Public-private partnership promotes development of housing and utilities infrastructure: Head of Kazakh Center of Public-Private Partnership B.Smagulov

Public-private partnership promotes development of housing and utilities infrastructure: Head of Kazakh Center of Public-Private Partnership B.SmagulovASTANA. June 16. KAZINFORM /Muratbek Makulbekov/ In recent Address to the Nation “New Decade – New Economic Growth – New Opportunities for Kazakhstan” President N.Nazarbayev has noted that the mechanism of public-private partnership has great potential for attraction of investment. The President also noted that the mechanism needed to be improved in accordance with the best world practice. Chairman of the board of “Kazakh Center of Public-Private Partnership” JSC Bolat Smagulov told Kazinform correspondent about the work on introduction of public-private partnership in such spheres as housing and utilities infrastructure and local infrastructure.

Does the current concessionary legislation allow to use mechanisms of public-private partnership in realization of projects in  housing and utilities infrastructure?

There exists particular legal framework for public private partnership in our country. Within the current legislation our Center received a range of concessionary proposals from the akimats on construction and exploitation of water supply facilities, electricity production, waste processing and a complex of kindergartens. However the developed proposals are of low quality. In fact, our center conducts economic expertise of the developed projects only. Akimats must pay special attention to the quality of concessional projects.

Besides, the Kazakh Ministry of Economic Development and Trade has developed aConcept of Development of Public-Private Partnership in Kazakhstan till 2014 that provides definition of public-private partnership and extension of its opportunities. In particular, these are the opportunities of use of different forms of public-private partnership in the housing and utilities infrastructure.

What advantages does the public private partnership have besides reduction of burden on the budget?

The mechanisms of public private partnership are often used when there are financial constraints of the state budget. The public-private partnership allows to assess the real cost of a project better. Accurate and impartial assessment of a project cost is necessary for a private company as well as long as it allows to reduce risks of overstatement of project cost.

What are the opportunities of use of the public and private partnership in the housing and utility infrastructure?

Housing and utility infrastructure is in help requiring state. About 90 percent of all facilities are on the balance of quasi-state enterprises that are not responsible for the modernization of it. Budget money allocated to them is hardly enough for maintaining the system. It is more important for private investor to solve the problem of modernization or reconstruction than expend funds on annual maintenance.

The success of the public and private partnership depends on regulatory support, quality of planning, risk distribution, control and support of the government. According to the Law ‘On concessions’ the concessionaire may be provided with the following measures of state support – guarantee of the state for infrastructure bonds, government guarantees, transfer of exclusive rights, etc.    

What models can we learn from the world practice in housing and utilities infrastructure?

There are some models in  water supply field that can be given as examples. ‘Dutch model’ gives the controlling interest in the sector to a JSC owned by the state. This is the model which is applied in Kazakhstan now. ‘French model’ is the model when management functions are given to a private company that ensures the service. This model is used in Russia. Besides, there are some secondary forms. The  models mentionedcan be used in other sectors as well.

Which of them can be used in Kazakhstan?

All of them are applicable in Kazakhstan. The point at issue is investment attractiveness in the sector which will allow private side to get the income in the period of exploitation.

The reimbursement of investors’ expenses is much discussed now. Does it imply a tariff increase?

Firstly, private side is selected on the competition base and on the conditions that it is capable of ensuring profitability and good service. Secondly, the system of public and private partnership will allow to regulate tariffs changes at the stage of planning as well as at the stage of realization of the project. The tariff increase is certainly one of the points in list to attract investors. However international experience shows that modernization of the housing utilities infrastructure does not always require a tariff increase.

In order to ensure socially acceptable tariffs the state considers partial compensation of the expenses.

Kazakhstan has experience of application of differential tariff, i.e. electricity investment tariff. Investment tariff is given to an investor for an indefinite term to recoup the expenses and get profitability from the investments.

You mentioned the distribution of the responsibilities between the sides of the agreement. What about the distribution of risks?

Risks in this sector are in financing much money on the modernization and exploitation not knowing the state of the system. The expenses in this case cannot be estimated because it lies mostly underground. Therefore the distribution of the risks is very complicated. This partnership system is based on the balanced distribution of risks and allows to divide them. There are several types of risks and each of them is given to the side whish is more capable of assessing and controlling them.

Are risks distributed equally between the public and private sides?

There are several basic principles. Controlling risk is foreseeing it. This is what defines the responsible side. The project costs rise is the risk of the private side as well as the quality of the project. The risk of reduced use of the service is risk of the state. The public side is also responsible for the conditions of an agreement. There are also risks that both sides are responsible for.

Thank you for the interview.