Possibilities to implement PPP within the Operational Programme Enterprise … · 2012-02-14 · Introduction ... Within the framework of the commissioned analysis and its more exact

Possibilities to implement PPP

within the Operational Programme

Enterprise and Innovations 2007 – 2013

(Final Report)

2

Contents

Contents ..................................................................................................................................................... 2

1. Executive summary – abbreviated version of the Methodology ....................................................... 6

1.1. Introduction – summary of the commissioned analysis ............................................................ 6

1.2. Analysis of PPP issues ................................................................................................................. 7

1.3. Specific issues related to state aid ............................................................................................. 8

1.4. Reasons to combine PPP methods and financing from OPEI ..................................................... 8

1.5. Risks and obstacles of combinations of PPP with OPEI financing .............................................. 9

1.6. Analysis and evaluation of PPP principles application within the framework of OPEI ............ 10

1.7. General recommendations and model example ...................................................................... 10

1.8. Market survey ........................................................................................................................... 11

1.9. Recommendations.................................................................................................................... 11

1.9.1. Recommendations for the current programming period ................................................ 11

1.9.2. Recommendations for the next programming period ..................................................... 12

2. List of Definitions and Abbreviations ............................................................................................... 13

3. Introduction ...................................................................................................................................... 16

3.1. Theme of the Methodology, context ....................................................................................... 16

3.2. Summary of the commissioned analysis and its accurate definition ....................................... 17

3.2.1. Specific model of a science and technology park, innovations center, business incubator

or an R&D center under OPR&DI ..................................................................................................... 19

3.2.2. Subject of the commissioned analysis in relation to the specific model of an Innovations

center 21

4. PPP – analysis of the current regulation .......................................................................................... 22

4.1. Regulation and concept of PPP in the European and national legal and extra-legal framework

22

4.1.1. PPP – concept, definition ................................................................................................. 22

3

4.1.2. Types of PPP ..................................................................................................................... 23

4.1.2.1. PPP in the broader and the narrower sense (concession) ........................................... 23

4.1.2.2. Distinguishing between contractual and institutional PPP .......................................... 24

4.1.2.3. Types of PPP according to their content ...................................................................... 25

4.1.3. Types of payment mechanisms within the framework of PPP ......................................... 27

4.1.3.1. Payment for concession ............................................................................................... 27

4.1.3.2. Accessibility payment ................................................................................................... 28

4.1.4. Advantages and disadvantages (obstacles) of the PPP ................................................... 29

4.1.4.1. Advantages of the PPP ................................................................................................. 29

4.1.4.2. Disadvantages and obstacles related to PPP ................................................................ 32

4.1.5. European regulation of PPP.............................................................................................. 34

4.1.5.1. Fundamental sources of regulation ............................................................................. 35

4.1.5.2. Implementing regulation .............................................................................................. 35

4.1.5.3. Soft law ......................................................................................................................... 35

4.1.6. National regulation of PPP ............................................................................................... 36

4.1.7. Regulation of concessions under Czech law ..................................................................... 37

4.1.8. Typical stages of a PPP project: ........................................................................................ 40

4.1.9. Legislative outlook with respect to the Czech law ........................................................... 45

4.1.10. Current development of situation in PPP in the Czech Republic ..................................... 45

4.1.10.1. Pilot and other significant projects .............................................................................. 46

4.1.10.2. Concession contracts deposited with the Register of Concession Contracts (RCC) .... 47

5. Selected issues related to stat aid – situation which do not constitute state aid............................ 50

5.1. Aid granted in accordance with Community framework ......................................................... 50

5.2. Compensation payments .......................................................................................................... 51

5.2.1. Altmark decision - situations which do not constitute state aid ...................................... 52

5.2.2. Decision on compensation payments – exemption from notification duty ..................... 53

5.2.3. Community framework of public service compensation ................................................. 53

5.3. Private investor principle (private creditor) ............................................................................. 54

4

5.4. Public assets sales..................................................................................................................... 54

6. Reasons to combine PPP and funding from OPEI (or a similar operational programme in the next

programming period) and the possibilities of support of PPP projects under OPEI ................................ 56

