Balts study merits of public-private partnerships

  • 2003-11-20
  • By Steven Paulikas
VILNIUS - An innovative business model giving private interests managerial oversight over public services faces a difficult road to development in the Baltic states, according to insiders.

In mid-November, a round of seminars promoting public-private partnerships, a scheme by which government agencies contract operation of strategic infrastructure objects to a corporate partner, were held in the Baltic states, garnering widespread interest from local business leaders.
The seminars, sponsored by U.K. Trade and Investment, which promotes British businesses abroad, touted PPPs as a method of delivering a superior quality of service to consumers while satisfying public interests by keeping ownership of key establishments - airports, highways and prisons - in government hands.
In the typical PPP scenario, a single business financed and operated by the private sector is created to manage a capital asset that would normally be procured by government. Private entities deliver a service to the public sector in exchange for payment.

While countries across Europe and the world have enacted major PPP projects, the United Kingdom has been the leader in the field, with massive infrastructure undertakings, such as the 4 billion pound (5.8 billion euro) Channel Tunnel rail link driven by the PPP approach.
According to partnership proponents, the model enables both public and private actors to exercise their respective strengths to ensure maximum efficiency and deliver a superior quality of service to customers.
John Mobsby, director of a British consulting firm specializing in PPPs, claimed that the U.K. government saved enormous sums when it transferred prison construction to private management, thereby cracking down on unwieldy contractors who tend to inflate budgets.
"There are other instances where the government is better-suited to negotiate, for example, on trade union issues," said Stephen Harris of International Services London, a private organization that represents the British financial sector abroad.
While the small and still developing economies of the Baltic states present a far different economic environment for PPPs than that of Great Britain, local officials have publicly pronounced their enthusiasm for the idea of such partnerships.
At the PPP seminar held in Vilnius on Nov. 12, Economy Vice Minister Nerijus Eidukevicius spoke highly of the idea, and Latvian officials, who are supported by an established PPP organization in Riga, were equally upbeat during the seminar held there two days later.
"Let me just say that the recent conference was a huge success. Our British counterparts were very impressed," said Sol Bukingolts, economic affairs adviser to Latvian President Vaira Vike-Freiberga.
Nonetheless, local business leaders and analysts alike view the possibility of PPP's coming to the Baltic states in the near future with skepticism, largely because of a perceived lack of interest from the government.
"As a representative of the private sector, I don't see any way that this current government in Lithuania would take part in this," said one Vilnius businesswoman who took part in the seminar.
In spite of proclamations of eagerness to promote PPP in the Baltics, analysts point out that regional governments-and especially that of Lithuania's left-wing Social Democrats-are far different from the Conservative leadership that gave birth to the PPP movement in Britain in the 1980s.
"Without a doubt, PPPs would benefit Lithuania, and there are great prospects for it here, especially in areas such as health care and delivery of information technology to the public," said Guoda Steponaviciene of the Lithuanian Free Market Institute.
"The problem is that the initiative has to come from the government, and this government has not presented itself as a willing and reliable partner for such projects," she said.
Others offered a more optimistic outlook.
"I don't think it's true that the government is adverse to PPPs. This government has shown interest in promoting entrepreneurship and dynamism in the Lithuanian economy. I don't see this to be a probable obstacle," Jeremy Hill, British ambassador to Lithuania, told The Baltic Times.
Yet perhaps the greatest challenge facing the implementation of large-scale PPP initiatives in the Baltics is a lack of concrete precedents in similar countries.
Of the handful of PPPs currently operating in EU accession countries, precious few have proven satisfactory both to investors and to the public sector. The largest such project, the M5 highway in Hungary, has become the most expensive toll road in Europe and was largely condemned as an unmitigated failure.
"You can always think of a project. But to get a good one you need the right advice," explained Harris, who advocates for British financial consultants.