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. Last Updated: 07/27/2016

Hurdles Await Public-Private Projects

As Russia becomes ever increasingly keen on finding private investors for major public infrastructure projects, experts warn there are a number of potential pitfalls along the way.

"It's one of the most difficult financial and commercial transactions that a government can undertake," Geoffrey Spence, the London-based head of infrastructure at HSBC, said Thursday at a conference on public-private partnerships. "It's more difficult than privatization," he added.

If the move toward public-private partnerships is to succeed, the government must ensure legal clarity for investors, guaranteeing their investment beyond the term of a single administration, experts told the conference.

Attracting long-term financing is another issue for the projects, with most financing available in Russia for up to just 10 years, they said.

The country's transport infrastructure is expected to be one of the main beneficiaries of increased private funding.

The Transportation Ministry aims to raise up to 60 percent of the cost of its projects from private investors, said Sergei Bystrov, head of infrastructure development and investments at the ministry.

Bystrov estimated that the country's transport system required 600 billion rubles ($21 billion) of investment annually.

In partnership with business, the state can create or operate public infrastructure projects as varied as schools, hospitals, icebreakers and prisons.

Recently, the government has already set to work on a number of initiatives to attract private investment, including the state infrastructure fund.

The new fund, due to become operational next year, is aimed at key infrastructure projects like roads, bridges and runways. It will be funded by oil revenues and money saved on foreign debt servicing through early repayment.

Other initiatives include special economic zones to attract foreign investment and a concessions law, which took effect this year and allows private investors to operate state-owned infrastructure like roads, officials said.

Work is still needed on budget legislation, however, as it remains unclear how private and state money would work together, said Anatoly Korotich, deputy head of the city's department for the development and support of small businesses.

"There's such a host of barriers that it's unclear how to bypass them," he said.

Public-private partnerships are already popular in other countries, including Britain.