Year: 2010

Institute Alternative organized a round table in order to present its newest analysis, entitled “Public-Private Partnerships in Montenegro – Accountability, transparency and efficiency”. Key findings, conclusions and recommendations from the analysis of the legal framework and practices in connection with this concept were presented by senior research associate at Institute Alternative, Jovana Marović.

The research was conducted in the framework of the “EU Matrix – Monitoring the process of European integration with a focus on the implementation of the National Program for the integration of Montenegro into the EU”. This project is being implemented in partnership with the Monitoring Centre and the European Movement in Montenegro, with the support of the Foundation Open Society Institute – Representative Office Montenegro.

In the following text, you can read the summary and an overview of key recommendations.

Summary

Although the cooperation between the public and the private sector in developing infrastructural sites dates back to the eighteenth century, it has reached its global expansion and popularisation only in the last decade of the previous century. The intense interactive link between the technically more developed private sector and the public authorities is largely determined by the lack of funds for capital investment in state budgets.

Public-private partnerships (PPP) in Montenegro are increasingly used as a mechanism for covering the budget deficit. Moreover, the government has opted to intensify the use of this model in the privatisation process, thus ‘opening’ all the sectors to PPP. However, as PPP is still in its developmental stage in Montenegro, the projects that have been completed through public-private partnerships do not mirror the positive examples from other European countries. Additionally, although the legislative framework of PPP has been enhanced by the adoption of the 2009 Law on Concessions, it is still not fully harmonised with the EU’s directives regulating this area. The lack of harmonisation of legislative acts is most obvious in terms of the imprecise definition of concessions for public works. By the same token, the definitions of limited procedure and competitive dialogue have not been adequately transposed from the EU’s directives.

Despite the relatively high number of PPPs that were realised in Montenegro, the access to information about the contracts concluded is extremely difficult. Thus, there is an obvious need for the establishment of a central registry that would contain all the PPP contracts concluded so far. In tandem with the limited transparency of the entire process, there is also a lack of democratic control. The public has no access to the annual payment schemes for PPP projects, and the financial reports of concluded projects are unavailable. Delays in the work of the authority specialised in concessions – the Concessions Commission – is also manifest.

The implementation of PPP has significantly been burdened by the violation of legislative procedures and the preferential treatment of certain private companies, which contributes to the participation of different parties to the tender procedure on an unequal footing. The failure of certain tenders and the problems that have emerged with certain private partners confirm the premature selection of partners and the poor risk assessment of such contracts. Very often, the partners that were preferentially treated during the bidding impose contract conditions, which are accepted and implemented even when they manifestly violate laws. In addition, the details of certain PPP contracts assume the development of infrastructural sites on the locations that are not included in the Spatial Plans.

Montenegro hardly ever relies on the experience of other countries, while failing to participate to the South East European Public Private Partnership Network. The activities of this association should lead to common initiative, so that some common projects could be financed through the EU’s special funds in the future.

At the local level, there is an obvious confusion in the distribution of competences for PPP in Montenegro. In some municipalities there are positions of ‘exclusive negotiators’ with foreign investors.

There is a growing interest in all Montenegrin municipalities for projects modelled after PPP. However, there are many municipalities where PPP has not been implemented so far.

General conclusions and recommendations:

– Public-private partnership is a concept that should be broadly applied in Montenegro. If applied rationally, public-private partnerships yield significant benefits. For a successful realisation of this type of projects, it is essential to harmonise legal, regulatory and political frameworks. A stable political environment, laws harmonised with EU’s regulations and best practice in this area, and the successful implementation of those laws, are all grounds for attracting foreign investment. Given that EU membership is Montenegro’s strategic aim, this country needs to be prepared to meet the challenges stemming out of the EU membership. The greatest administrative challenge en route to the EU is the harmonisation of the complete corpse of Montenegro’s laws with the EU Acquis. Thus, in order to adequately deal with the issue of concessions, it is essential to fully harmonise the Law on Concessions with the EU’s directives regulating concessions. Given that Montenegro’s Law on Concessions is a new one, changes to it should be gradual but mandatory. Moreover, it is crucial to fully harmonise article 39 of the Law on Concessions with the provisions stipulated in the EU’s Directive on Competitive Dialogue.

– Public-private partnership is a novelty for Montenegro, and as such it is relatively unknown. In order to make PPP more comprehensible to the citizens, it is of essence to introduce this concept to the public. Therefore, the legal framework regulating PPP should be presented to the public through the procurement of adequate expert information, brochures and manuals. The participants to the PPP process, i.e. decision-makers, should also be supplied with brochures and leaflets outlining the most relevant information in the realisation of PPP projects. This is needed because the major problem of the public sector and the government that manages it is the lack of a quality cadre that would analyse PPP strategies. As a result of higher income, and higher financial flows, the private sector is more attractive to experts. Hence, it is necessary to pay particular attention to the training of human resources in public-private partnership, so as to educate experts that would be able to produce feasibility studies and projects necessary for economic development. In order to understand PPP better, it is also useful to more actively research corresponding projects in other countries.