6.1. Risks and obstacles of combination of PPP project with funding from OPEI ........................... 58

6.1.1. Scheduling, organization and technical problems............................................................ 58

6.1.2. State aid ............................................................................................................................ 59

6.1.3. Issues related to revenue-generating projects in accordance with Article 55 of

Regulation 1083/2006/EC ................................................................................................................ 61

6.1.3.1. PPP project or a quasi-PPP project with payment by end users directly to the public

partner based purely on accessibility payment provided to the private partner ............................ 64

6.1.3.2. PPP project with end user payments to private partner based purely on accessibility

payment to the private partner ....................................................................................................... 66

6.1.3.3. PPP projects with end users payment to private partner based on concession

payment (“profitable projects”) ....................................................................................................... 69

6.1.4. Issues relating to the integration of the concession proceedings with OPEI application 73

6.1.4.1. Model concession proceedings followed by application for support ......................... 75

6.1.4.2. Model application for support first, then concession proceedings ............................. 76

6.1.4.3. Potential synchronicity of both processes ................................................................... 77

6.1.5. Sustainability and compliance with other OPEI terms ..................................................... 83

6.1.6. Impact of legislative amendments, considerations de lege ferenda ................................ 85

6.1.7. Situation on the Czech aid ‘market’ (OPEI, OPR&DI, OPEC) in relation to a typical

solution of economics of Innovations center ................................................................................... 86

6.1.8. Current development in the area of PPP in the Czech Republic ...................................... 86

6.2. Analysis and evaluation of the application of PPP principles within the framework of OPEI to

date 87

6.3. General recommendations and Model example ..................................................................... 94

6.3.1. General description .......................................................................................................... 94

6.3.2. Points for the Call within PROSPERITY programme ......................................................... 96

6.3.3. Consultations and potential notifications of the Call ....................................................... 97

5

6.3.4. Evaluation of the obstacles in relation to the model example ........................................ 98

6.4. Market survey ........................................................................................................................... 99

6.4.1. Methodology of the survey .............................................................................................. 99

6.4.2. Evaluating the survey ..................................................................................................... 100

6.4.3. Analysis of reasons for lack of interest on the market ................................................... 104

7. Recommendations.......................................................................................................................... 106

7.1. Recommendations for the current programming period: ..................................................... 106

7.2. Recommendations for the next programming period ........................................................... 106

8. Conclusion ...................................................................................................................................... 108

6

1. Executive summary – abbreviated version of the Methodology

1.1. Introduction – summary of the commissioned analysis

This Methodology is concerned with analysis of the potential combinations of PPP and financing from

OPEI, including analysis of the existing obstacles of such combination and the verification of absorption

capacity for support of the PPP projects from z OPEI.

Within the framework of the commissioned analysis and its more exact specifications, the elaborators

focused on the model example of a PPP project co-funded from OPEI which is based on:

adaptation of an existing R&D Center with facility management outsourced to a

private partner; or

completion of an existing R&D Center with facility management outsourced to a

private partner; or

development of a new science and technology park, innovations center, business

incubator with facility management outsourced to a private partner.

These models always count on a private partner taking over the administration / management of the

innovations center, which should lead to improved efficiency of its operations and improvement

quality of the services provided to the end users of the given support.

With regard to these models the elaborators of the Methodology were commission to:

analyse obstacles and risk of the model itself;

survey of interest on the market for the given model;

formulate recommendations in connection with OPEI.

7

1.2. Analysis of PPP issues

One of the significant chapters of this Methodology is a broader discussion of the selected aspects of

PPP, which are related to the analysed theme, and contained in Chapter 4 hereof.

