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European PPP Center

Russia

1. Administration system for PPPs

Russian Government began the formation of bodies for Public-Private Partnerships (PPPs) in 2004. The first advisory body for the Government – Council on Competitiveness and Entrepreneurship – was set up in June. The Council is designed to provide a real interaction between federal authorities, business and scientific communities. It consists of 42 members: ministers, deputies of the State Duma, representatives of the Central Bank, CEOs of major corporations, and experts from the Academy of Sciences and other research institutions. One of its tasks is to deal with problems of РРР implementation in Russia.

The State Duma established its Council of Experts on Concession Legislation at the same time.

Some other federal bodies, including Ministry of Transport, Ministry of Regional Development, and Ministry of Culture and Mass Communications, accepted PPP’s concept to attract investment for their projects. These ministries and the Sea Board of the Government have also created their Councils of Experts on PPP.

The formation of the administration system for PPPs continued in Russia in 2006-2007. Public-private partnerships are included in the priority list of the governmental Programme of Social and Economic Development of the Russian Federation for mid-term perspective (2006-2008). The Programme identifies development of management and coordination of PPP activities on the federal and regional levels, monitoring of results, distribution of best practices.

The Federal Program for the Modernization of the Russian Transport System for 2002–2010 and Transport Strategy of the Russian Federation until 2020 contain the idea of using PPP for the purpose of financing transport infrastructure projects. A number of important projects which shall be structured as PPPs are currently being developed (see below).

The Federal Municipal Program for 2001-2010 and its Subprogram for Reforming and Modernization of the Residential Infrastructure Sector of the Russian Federation have among their goals an encouragement of private investments in the municipal sector. It is proposed that concession mechanisms should be put into place during the next few years to help to achieve this intention.

2. Legislation

The Russian government and the Russian Parliament - State Duma has improved the environment for PPPs by introducing new legislation. The Federal Law on Concession Agreements (so-called the Concession Law) adopted in July 2005.
A number of Governmental decrees on typical concession agreements for roads, railways, seaports, airports, municipal utilities adopted in 2007.

Important step towards development of PPPs in Russia was the adoption of the Investment Fund rules by the government decrees “On Investment Fund of the Russian Federation” and “On government Commission on investment projects of national scale” in 2005.

Now the normative and legislative base for the Special Economic Zones includes more than fifty acts: federal laws, President and Government decrees, agreements between the Government and the subjects of the Russian Federation. The main of them are:

  1. Federal law of July 22.2005. № 116-FZ "On special economic zones". 
  2. Decree of the President of the Russian Federation of July 22, 2005 № 855 "On Federal Agency for Management of Special Economic Zones".
  3. Decree of the Government of the Russian Federation of August 19, 2005 № 530 “Regulation of Federal Agency for Management of Special Economic Zones".

There is also law-making activity in the area of PPPs at the regional level. For example, in Saint Petersburg on 20 December, 2006, the law "Participation of Saint Petersburg in the Public-Private Partnerships" was adopted. It is provided for the realization of the socially significant projects, attraction of private investments into the economy of the city, improvement in the quality of goods, works, services provided to the users. This law concretely defines the position of Federal Law "On concession agreements" and its development.

So, now Russia has sufficient normative and legislative base to develop PPPs projects at the federal and (partly) at the regional levels. But at the same time there is not enough normative base for concessions  - instructions, typical agreements, guarantees to investors, arbitration schemes, concession payments etc. and it is poorly under development.

3. Instruments

Russia has undertaken only first steps in the development of PPPs and currently implements both traditional and exclusive instruments to do it. In addition to such PPPs instruments as purchases for public needs, joint ventures, lease of public assets there are specific instruments in Russia which do not exist in developed countries: the Investment Fund, Special Economic Zones and others.

The Investment Fund was established by the federal government in August 2005 with the main purpose to guarantee an attraction of a private capital in PPPs projects.
The administration system for the Fund includes some ministries (ministry of economic development and trade, ministry of regional development), other federal bodies (federal agency for special economic zones), two investment commissions – for the government and for the ministry of regional development and, finally, PPP councils for various ministries. 
Fund’s activity is focusing on nationally significant industrial and infrastructure objects. In 2007 a capital of the Fund was increased to US$ 7 billion from initial US$ 2.5 billion. For 2008 US$ 3.7 billion is designed to be spent from federal budget on PPPs projects through Investment Fund.

