning
and the more recently initiated MTPP process working to set up a similar
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procedure to centralize policy priority planning. As these processes develop,
Kosovo gains an increasingly clear picture of its policy priority areas upcoming
in the medium term, allowing it to allocate available and expected resources to
these areas and improve government performance. This helps build
transparency in planning and budgeting and engenders greater confidence in
Kosovo’s infrastructure plans.
Advance planning is an integral part of mature PPP systems as well. As long
term, complex transactions, PPP’s require significant advance planning to
cover the needed expenditures to engage experts for screening, designing,
implementing, and managing transactions. Without advance planning, budget
entities will need to find these resources in an ad hoc manner, usually
transferring funds at the expense of other existing policy initiatives or
infrastructure plans, or finding a donor willing to provide funds for a specific
transaction. To reduce this outcome, PPPs should be increasingly linked to the
government policy formation and medium term expenditure framework. PPP
processes will improve with greater planning, rather than ad hoc, as budget
entities will gain a better ability to engage professionals in these transactions.
The MTPP, MTEF, and PIP processes provide an excellent opportunity for
expanding awareness of, and encouraging advance planning for, PPPs at the
budget entity level as well as at the central government level. As budget
entities, municipalities and ministries, participate in these planning processes
they are required to examine their current priorities and performance and
refresh their priorities on a periodic (annual) basis. This process provides a
potential platform for early identification of capital projects and public service
initiatives that may be appropriate for implementation through a PPP. Early
identification provides time for consideration and planning of options for funding
the PPP development process through the budget or other sources, such as
donor funding or centrally-provided services from the PPP Department
(discussed elsewhere in this strategy as a development area).
Strategy Actions SO 1.
To accomplish Strategy Objective 1, the PPP Department should plan on the
following actions:

A PPP early identification system can be initiated through data
obtained in the MTPP, MTEF, PIP, and Budget circular processes
by including a query for each identified and planned capital
project whether the budget entity has considered conducting the
project as a Public-Private Partnership. This kind of query will
stimulate greater consideration and inquiry at the project level
whether a PPP transaction might be appropriate.
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D R A F T June 2013