Chapter 4 deals primarily with:

explanation of the PPP definition and its relatively broad interpretation in the Green

Paper and other relevant documents;

analysis of the basic types of PPP, namely of:

o PPP in its broader and narrower sense;

o PPP as a contractual or institutional instrument;

Survey of the basic types of PPP projects according to the contents of the

implemented activities by the private partner;

discussion of general advantages a disadvantages (obstacles) of PPP;

description of the basic payment mechanisms within PPP projects, i.e.:

o concession payments, and

o accessibility payments;

analysis of the national and European regulation of PPP, both within the compass of

the Czech EU legislation, as well as in the relevant case law and soft law;

description of the PPP situation in the Czech Republic, which is characterized by:

o low confidence and insufficient political support of the PPP;

o small number of implemented project, mostly on the regional level;

o hitherto profiling of PPP projects, which are implemented in other sectors than

those supported under OPEI;

o a number of cancelled or not implemented pilot projects, which increases the

general lack of confidence in the PPP projects;

discussion of the basic phases of PPP projects according to the national regulation.

8

1.3. Specific issues related to state aid

Chapter 5 of this Methodology contains a brief analysis of the selected intervention sectors, which

includes justification of the significance of the given issues to the analysed theme. Discussed are

primarily those situations when these are not considered to constitute state aid, in accordance with

European legislation and soft law, even though the distinctive attributes of state aid have been

seemingly fulfilled.

The subject of the analysis is:

mode of provision of subsidy outside the framework of state aid in compliance with

Community framework;

issues related to compensations granted;

principles of private investor;

issues related to sales of public assets.

1.4. Reasons to combine PPP methods and financing from OPEI

Chapter 6 explains the reasons why consider combinations of PPP and financing from OPEI. These

reasons include:

PPP = partnership and/or cooperation of the private and public sectors which, by its

very nature, fulfil goals of some of the OPEI priority axes (namely the indirect,

mediated support of the business sector);

PPP almost always leads, thanks to the synergy of the private and public potential, to

improved support and development of business, which allows both the private and

public partners (from the viewpoint of the goals and focus of the OPEI) to receive

support (which is, from the viewpoint of PPP, often more appropriate);

PPP – entrusts a public service (a service of a fundamentally economic interest) to a

9

private partner – often incorporates elements of needed improvement or innovation

of the existing operation; in material extent thus, to some degree, substantiates

application of support from OPEI;

PPP - the generally accentuated issue related to implementation are the relatively

higher initial costs for the preparatory phases of projects (consulting services,

feasibility studies, concession projects, management, which applies both to the public

partner and to the applicants), which the OPEI is able to partially resolve by suitable

subsidy policies applicable to public partners as well as to potential applicants;

PPP often excludes SMEs, thanks to the usual pre-sets of concession proceedings, due

to their lower economic strength (lower ability to obtain loan facilities) – a suitable

financial instrument within OPEI could, in marginal extent and under condition of strict

adherence to the requirements of anti-discrimination in concession proceedings,

provide the necessary comparative advantage to participate in the concession

proceedings, and thus to support a real chance to a successful partnership in a PPP

project, and to break the existing actual preference of larger enterprises, at least for

the smaller PPP projects.

1.5. Risks and obstacles of combinations of PPP with OPEI financing

Chapter 6.1 analyses the individual risks and obstacles to the financing of project in the form of PPP

combined with OPEI funding. The analyses already reflect the more exact specifications of the

Methodology, i.e. aims at the possibilities to fund PPP projects under within the PROSPERITY

programme.

The following risks and obstacles of PPP and OPEI funding combinations are considered:

Scheduling and organizationally-technical issues;

State aid;

Issues related to revenue-generating projects as set forth in Article 55 of the

Regulation 1083/2006/EC, and within this sphere the following models are discussed

in more detail:

o PPP project/quasi PPP project with end user payments going directly to public

10

partner based entirely on accessibility payments going to the private partner;

o PPP project with end user payments going to the private partner based entirely on

accessibility payments going to the private partner;

o PPP projects with end user payments going to private partner on the basis of paid

concession payment (“profitable” projects);

Issues related to integration of the concession proceedings with OPEI application

process, where the following three basic models were considered:

o Model 1 – concession proceedings taking place prior to application for support;

o Model 2 – application support prior to concession proceedings;

o Potential synchronicity of both processes;

Sustainability and compliance with a other conditions under OPEI;

Impact of legislative amendments, considerations ‘de lege ferenda’;

Situation on the subsidies “market” in the Czech Republic (OPEI, OPR&DI, OPEC) in

relation to a typical solution of innovations center economy;

The actual developments of the PPP sphere in the Czech Republic.

