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There are many advantages to public-private partnerships: various solutions for private financing of public projects, costs reduction for central and local authorities, usage of private know-how and management in public projects, or the increased efficiency in project development.”
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June 24 2009

The infrastructure could be rescued by the public-private partnership

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“The public-private partnership (PPP) is the key to local infrastructure development. However, development of such partnerships suffers due to the lack of clear laws. There should be a legal framework that clearly determines the length and the minimum value of a PPP contract”, says Mihai Mares, partner at Garrigues Romania law firm.

He emphasizes that the only PPP upon local infrastructure is the one concluded between Vinci-Aktor Franco-Greek consortium and Romania, for construction of the Comarnic – Brasov highway section.

The value of the contract, construction and design included, is €1.5 billion, including VAT. The construction of the 55 kilometers is expected to be completed in four years.

The contract stipulates that once the works are completed, Romania must pay €180 million annually, for 26 years, during which time the consortium is the concessionaire of the highway. Drivers passing on Comarnic-Brasov highway shall pay a fee worth about €1.8.

“Romanian infrastructure could benefit from a great number of such partnerships, but many of them are not concluded because of the politics. Numerous companies that are financially supported by important banks have a real interest on these partnerships”, mentions Mares.

Lack of clear regulations regarding PPP was also stressed by Michael Weiss, the vice president of A.T. Kearney consulting firm. “Local infrastructure would greatly benefit from a common platform set up by authorities and the private sector, that shall be founded prior to the elections, and also resist after”, says Weiss.

There are many advantages to  public-private partnerships: various solutions for private financing of public projects,  costs reduction for central and local authorities, usage of private know-how and management in public projects, or the increased efficiency in project development”, according to Iulia Vass, lawyer at VASS Lawyers law firm.

“Main risk of PPP is that without a careful regulation and monitoring of the private partner selection procedure and of the execution of PPP projects, the projects may result in a dangerous manner of “absorbing” the state’s resources. Furthermore, the lack of experience of central and local authorities in the area is a serious impediment, as the process of developing a PPP project is complex and long-lasting”, believes Iulia Vass.

Besides concluding partnerships between the private and the public sector, the Romanian infrastructure could also be propelled by the structural funds that Romania receives until 2013 from the European Union.

“From 2007 until 2013, Romania is given about €32 billion as structural funds, money that should be made the most of. Some of the funds are designated for infrastructure. Romania needs at least one international airport, while major investment is needed for the port of Constanta. Also, no one invests in the Danube “highway”. Far too little has been done in the infrastructure area in the past 19 years, since the Revolution”, says Walter Friedl, Commercial Counselor of the Austrian Embassy in Bucharest.

Austria is one of the most important investors in Romania, given that almost 5.000 companies on the local market are owned by Austrians. According to Friedl, the Austrian companies will invest around €1 billion in Romania this year.

Around €5.7 billion of the European funds allocated to Romania is designated for infrastructure development. EU allocates €4.01 billion, while the Romanian authorities cover €0.99 billion. The remainder, €0.7 billion, must be assigned by the companies interested in accessing European funds, from their own money.

The European funds for infrastructure development could straighten the construction market, severely affected by the global financial crisis. According to data brought to attention by Gina Royer, Head of International Corporate Desk of BRD (Romanian Bank for Development), the value of the local construction market was €13.4 billion in 2008.

“According to our data, the construction market is going to be, in the coming years, the growth engine of the Romanian economy. We have to consider that the construction sector means not only residential projects, but also infrastructure. Over 50% of the construction works are related to infrastructure”, points Royer.

She also added that the lack of transparency of auctions and their slow progress are the reasons why there aren’t any large infrastructure works developed in Romania.

According to a study recently conducted by A.T. Kearney, the road infrastructure in Romania shall reach a similar level to the one achieved by the developed countries in Western Europe, 130-150 years from now, if the current pace of development is kept.

However, the annual growth rate of investments allocated to the infrastructure, of 30% by 2012, ranks Romania as one of the most dynamic road construction markets in the region, followed by Russia and Slovakia, which could increase the amounts designated for infrastructure with 25%, and accordingly 20%, annually, over the next four years.

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