The PPP query is also likely to generate greater awareness and
interest in learning about the functions and potential uses of PPPs
at the budget entity level. Therefore, together with the query, the
instruction or circular requesting the information should also
provide a contact point for more information at the PPP
Department and a link to its website.
These actions are unlikely to generate one hundred percent accurate results,
as budget entity-level personnel are not yet fully aware of the scope and
application of PPPs. But that is not their function. Since these instructions are
provided on a periodic basis they should serve to progressively generate
greater awareness of PPP’s as a tool for handling capital projects and build
interest in learning more about them. Consequently, these Strategy Actions
should serve to build awareness and planning capacity for PPPs, generating an
increase in PPPs in the medium and long term.
Strategic Objective 2 – Build sustainable project development and
implementation capacity in Kosovo by planning and establishing a
Project Development Technical Assistance Facility
As observed above in the Developmental Issues section of this Strategy,
Kosovo needs to address both a technical gap in identifying and evaluating
viability of transactions and a financial gap to finance the engagement of
outside transaction advisors to design, develop and carry out complex
transactions. Developing a PPP transaction for tender is usually considerably
more expensive and resource consuming than alternative methods such as
procurement or donor supported transactions. PPPs necessarily require a
rigorous, systematic approach including feasibility study, value for money
analysis, due diligence, and extensive contract documentation to cover
assignments of risk over every phase of a long term project. This brings a
concomitant need for highly trained professionals and in many cases outside
transaction advisors to carry a transaction through to financial closing. It is
unreasonable in the short and medium term to expect budget entities to have
professionals with skills and capacities needed to identify, plan, prepare for,
design, tender, negotiate and close PPP transactions.
This expense and complexity in transaction development can be challenging.
Together with lack of awareness of PPP as an effective infrastructure delivery
method, it serves as a key factor inhibiting the growth of PPPs in Kosovo.
Moreover, where transactions are not adequately designed, whether through
incorrect or unclear assignment of risk, overly optimistic market assumptions, or
poor definition of performance outcomes, significant risk arises of transaction
failure.
To help offset these costs and mitigate these risks, the Central PPP
Department provides strategic advisory assistance to contracting authorities in
several cases, in some cases including technical assistance from USAID’s
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D R A F T June 2013
GFSI program together with the PPP Department. These services consist of
outreach to identify prospective PPP transactions, screening proposals to
determine technically suitable transactions, working directly with contracting
entities to develop a feasibility study in conformance with the PPP Law and
then assisting in development of the transaction tender documents and PPP
agreement.
However, in complex transactions requiring highly specialized, transaction
specific advisory services, significant alternative funding will be needed to
engage outside transaction advisors. In planning for improved funding and
technical assistance to develop PPPs, the PPP Department has been actively
considering options on how to continue providing these services, most recently
examining the possibility to create a PPP Technical Assistance Fund (PPP
TAF). This prospective program suggests the creation of a jointly government
and donor-funded facility to improve contracting authorities’ access to expert
advisory in developing transactions. The program would establish funding for
contracting authorities to engage transaction advisors from a list of pre-qualified