1.6. Analysis and evaluation of PPP principles application within the

framework of OPEI

Chapter 6.2 contains a simple chart and text evaluation analysing application of PPP principles within

the framework of OPEI with a view to the possibilities offered by the programme. The elaborators of

the Methodology primarily accentuate the support offered to institutional forms of PPP within the

broader sense of the COOPERATION programme.

1.7. General recommendations and model example

Chapter 6.3 contains general recommendations yet without taking into account market survey and a

more detailed analysis of a model example.

This Chapter focuses primarily on:

11

More detailed description of the model example;

Proposed fundamental theses for a potential Call with the PROSPERITY programme;

Recommendations for consultations or potential notification of such Call;

Assessment of obstacles in relation to the model example, primarily of:

o Obstacles related to state aid;

o Obstacles related to economic disadvantage of the private partners within the

framework of his chances to be recipient of support to cover potential operational

losses of the innovation center.

1.8. Market survey

Chapter 6.4 contains the results of the market survey conducted by the elaborators of the

Methodology.

The conducted market survey confirmed the insufficient absorption capacity for the support of PPP

projects from OPEI, and this conclusion is based on:

relatively low rate of return of the questionnaire;

the declared lack if interest for implementation of PPP projects in combination

with OPEI funding.

1.9. Recommendations

1.9.1. Recommendations for the current programming period

Chapter 7. 1 contains the recommendations arrived at by the elaborators of the Methodology:

not to implement, for the time being, specific Calls focused on support of PPP

projects, due to the discovered insufficient absorption capacity, and due to unrealistic

timely resolution of issues related to state aid, so that a Call with sufficiently long

12

deadlines could be announced due to the specifics of PPP projects’ preparatory phases;

to consider, before the end of the current programming period, on the basis of

development of innovations centers under the PROSPERITY programme, to

announce a specific Call to support consulting, which could include consultations on

the possibilities of resolutions of existing problems centers within the PPP form. The

potential specifications of such Call should reflect the actual development of theses

centers and their current needs. A pre-requisite for the announcement of such Call is

sufficient absorption capacity and interest on the market. Its more detailed contents

cannot be, in the current situation, expounded upon, nor meaningful to speculate.

1.9.2. Recommendations for the next programming period

Chapter 7.2 contains recommendations for the next programming period:

to select such approach in drawing up of OP, which would allow the OP aimed at the

support of industry and innovations, to support innovative PPP projects, which will

profile those PPP projects which have a cross-section impact on more than one sector;

to continue in the support offered to the institutional partnerships in the sphere of

innovation (support clusters and other similar groupings);

to consider the possibility to support institutional forms of PPP in the financial

engineering sector – support to establishment of venture-capital funds to support

innovative activities of those entities that are active within the existing innovations

centers.

13

2. List of Definitions and Abbreviations

Innovations center – a science-and-technology-park-type of center, innovations center, business

incubator, potentially, in marginal cases in the future also research and development-type of centers,

established under OPEI, if such is carried out within the framework of cooperation with business

sphere or, as the case may be, within the framework of technology transfers, such center expanded its

activities to innovations-related activities.

EIB – European Investment Bank

EIF – European Investment Fund

Facility management – administration and management of infrastructure entrusted by a public

partner to a private partner for the sake of providing public service

Institutional PPP – a form of PPP cooperation implemented through a subject with participation of a

private and a public partner (sometimes also denoted as an SPV – “special purpose vehicle”)

concession – legal relationship between a private and public partner, under which a provision of public

service is entrusted to the private partners who thus accepts the material portion of risk related to the

implementation of the said service

Commission – the European Commission

CA – Act No. 139/2006 Coll., on concession contracts and concession proceedings, as amended

CMF – Ministry of Finances of the Czech Republic

CMRD – Ministry for Regional Development of the Czech Republic

CMIT – Ministry of Industry and Trade the Czech Republic

SME – small and medium enterprises

1083/2006/EC - Council Regulation 1083/2006/EC laying down the general provisions on the ERDF, ESF

and the CF and repealing Regulation (EC) 1260/1999.