The basic criteria of projects for financing from the Investment Fund is that at least 25 % of funds will be contributed from the private sector. Minimum cost of project is US$ 200 million. The priority is given to projects where the regional authorities are participating in financing. To this date Government of the RF has approved 13 projects to be supported by the Investment Fund with total investments of more than US$ 80 billion (Table 1).

Projects, which received support from Investment Fund of the RF
(as of on 1 January, 2008)

Project and its region

Investments, US$ billion

Total

Investment Fund

1

Toll road "Western High-Speed Diameter" (Saint Petersburg)

4,08

1,31

2

Highway Moscow - Saint Petersburg (section 15-58 km)

2,24

1,05

3

Complex of oil refineries in Nijhnekamsk (Republic of Tatarstan)

5,32

0,67

4

Industrial-infrastructure complex Lower Priangar'e (Krasnoyarskiy region)

14,64

1,40

5

New output on MKAD from the federal highway "Moscow - Minsk" (circuit of Odintsovo)

0,70

0,41

6

Building of Orel tunnel under Neva river(Saint Petersburg)

1,29

0,42

7

Transport infrastructure for development of mineral resources of South-East of the Chita region

5,80

1,67

8

Highway M-4 “Don” (Moscow – Krasnodar region) – development of project documentation

0,81

0,01

9

Highway Krasnodar-Abinsk-Kabardinka (Kabardinsky region) – development of project documentation

4,61

2,44

10

Railway “Kyzyl-Kuragino” (Republic of Tyva)

3,05

2,13

11

Industrial-infrastructure complex “Ural Polar – Ural Industrial”

22,45

4,49

12

Industrial-infrastructure complex in South Yakutia

17,59

4,94

13

Building of highway Moscow - Saint Petersburg (section 58-684 km)– development of project documentation

0,44

0,44

TOTAL

83,02

21,38

Special Economic Zones (SEZ) are created with the purpose of infrastructure development and maintenance, encouraging of production and innovation in Russia. They have special tax concessions and customs regimes.
Among already established SEZ in Russia there are:

  • two Industrial SEZ: in Lipetsk  (production of consumer electronics) and in Yelabuga, Tatarstane  (production of automobiles and their utilities),
  • four Innovation SEZ: in Dubna, Moscow region (development of information and nuclear physics technologies); in Zelenograd, Moscow region (creation and production of the articles of micro- and nano-electronics), in Saint Petersburg (development of highly technological production) and in Tomsk (development of new materials),
  • seven Tourism and Recreation SEZ (Kaliningrad and Irkutsk  regions, Krasnodar, Stavropol, Altai territories, Republic of Altai and Republic of Buryatia).

Status of SEZ assumes the privileges to private companies (residents) in three directions of the economic policy: tax and customs privileges, the state financing of infrastructure, reduction in the administrative barriers. Combination of these tools is a typical example of public-private partnership and it made the regime of SEZ itself attractive for the business.
Special Economic Zones in ports and airports will be launched in 2008. And a tender to obtain rights for creation of the first such zones is under way now.

Municipal Services. In 2003, the first concrete actions were taken to apply Public-Private Partnerships approach in water supply, sanitation and heating services. During the course of next two years, several Russian and large foreign private operators in these sectors have emerged on the domestic market. However, most of them have not yet made any investments in communal infrastructure. The main constraint for increasing private investment in municipal services is abnormally high investment risks. In order to attract larger flows of capital it is necessary to reduce those risks through increased transparency of the operators and changing its legal and institutional framework.

4. Prospects

PPP perspectives in Russia are determined by the strategic consideration for economic development of the country. Russia will develop a practical implementation of public-private partnership in major investment projects.
In the European part of the country the transport infrastructure is a priority for PPP, first of all highways in Moscow and Saint Petersburg regions.
In the Eastern part of the country a preference is given to particularly large industrial complexes, comparable in size to territorial-industrial complexes developed in the Soviet Union. Industrial clusters in Ural and Yakut regions are examples of current developments. They are the largest projects financed by the Investment Fund with capital investments of US$ 22 billion and US$ 18 billion dollars respectively. These projects have to be finished by 2030.

In my opinion, there are several different ways to achieve PPPs goals in Russia:

First. Establishment of special institutions: national PPP Unit (for example: Federal Agency on PPPs). This agency should have an authority to secure unification of legislation and rules of application for PPPs among the country’s regions. At the same time an agency will encourage various forms and methods of PPPs depending on particular local needs. Of course, an agency will have feedbacks from regions on a process of PPP’

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