advisors to complete the studies and documents required to tender a PPP
transaction.
The PPP TAF approach is a developing model for PPP growth and
development. Several countries have developed programs to provide technical
and financial support in PPP transactions. In considering which type of system
would be an appropriate option to consider, the PPP Department concludes
that Kosovo’s current gap areas are both funding and technical. Prospective
public authorities, central and local, generally do not have sufficient expertise in
house to handle transaction study, screening, and development, so transaction
advisory is necessary. In the short to medium term these bodies, for the large
part, will not be able to plan funds needed to engage transaction advisors. Thus
the availability of outside funding would be highly useful in preparing
transactions where technical expertise is lacking financial need is
demonstrated. Therefore, this Strategy confirms the Central PPP Department’s
decision to follow a model that addresses both the financial gap and the
technical gap of contracting authorities. An analysis selecting this model based
on alternative international approaches is set out in the Annex to this Strategy.
Strategy Actions – SO 2
To move forward with a transaction advisory funding model, Government of
Kosovo will need to determine a few key points:

How the facility will be funded. In addition to funding from the
budget, significant initial funding may need to be provided by
international donors. Additionally, since not every funded
engagement will result in a successful transaction, funding will
need to be refreshed from time to time. Kosovo’s PPP Law (in
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D R A F T June 2013
Article 13) provides for contracting authorities to charge winning
private partners for reimbursement of transaction costs and/or
oversight. This reimbursement provision may need to be
amended and expanded if Kosovo is to move forward with a selfreplenishing project development fund.

How the facility will be managed. A key issue for resolution is
how such a fund would be maintained. If the fund is maintained by
a state controlled body or involves any public funds, then under
the law on Public Financial Management and Accountability any
contributions to it would enter into the Kosovo’s budget and would
be subject to the annual appropriations process. Contributing
donors would likely require reassurance of a continual
“evergreen” re-appropriation each year to ensure the donor
funding continues to serve the intended purpose of supporting
PPP transaction development and to clarify distribution rights on
dissolution of the fund.

How strategic advisory will be provided. Public authorities will
continue to require strategic advisory assistance to pre-screen
and develop transactions and support to manage transaction
advisory engagements. This function is provided through the
Central PPP Department and is currently supported by USAID
technical assistance. In the short to medium term, the Central
PPP Department expects to continue developing its strategic
advisory team with support by USAID. However, as donor
technical assistance is graduated, the PPP Department will work
to further develop capacity to continue providing strategic
advisory support.
Given the high level of market expertise put into this strategic advisory support
service, it is likely that the cost of providing these services will exceed civil
service limitations. If so, these may need to be provided through outsourcing
relationships with qualified professionals, either on an individual or firm/entity
basis. Therefore, the PPP Department will need to plan budgeting in the
medium term for these outsourcing engagements within the expected time
frame for wind-down of USAID support of strategic advisory at the Department.
The PPP Department’s next steps in designing a PPP TAF will be to:

Assess the feasibility of a fund and determine the conditions
necessary to establish the facility, including identifying donors that
may be interested in participating in the PPP TAF and particular
requirements/conditions of those donors.