General Block Exemptions Regulation - Commission Regulation (EC) No 800/2008 of 6 August 2008

declaring certain categories of aid compatible with the common market in application of Articles 87

and 88 of the Treaty (General block exemption Regulation)

OPR&DI – Operational programme research and development for innovation

OPEI - operational programme enterprise and innovation

OPE – operational programme environment

OPIRC – Operational Programme Interregional Co-operation.

14

Accessibility payment – payment made by public partner to private partner (concessionary) within the

concession in connection with implementation of a public service. Accessibility payment usually

comprises of a payment of investment provided by the concessionary and a payment covering

operational loss of the project along with a payment of a reasonable profit margin

Concession payment – payment made by the private partner to the public partner for the possibility to

implement public service and to collect fee from end users

PPP - Public Private Partnership, partnership of the private and the public sector which is characterised

long-term contractual relationship,

method of project financing (partially by the private partner),

significant participation of the economic operator, who participates in several

phases of the project (proposal, preparation, financing) while the public

partner focuses on the definition of goals and supervision of compliance with

the set goals,

distribution of risk – acceptance of risk by the private partner

PPP in the broader sense – all forms of cooperation, fulfilling at least in part the defining attributes of

PPP above the framework of concessions

PPP in the narrower sense – form of cooperation with PPP including primarily concessions

Community framework - Community framework for state aid for research and development and

innovation (2006/C 323/01, 30. 12. 2006)

Decision on Public Service Compensation - Commission Decision of 28 November 2005 on the

application of Article 86(2) of the EC Treaty to State aid in the form of public service compensation

granted to certain undertakings entrusted with the operation of services of general economic interest

ECJ - The European Court of Justice (officially the Court of Justice)

TFEU - Treaty on the Functioning of the European Union

SPV - Special purpose vehicle, an entity established for a PPP project (usually with participation of both

partners) to implement a part or entire PPP project

Directive 17 – Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004

coordinating the procurement procedures of entities operating in the water, energy, transport and

postal services sectors

Directive 18 - Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004

on the coordination of procedures for the award of public works contracts, public supply contracts and

15

public service contracts

Contractual PPP – partnership of the public and the private sector established on the basis of a

contract, usually concession contract

soft law – documents issued and published by the EU, which are not in the form of legally binding

regulation, but usually enjoy large authority and possess interpretive significance

structural funds – European Regional Development Fund (ERDF) and European Social Fund (ESF)

public/state aid – aid within the meaning of Article 107 at seq of the TFEU

compensation payment – compensation granted by the public contracting authority to the private

partner (often as accessibility payment) in connection with the provision of services of general

economic interest under the terms and conditions of the Decision on compensations granted

VfM (Value for Money) – one of the factors which determine suitability to implement the project in

the form of PPP

PPP Green Paper – Green Paper on public-private partnerships and Community law on public contracts

and concessions dated 30. 4. 2004 COM (2004) 327

Public Procurement Act (PPA) – Act No. 137/2006 Coll., on public procurement, as amended

16

3. Introduction

3.1. Theme of the Methodology, context

The theme of this Methodology are two very significant and in the Czech Republic progressively

developing sectors, i.e. the partnership of the public and private sectors (PPP) and the sector dealing

with financing from structural funds. Both of these sectors display a number of specifics, which usually

arise from the EU legislation. Both of these phenomena have been used by the European institutions

as instruments to resolve the economic crisis1.

In relation to the theme of this Study there exist significant reasons for a broader application of the

PPP, and that is within the framework of projects which are funded through OPEI. PPP, as a

partnership of the private and public sectors, does meet the goals of some of the priority axes under

OPEI (primarily the indirect, mediated support of the business environment). PPP contributes, thanks

to the synergies of the potential of the public and private sectors, to the support and development of

enterprise, which makes it possible (from the point of view of the goals and focus of the OPEI) for both

the public and private sector to become recipients of support (which is itself, from the point of view of

the PPP, often the more suitable model). PPP in the form of an entrusted service (service of general

economic interest) to a private partner often comprises of elements that lead to the need to innovate

the existing operation of the service; in material respect this does to a certain degree substantiate

application of support from OPEI. Moreover, support to PPP from structural funds is one of the

declared priorities of the European Union2.

