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. Last Updated: 07/27/2016

Successful PPPs in Russia

The development of public-private partnerships (PPP) in the Russian Federation has in the recent years been on the rise, and the PPP concept has shown to be an effective tool in fostering social as well as, infrastructure projects. Historically this is a switch from a system where the state finances projects in full. However there has been much controversy about the potential scope of public investments and ways they can be injected into the national economy.

It should be noted that the concept of PPPs has not been studied in Russia, and therefore has neither been defined, nor interpreted on an official legislative level yet.

Throughout the last number of years, the subject of PPP has been frequently referred to in the Russian government and fervently discussed by politicians, businessmen, and experts; it was likewise included in the texts of official programs and regulatory legal acts. Upon examining current Russian law, as well as statements and publications devoted to the subject of PPP, it may be said that presently the concept of PPP in Russia is mostly applied in relation to:

•Signing agreements on projects wherein the state or municipal authorities on the one hand and private companies on the other hand, act as equal partners. This form of PPP is comparable with the western concept of Public-Private Partnership;

•Using monies of the Investment Fund of the Russian Federation and other state financial sources to support major strategic projects implemented by private businesses;

•Creating special economic areas stimulating business project development through state support;

•Creating corporations with both state and private equity to develop high-priority economic industries.

In Russian law, PPP issues are governed by general civil legislation and up until now there has been no unified comprehensive federal law that sets out the government's policy in respect to public-private partnership and its regulation. The Russian law "On concession agreements" may be considered the main federal PPP law; however, it contains a number of shortcomings, for example:

•It envisages only one possible PPP scheme between the government and private companies -- the "build-transfer-operate" scheme;

•Expressly prohibits step-in rights under the concession agreement until the object of concession is commissioned into operation;

•Restricts the freedom of contract by providing for requisite use of template agreements approved by the Russian government.

On the federal level, no uniform approach has been developed to define PPP relations, yet at the same time there is an actual need for implementing important projects through the PPP mechanism. The authorities of Russian regions have taken to creating their own legal framework within the limits of their powers.

For example the law "On participation of St. Petersburg in public-private partnerships" deserves to be pointed out especially, since St. Petersburg is among the leaders in PPPs in Russia and a number of PPP projects are concurrently being implemented at the moment.

The main goal of these regional laws is to establish a process for the regions participating in PPPs, to legalize PPP-related tender or bidding procedures and set forth the procedure for signing PPP agreements. Provisions and regulations on PPP agreements, legalized in form of regional laws, will facilitate an efficient and predictable result as concerns the projects involving new relations between the state and the private business.

However, it should be pointed out that today the PPP mechanism in Russia is mostly used in relation to major infrastructure projects. But international practice shows that not only major projects involving large investments can be of strategic importance. Often the degree of the project's importance is determined by the fact that its implementation may serve as a catalyst, significantly accelerating business growth within a given location, sector or industry branch and thus is expected to considerably contribute toward the aggregate economic growth.

It may be assumed that in Russia the next step should be extending the use of PPPs to those projects currently deemed a lower priority, such as health care, education, culture, sports and tourism.