Develop a plan addressing steps for setting up a PPP TAF,
including legal amendments and regulation development
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D R A F T June 2013

Develop an Operational Agreement among participants,

Draft a Charter for the fund under the PPP TAF

Establish a Guidelines documents with clear Roles and
Responsibilities and authorities indicated

Develop a Rules and Procedures statement governing all
business process flows for the PPP TAF
Strategic Objective 3 – Develop PFIs by expanding awareness of
PFI’s as PPP Option
Currently, all of Kosovo’s completed and prospective PPP transactions involve
concessions, where infrastructure and service is paid for through third-party use
payments, be they lease fees, regulated service delivery fees, or commercial
revenues earned on the infrastructure site. The PFI model of transaction, where
payment is made largely or completely by the government entity, rather than
end-user payments, is a growing model of transaction worldwide. It is
recognized under Kosovo legislation as Public Contracts where the budget
entity makes payments for availability of the infrastructure or provision of the
public service.
PFIs commonly address public infrastructure and service in circumstances
where there is no or insufficient third party user revenue to make a transaction
viable without significant government contribution. Typical PFI’s include
schools, hospitals, and public facilities. Examination of the Kosovo Annual
Budget shows significant planning at the central and municipal levels for
building and renovating public facilities, schools, and hospitals through
procurement. These may represent opportunities for PFI development.
Why are PFI’s important? PFI’s would allow for the expansion of capital
expenditure capacity where little or no commercial revenue is reasonably
available to support the development. By designing and implementing PFI’s
central and municipal government offices may be able to plan development and
delivery of public infrastructure that they are not otherwise possible through
current budget appropriations. In an environment of low economic growth and
low revenue growth, PFI’s offer the Public Authorities alternatives to
procurements and concessions.
PFI’s however, bring with them the need for planning and projecting revenue
capacities into the future. A government entity’s obligation to make availability
payments extends for the life of the agreement, which will typically match the
life span of the planned infrastructure. Careful planning and transparency will
be necessary to design and develop PFI’s. Additionally, PFI’s should not be
carried out simply because there are insufficient appropriations for development
through procurement (or insufficient donor funding). The government entity
must prepare a value for money analysis demonstrating that conducting the
34
D R A F T June 2013
transaction as a PFI constitutes the best economic alternative to infrastructure
development and delivery.
As smaller economic units, municipalities are particularly challenged in
developing infrastructure, and PFI’s may present a significant opportunity.
However, it is important also to note that given the costs of designing and
developing transactions are considerably larger than straight procurement, it
may be necessary to develop larger transactions (e.g., 10-15 schools) to build a
sufficient economy of scale to make a PFI transaction feasible. This may
require bundling, or agreement among multiple municipalities, in order to
develop a transaction that is economically viable. This raises issues of planning
and cooperation, and provides an opportunity for the PPP Department to play a
guiding role in promoting and planning PFIs.
Strategy Actions – SO 3
Most budget entities, particularly municipalities, are not apparently aware of
PFIs as an infrastructure delivery alternative. At a recent awareness meeting
between the PPP Department and municipalities, several municipalities
expressed significant interest at PFIs existing as an infrastructure alternative.