There are however certain significant risks and obstacles that arise from the very nature of these two

institutes alone (such as the issues related to revenue-generating projects, law related to public aid

1 COM (2009) 615 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: “Mobilising private and public investment for recovery and long term structural change: developing public private partnerships”. 2 COM (2009) 615 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: “Mobilising private and public investment for recovery and long term structural change: developing public private partnerships”.

17

and similar), and also from the current specific situation in the Czech Republic (for instance, the

general lack of confidence in PPP, insufficient political support given to PPP and the resulting lack of

positive experience with the application of the PPP methods in practice, and similar).

The purpose of this Methodology is to describe th reasons for the support of PPP from the OPEI funds,

to delimitate those types of PPP projects, which are suitable for funding from OPEI, to point out the

individual risks and obstacles and to recommend further action, both for this programming period and

those that might be considered in drawing op operational programmes for the next programming

periods.

3.2. Summary of the commissioned analysis and its accurate definition

Within the framework of the first working draft of this Methodology an analysis was prepared of those

potential PPP projects which could be co-financed from OPEI. During the discussions of these

suggestions generated by the elaborators of this Methodology, the contracting authority

recommended that in the further stages of preparation of the Methodology the elaborators focus

solely on the verification of models that combine PPP and funding under the PROSPERITY programme

specifically for models supporting consulting and models for investment and operations are to be

especially considered. The elaborators however were advised to continue to hypothesize away from

the currently active Calls under the PROSPERITY programme. Text below summarizes the development

of the course of Methodology preparation as well as what the individual Chapters of this Methodology

focus on.

18

Figure 1: Implemented process of more exact definition of the Methodology

Source: HOLEC, ZUSKA & Partneři

Within the framework of these discussions it was agreed that the Methodology will focus on the

specific model of an innovations center, as described in the subchapter below. Furthermore, it was

made clear that the commissioned thesis is not to contain a general analysis of the issues related to

state aid, nor a legal analysis or description of the existing system under which support is provided by

OPEI and specifically, under the PROSPERITY programme, on the European or national levels.

Intial Analysis

- general reflection on the application of PPP method within the activities supported under OPEI

Models/types/examples of PPP projects andactivities which may be supported under OPEI

- broad focus

Verification of models

- normative documents (OPEI + legal regulation)

- CMIT preferences

- interest on the market (several questionanaire actions tailor-made to the indicated models)

Formulation of recommendations towards OPEI

- changes in the programme?

- modifications/new Calls?

19

3.2.1. Specific model of a science and technology park, innovations center, business

incubator or an R&D center under OPR&DI

It is a well-known fact that a number of science and technology parks, innovations centers, business

incubators, and in the future also a number of R&D centers built within the framework of the

Operational programme research and development for innovation are supposed to be built in the

Czech Republic (partially because a large volume of funding is available for support of such institutions

(these will be referred to together as the “Innovations center(s)”). Future existence of a certain

number of these institutions may already today pose questions on whether these may not have

problems with their sustainability.

In those instances, when such institutions or sites are operated by a public entity, their future

“commercialization” by involving a private partner in the form of PPP, or potentially their long-term

facility management by a private partner could be one of the possible solutions as to their

sustainability. There is a possibility that the private partner, by using a part of the infrastructure, would

improve the overall efficiency of operation of such facility, as well as its meaningful administration,

while a payment from the private to the public partner could be considered, for instance in the form of

a payment for concession, which would enable the public partner to further develop its R&D and

innovation activities realized on the given infrastructure, as well as to maintain the required

sustainability of the project. The involvement of the private partner could also lead to the overall

improvement in the quality of the services provided to the end users.

The implementation of the “commercialization” project for such institution and/or facility would

obviously bring about increased expense which could funded from the OPEI.