– The inexistence of expertise for the development of PPP in Montenegro is additionally conditioned by the non-participation in the initiatives and networks that have the aim to summarise and exchange experiences, while assisting the realisation of PPP projects at the regional level. Montenegro did not participate in the establishment of the South East European Public Private Partnership Network in Sarajevo in 2009. Thus, it is necessary to include the government’s institutions in the South East European Public Private Partnership Network at the earliest convenience.

– mong other issues, the activities of the South East European Public Private Partnership Network anticipate that certain joint initiatives and projects could possibly be financed through the EU’s special funds in the future. These funds are an important source of financing in many areas, and thus the EU also needs to be approached as a potential partner in the future. |In such a manner, the state has a twofold benefit from selecting projects that the EU is devoted to: the funds necessary for the revitalisation of the economy are secured, while the state prepares structurally and in terms of human resources for the use of regional and structural funds of the EU – funds that the state will use once it becomes a member state in this supranational community. A recommendation for acting in this direction is to channel a share of the projects to issues related to solid waste, water supply and environmental protection, as these are the issues that the EU invests in the most. Cooperating with the EU actually implies the implementation of these projects on grounds of the principles of efficiency, transparency and overall benefit, because the EU controls, coordinates and oversees the projects that it funds. A high degree of co-financing of PPP by the EU can be stimulating for PPP.

– Public-private partnerships are not an easy source for ‘covering’ the budget deficit. Equally, they are not an opportunity for instant enrichment. Consequently, the realisation of PPPs needs to be planned. The selection of PPP projects needs to be the outcome of comprehensive and systematic analyses, and not the result of lobbying and private interests. An adequate risk analysis largely determines the final success of the project. And indeed, one of the major PPP risks is an incomplete risk analysis. In cases of an unrealistic risk analysis and the failure to consider all public and social consequences of the realisation of a certain project, the consequences for the society and the state could be extremely negative.

– The selection of local PPP needs to be harmonised with the spatial plans of the units of local self-governance.The completion of this recommendation is premised on the need for quality spatial plans. It is essential to plan and coordinate activities on the plans for the development of cities and city infrastructure. Any divergence from these plans should be an exception rather than a rule.

– The public-private partnership contracts can additionally burden the budget unless all the conditions of debt repayment towards the private sector are realistically analysed and assessed. In cases of unrealistic assessment, there are long term consequences on the budget deficit. The public sector needs to protect its interests by avoiding excessive indebtedness of the public funds and disproportionate profit of the private sector. The public should have access to the annual debt repayment plans for PPP projects, while the public sector needs to make the reports of the concluded PPPs available, thus facilitating the conclusion of new contracts. Therefore, the levels of transparency and democratic control of the process will be increased.

– The ultimate decision on the initiation of some project is almost always adopted by the government. However, such a decision needs to rely on the assessments and opinions of independent experts that are enshrined in the feasibility study. The presence of international financial institutions in PPP guarantees the fairness of doing business to the contracting parties. The international actor ensures that the conditions and prices will be rationally decided upon. Consequently, international financial institutions need to be involved in the project from its initial stage. In addition, loans should be asked from the international financial institutions only for those projects for which it is impossible to find alternative means of financing. In such – exceptional – cases the loan needs to be realistic.

– The monitoring of the implementation of PPP contracts implies a systematic progress assessment, which in turn depends on whether and to what extent the aims stipulated in the contract have been realised. Hence, it is quintessential not to exceed the deadlines or the costs that have been agreed upon at the time when the PPP contract was concluded. In order to meet this request, the organs in charge of implementing and monitoring need to compile regular reports on the phases of PPP realisation, and to point at any detour from the project or irregularity in it. While having the monitoring authorities that are laggards in terms of informing the public on the realisation of the project, Montenegro has no central institution that would coordinate PPPs. The positive experience of the EU’s Member States and the countries in the region point to the benefits of the existence of an institution charged with regulating PPP relations. The establishment of this institution would ensure a coordinated and controlled action in this area in Montenegro, while forming an expert nexus for PPPs.

– In terms of institutions, apart from the need for a central institution that would manage PPP, the importance of the Concessions Commission, as the organ constituted to coordinate the process of allocating concessions, is immense. Hence, it is of utmost importance to professionalize the work of this institution.

– By definition, the realisation of public-private partnerships needs to be transparent. The access to information is extremely difficult in Montenegro. Therefore, there is an obvious need to found a central registry that will contain all the PPP contracts concluded so far. The registry has to be accessible to all the interested parties, including citizens. The access of different parties to these documents will indirectly have a positive impact on their quality. Given the fact that the decision to institute the central registry has already been adopted, its formal establishment needs to be accelerated.