Consequently the PPP Department should expand its outreach
and training program to develop and implement a plan of targeted
outreach to municipalities on the specific issue of PFI alternatives
for building awareness of PFIs as an infrastructure delivery
option. Targeted outreach consists of individual meetings and
discussions with identified municipalities and central budget
entities on the basis of information about their respective planned
infrastructure and public service needs. To develop outreach
targets, the PPP Department should obtain enhanced access to
information about budget entity infrastructure and service needs.
It can do this through access to regularly collected information
from budget entities as part of the MTPP, MTEF, PIP, and annual
budget circular processes, as described in the Strategic Action
SO2, above.

The PPP Department’s targeted outreach plan should include
periodic review by the Department of this information to identify
and prioritize potential PFI opportunities. The Department would
then meet with the budget entities with top ranked potential PFI
opportunities to discuss whether there is interest and political will
to develop the project as a prospect for PFI. The support
approach should include delivery of specialized training on PFIs
to appropriate persons within the budget entity, to build
appreciation and understanding of the PFI development process.
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D R A F T June 2013

As PFI’s may require bundling of multiple municipalities in order to
achieve a sufficient volume for an economically viable size for a
transaction, the PPP Department may need to facilitate
agreement among multiple municipalities to participate in a joint
transaction, including assignment of clear roles and
responsibilities among municipalities.

The PPP Department should prepare a separate guideline for the
implementation of PFI’s, including promoting detailed information
on benefits of PFI models. Create separate training module while
including specific case studies pertaining to the needs of the
Public Authority. Furthermore the CPPPD should in conjunction
with the Prime minister’s office, Ministry of Public Administration
and Ministry of Environment and Spatial Planning prepare specific
guidelines on implementing PPP/PFI for public buildings,
Together with this outreach, it will be important for PFIs to be treated openly
and transparently within government. As binding contract obligations with
significant investment by the private partner, PFI transactions will serve as a
constraint on service delivery options of the Public Authority through the life of
the PPP agreement. The PPP Department clarifies that fiscal reporting of PPP
transactions (including PFIs) should adhere to Eurostat Decision (18/2004) –
projects be classified as nongovernmental and “off the books” if the private
partner bears the construction risk and either the availability or the demand risk.
Strategic Objective 4 – Increase private sector outreach by
developing and publishing a Pipeline of upcoming PPP transactions
The Central PPP Department maintains internal information about possible
upcoming transactions, which is updated through meetings with Public
Authorities and it has been presented and promoted to various audiences, but
has not yet established a publicly accessible pipeline of transactions. In order to
set up a pipeline and publish it, the Department will need to put in place an
effective method of pre-screening transactions, so that only credible and likely
transactions are published. Transactions that appear in the pipeline and that do
not proceed on a relative timeframe as published will risk negatively impacting
the credibility of the pipeline. Therefore, pipeline effort will require effective prescreening with a qualitative component assessing likelihood that the public
authority is preparing for the project, and a quantitative component that
establishes the potential economic feasibility of a project (but not feasibility). As
a consequence, a significant amount of due diligence will need to be taken in
order to place a project into the public pipeline.
The PPP Department will need to establish minimum criteria for the pipeline. At
a minimum, to be useful for investors the pipeline should include a brief project
description including the anticipated infrastructure / public service metrics and
36
D R A F T June 2013
relative size (e.g., 39 kilometers of motorway, 9 schools of 350 students, but
not expected capex), current status, and contact information at the PPP
Department and contracting authority to provide more information to potential
investors. If a transaction advisor is expected to be engaged, that information
should be included. In terms of presentation, a series of links for each project is
preferable to a simple spreadsheet.
Strategy Actions – SO 4
The PPP Department should start by establishing a plan for developing a
pipeline. The plan should include agreement on metrics for the pipeline and
processes for maintaining it and keeping it current and realistic. While it will be
aware of many potential transactions, the PPP Department needs to have a
high level confidence the projects published in the pipeline will proceed.
Therefore, the Department should plan on the following actions:

Continue to engage in meetings with key government offices,
agencies, ministries and municipalities to identify planned
transactions that may be suitable for PPP and assemble
information relevant to transaction viability. Key Ministry meetings
would include: Ministry of Economic Development, Ministry of
Public Administration, Ministry of Trade and Industry, Ministry of
Agriculture and Rural Development, Ministry of Environment and
Spatial Planning, Ministry of Health, Ministry of Education,
Science and Technology, Ministry of Culture, Youth and Sports to
understand infrastructure plans and needs relating to PPP
opportunities.

Establish a methodology for project pre-screening that includes a
qualitative evaluation of the capacity and level of commitment of
the contracting authority, and light, or summary, quantitative
assessment indicating the potential for economic viability, as well
as a written commitment or memorandum by the contracting
authority or authorities outlining the plans to move forward on the
project. USAID’s GFSI project has developed a qualitative and
quantitative pre-screening tool that may be useful to consider in
establishing this transaction pre-feasibility.

The pipeline should also be coordinated with the Investment
Promotion Agency of Kosovo (IPAK) and cross-linked with its
website.
Strategic Objective 5 – Strengthen PPP contract management by
creating a risk-based system of oversight
As stated in the Background and Issues Identified section above, the current
rules of contract management set out in the Administrative Directions and the
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D R A F T June 2013
PPP Department’s Guidelines do not set out a standardized process for
oversight of the contract management process. While not a hindrance under
the PPP Department’s current project load, this project load will increase over
time and place challenges on effective oversight. The PPP Department is
therefore in a position no to plan for this increase in load and to develop an
oversight system based on risk management principles. Such a system should
consider the use of systematic reporting of performance data, archiving of this
data, and analysis of exceptional data—information that suggests problems
may be on the horizon.
Strategy Actions – SO 5
The modest PPP load, such as that expected in the reasonably near term
future in Kosovo justifies a two-tier reporting system – one level at the contract
management team / contract authority level with monthly reporting, and one at
the contract authority/PPP Department level with periodic reporting focusing on
compliance and exception issues.

The Central PPP Department, should prepare a PPP directive on
contract management procedures to expand and further develop
PPP Directive 2.

The Central PPP Department should develop guidelines on
contract management oversight and preparing standardized
templates for periodic reporting by project management teams to
provide general performance data for archiving and compliance
and exception issues for intervention.

As part of this process, the Central PPP Department should also
consider providing project by project training to ensure the project
management teams within contracting authorities understand and
have the capacity to manage contracts and provide effective
reports, calling attention to actual and anticipated performance
issues.

The PPP Department should create a division or unit within, to
provide technical assistance in contract management. This
division/unit should be staffed appropriately to be able to monitor
all PPP projects that have reached effective date. Taking into
consideration that monitoring may not be full time work; the
division/unit may also assist in other areas as seen fit based on
the needs of the Department.
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D R A F T June 2013
VI. CONCLUSION
This Strategy establishes current key needs to PPP development, strategic
objectives addressing these key needs, and actions to be taken in order to
accomplish these objectives. In addition to these issues, objectives, and
actions, there are additional issues that do not raise to the level of key issue or
strategic objective, but which remain important and relevant to PPP
development.
Smaller Transactions. One such issue raised in stakeholder consultations
concerned the degree of complexity of the PPP requirements relative to smaller
transactions. This complexity encompasses the cost and time consumption of
the feasibility study process and the complexity of the PPP agreement. In
particular, smaller public authorities, such as municipalities, are challenged by
the degree of resources and time needed to prepare PPP transactions relative
to the size of the transaction and to the time and resources that would be
needed for traditional procurement rather than PPP.
Though not rising to the level of a Key need generating a Strategic Objective,
the PPP Department recognizes this as an issue area that should be
addressed. Therefore, to be responsive, the PPP Department will undertake a
review to determine the viability of establishing more modest feasibility study
and tender document templates to accommodate such smaller transactions, for
example, transactions that are estimated at less than €2 million in capex.
Fiscal Monitoring. Another issue is that of how best to monitor overall fiscal
impact of PPPs in the future in Kosovo. Despite requirements and exceptions in
accounting requirements, PPPs have an impact on future fiscal flexibility, and
monitoring this impact will become more important as the number of
transactions grow. There is significant professional consideration currently
being given toward recognizing this issue and suggesting potential tools and
approaches to developing effective PPP fiscal monitoring systems (e.g., PublicPrivate Partnerships in the New EU Member States—Managing Financial
Risks, World Bank Working Paper No. 114, currently available online at:
https://openknowledge.worldbank.org/handle/10986/6743.)
The PPP Department recognizes this need, and in future strategy periods, as
PPP transactions grow in number and more effective fiscal monitoring tools are
developed, acknowledges that Kosovo will need to consider whether and how
to best further develop its own approaches to monitoring as it proceeds toward
deeper integration into the European and world markets.
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D R A F T June 2013
VII. NEXT STEPS
This preparation of this Strategy represents the completion of the first phase of
the Strategy process.
The second phase of the Strategy process will be implementation and periodic
performance monitoring consistent with the requirements of the final Strategy.
Upon periodic (annual) review, the Strategy’s key needs, strategic objectives
should be evaluated by the Working Group to determine whether they remain
current or relevant and whether additional or new issues or challenges have
arisen that require revision of the Strategy.
Summary of Implementation Actions to be taken over the Strategy period:
For SO1:

Review of budget circular and questionnaires for MTEF and
MTPP and software program for PIP to establish appropriate PPP
query for planned infrastructure projects

Develop query and included in circular and questionnaires and
PIP

Conduct Feasibility Study for PPP TAF

Develop Establishment Plan for PPP TAF

Draft Operational Agreement for PPP TAF

Draft Charter for PPP TAF fund

Prepare PPP TAF Guidelines

Promulgate Rules and Procedures statement for PPP TAF

Develop PFI Outreach Plan based on review of data from
planning processes

Assessment of transaction bundling possibilities to reach
economic scale for prospective transactions to be viable

Develop specialized training on PFIs for delivery to target budget
entities
For SO2:
For SO3:
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D R A F T June 2013
For SO4:

Prepare PPP Project Pipeline Development Plan

Target meetings with public authorities to identify and clarify
prospective PPP transactions sector by sector

Develop / refine methodology for transaction pre-screening for
viability

Develop template memorandum of understanding for transaction
commitment

Develop initial pipeline and publish

Linkage to IPAK

Develop guidelines and sample sector-specific oversight template
based on existing and prospective transactions

Develop project-specific training on contract management and
oversight
For SO5:
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D R A F T June 2013
ACTION PLAN YEAR 1
42
D R A F T June 2013
ANNEX I TO PPP DEVELOPMENT STRATEGY FOR THE
REPUBLIC OF KOSOVO (2013- 2016)
PPPs in Europe and the Region
Historically, PPP growth in Europe has been strong, though impacted by the global
economic recession. According to the European Investment Bank for 2010, more
than 1,300 public-private partnership projects, worth €250 billion, were implemented
in the EU between 1999 and 2009. During that time frame France has dominated,
with Britain and Spain following not far behind. PPPs implemented in the EU market
are of greater value than the anticipated value of any PPP projects in other
countries.
Despite this strong performance of PPP transactions for the previous two decades,
the market for PPPs in Europe is also currently experiencing downward pressure, as
new PPP transactions in Europe have been closing at a slower rate than the
previous ten year average. EPEC reports that the 66 transactions closed in 2012
with a value of €11.7 billion, down from 84 projects and €213 million in 2011.
Figure 4: European PPP Market 2003-2012 by Volume and Number of Transactions
Source: EPEC Market Update, Review of European PPP Market 2012
Croatia
In the region, Croatia is a longstanding strong performer in PPP. Croatia initiated its
first segment of the Istria “Y” highway construction as a concession PPP in 1995,
and since then as implemented a robust series of PPP transactions. In 2008 Croatia
passed standalone PPP legislation and created a centralized PPP body, the PPP
Agency. Croatia’s PPP practice has further expanded into Private Finance Initiatives,
43
D R A F T June 2013
or PFI’s (where the government, rather than third party users, make payments for the
infrastructure and services) to build schools and sports centers:
Table 2: PPP Projects in Croatia
The Istria “Y” highway a 32-year concession 131 km
500,000,000
New Passenger Terminal of Zagreb Airport concession was awarded for the
construction of the new passenger terminal, 30 years of operation
236,000,000
High School and Sports Hall Koprivnica ( PFI )
Central Bus Station in Osijek
9,300,000
16,000,000
Reconstruction of the County Hall Public Administration Varaždin
1,200,000
Schools and sports halls in the Varaždinsko-Križevačka county construction
of two new schools, reconstruction of 27 existing schools and construction of
15 school sports halls three years of the construction period plus 25 years of
the operational period. (PFI )
55,000,000
Total
817,500,000
Most recently, on April 2012 the Croatian government adopted the Framework
Programme for the Construction, Reconstruction and Upgrade of Public Buildings
Using Contractual PPP Model (“the Framework Programme”) for the next four years
in the field of sciences, education, health, justice, culture, social welfare and
defence, with a total estimated investment value of €2 billion. This is expected to
significantly expand the scope of PPPs in Croatia.
Albania
Albania’s PPP framework is based on its Law on Concessions, and concessions are
covered by a central authority, the Concession Treatment Unit under the Ministry of
Economy, Trade and Energy.
Table 3: PPP Projects in Albania
Transport
• The motorway Thumane – Rrogozhine)
• The containers terminal in the port of Durres
• Construction and operation of small marinas
• BOT of periodical technical control of vehicles
Administration of Public Services
• Concession regarding the production of ID-card and
Biometric Passports of the Albanian citizens
• Concession contract for implementation of production
and implementation of the control system of Fiscal
Stamps
Agriculture
• Concession contract on exploitation of 1000 ha for olive
cultivation
Trade and Energy
•Concession procedures for implementation of Free
Economic Zone in Shengjin and Spitalle
• 35-year concession the Ashta hydropower plant $220
million
44
Launched 2010
Launched 2010
Launched in 2008
Signed in 2009
Signed in 2008
Signed in 2010
Signed in 2009
Launched in 2009
D R A F T June 2013
Macedonia
Macedonia has special legislation on PPPs (Law on Concessions and Public-Private
Partnerships) but does not have a central body reviewing and regulating
transactions.
PPP Projects in Macedonia

Airport: Skopje Airport and Ohrid, Value: 30M, 15 year BOT

Concession for waste disposal at the landfill Drisla-Skopje

Construction and reconstruction of student dormitories in Republic of
Macedonia

Design, construction, financing, maintenance and operation of the
infrastructure of the Integrated Waste Management System of Western
Macedonia, for a period of twenty-seven (27) years.

In planning - Macedonia Corridor 8 highway PPP

In Tender - Skopje tram PPP project under DBFOT
45
ANNEX II TO PPP DEVELOPMENT STRATEGY FOR THE
REPUBLIC OF KOSOVO (2013- 2016)
PPP TAF OPTIONS
In considering an appropriate international model on which to pattern the PPP TAF,
the PPP Department examined three types of models—those implemented in
Philippines, India, and Croatia:
Philippines Model
With Asia Development Bank support, the Philippines recently initiated a Project
Development and Monitoring Facility (PDMF) which provides qualified strategic
technical advisory and access to funding for technical and transactional advisory
services from a panel of pre-qualified firms. The PDMF is funded jointly by the
government and donors and seeks reimbursement of transaction advisor fees from
the winning bidder in the PPP tender. For PDMF assistance, the Philippines PPP
Center (a central PPP support organ) contracts with a Transaction Advisor (from a
panel of pre-qualified firms) on behalf of the contracting authority seeking to pursue a
PPP. If there is a successful transaction, transaction costs should be recovered from
the successful bidder, plus 10%. In the event that a transaction does not happen, the
contracting authority obligation to reimburse the fund depends on the authority’s
role—If the transaction fails for reasons beyond the authority’s control, it must
reimburse 50% of the cost incurred. If the reasons for transaction failure were within
the authority’s control, it is obligated to return 100%.
Budget
CA
Grant
Strategic
Advisory
€
Fund
€
PPP Center
SOW
Deal Review
Pre
Quali
fied
TA
Grant
Donors
Private Partner
Figure 5 – Model of PDMF for Philippines
46
€+10%
Thus, Philippines’ model is designed to remedy both a funding and a technical gap in
government. The PPP Center provides strategic advisory assistance to public authorities in
order to screen transactions and engage transaction advisors on behalf of contracting
authorities. The fund is used to engage the transaction advisory and is reimbursed from
successful transactions.
India Model
India has set up a similar program of funding, the Infrastructure Project Development
Fund (IPDF), for qualified transactions. The IPDF covers the cost to engage outside
advisors to conduct a pre-feasibility analysis, and depending on the results,
additional funding to engage transaction advisors, again from a panel of pre-qualified
firms. Like the Philippines’ PDMF, the IPDF is jointly government and donor funded
and seeks reimbursement of transaction fees from the winning PPP bidder.
However, the IPDF loans the funds to the public entity, which then contracts directly
with the transaction advisor. The fund is not tied with strategic advisory service to the
contracting authority in screening transactions. Funds are simply passed through the
contracting authority, which engages and manages consultants and transaction
advisors. The fund requires reimbursement from the contracting authority with a
success premium that varies depending on the type of transaction. Transaction costs
may be recovered from the private partner.
Budget
CA
Grant
€
€
Fund
PPP Center
Grant
Donors
Strategic
Advisory
Pre
Quali
fied
TA
€+25%
Private Partner
Figure 6 – Model of IPDF for India
Therefore, India’s model is designed to fill a funding gap, but not a technical gap.
The fund pays for an outside advisor to pre-screen transactions for feasibility and
then to develop and conduct the transaction.
47
Croatia’s CEI
Croatia has begun developing an approach that provides strategic advisory service
to engage outside transactional advisory, but which does not incorporate a funding
assistance mechanism. In addition to the PPP Agency, Croatia has established a
separate, non-profit organization, Center for Monitoring Business Activities in the
Energy Sector and Investments (CEI), to provide services in developing terms of
reference and engaging and managing transaction advisors on behalf of the
contracting entity, but funding for these procurements come from the contracting
entity’s budgeted funding. CEI keeps a portion of the fee as a commission to offset
its expenses in providing professional services conducting and monitoring the
engagement of transaction advisors.
Budget appropriation
Budget
CA
Strategic
Advisory
Fund
€
CIE
PPP Agency
€-x%
SOW
Pre
Quali
fied
TA
€%
Deal Review
Private Partner
Figure 7 – Model of CIE for Croatia
Croatia’s model is not designed to fill a funding gap, but rather a technical expertise
gap. It provides that technical expertise through a governmental non-profit entity
supporting infrastructure projects to engage and manage transaction advisors, with
these engagements funded by the contracting authorities.
Assessment of Models
In determining an appropriate project development facility approach to follow,
Kosovo needs to consider what each model is designed to accomplish. The
Philippines model provides both strategic advisory and outside funding (apart from
appropriated funds) to support PPP transaction development. The India model
provides funding, but is not tied to providing the contracting authority with strategic
advisory assistance. Instead, the funding is to be used to contract with consultants
and transaction advisors on a transaction by transaction basis. The Croatia model
provides a centralized strategic advisory service body, but its services in conducting
deal screening and engaging transaction advisory services are to be funded fully by
the contracting authority, through appropriated funds for the budget.
48