A generally conceivable support from OPEI would be support provided for consulting, to be provided

primarily to the public partner (to fund preparation of the feasibility study – analysis of the private

partner’s involvement in the project – analysis of the limits of cooperation arising on the basis of the

financing from the structural funds and similar).

Another conceivable support would be support directed towards infrastructure, namely further

innovations of the institution on behalf of the public partner in order to increase the appeal of the

institution for the potential private partner or support provided to the private partner for the

20

innovation or equipment and start-up of the facility operations.

Figure 2: A diagram of a specific PPP model with indication of potential sources of funding from OPEI

and the considered main contributions of the private partner into the project

(Source: HOLEC, ZUSKA & Partneři)

In relation to the above described model of Innovations center the following three sub-models may be

considered:

adaptation of an existing R&D Center with facility management outsourced to a

private partner; or

completion of an existing R&D Center with facility management outsourced to a

private partner; or

development of a new science and technology park, innovations center, business

incubator with facility management outsourced to a private partner.

A more detailed analysis of these models by the elaborator shall focus, within the framework of the

21

present Methodology, on provision of support to the public partner outside the ambit of state aid, in

the position of an entity financing adaptation, completion or development of the center.

3.2.2. Subject of the commissioned analysis in relation to the specific model of an

Innovations center

The subject of the hereby commissioned Methodology in relation to the model described in the

preceding subchapter shall be namely:

the analysis of risks and obstacles facing the model itself;

marker survey focusing on interest in the described model;

recommendations toward OPEI.

22

4. PPP – analysis of the current regulation

4.1. Regulation and concept of PPP in the European and national legal and

extra-legal framework

This Chapter will briefly summarize some of the basic aspects of the issues related to PPP. As the PPP

has been addressed in sufficient detail in current up-to-date and available methodologies, this Chapter

shall focus only on those aspects which are important for the theme of this present Methodology.

4.1.1. PPP – concept, definition

The term ‘PPP’ (Public Private Partnership, partnership of the public and the private sector) has no

been specifically defined, whether on the European or national level. Within the framework of this

Methodology the team of its authors is of the opinion that it would be conceivable to approach this

field on the basis of the relatively broad definition of the PPP as presented in the PPP Green Paper. The

Green Paper “usually defines” the term PPP as being characterised by:

the long-term duration of the relationship between the partners;

the method of funding the project (partially by the private partner;

the significant role of the economic operator who is involved in the various stages of

the project (proposal, design, completion, implementation, and funding), while the

public partner focuses on definition of objectives and supervision of their fulfilment;

the distribution of risks – which are effectively taken over by the private partner;

The development of PPP is related to change in the conception of public administration and represents

in many cases a bilaterally more advantageous and effective model of cooperation between the public

and private sectors.

23

4.1.2. Types of PPP

The following number of subchapters contains the various distinguished of PPP project types from

several perspectives.

4.1.2.1. PPP in the broader and the narrower sense (concession)

The theory in general, and the relevant national and EU documentation distinguishes PPP in its

narrower sense and PPP in its broader sense. The line between these two groups of PPP projects is not

entirely clear, nevertheless for the purposes of this Methodology we shall base our division on:

PPP v in the narrower sense, which includes primarily concessions, as defined in

Directive 18 (within the framework of concessions for construction and concessions

for services, as further developed by ECJ case law3), i.e.:

Concession for construction works is defined as a contract of the same type as public

tender for construction work (e.g. public tender, subject of which is performance or

design and performance of construction work related to activities defined in the Annex

I to the Directive 18, or construction or performance of construction according to

requirements defined by the public contracting authority, by any means), with the

exception, that the consideration for the performance of the construction of lies

exclusively in the right to use such building, or in this right together with a payment.

Concession for services is a contract of the same type of a public tender for services

(e.g. public tender other than public tender for construction work or supply, whose

subject is provision of services defined in Annex II to the Directive 18), with the

exception, that the consideration for the provision of services exclusively lies in the

use of these services, or in this right together with a payment.

3 For example C – 206/08 Wasser- und Abwasserzweckverband Gotha und Landkreisgemeinden (WAZV Gotha) v. Eurawasser Aufbereitungs- und Entsorgungsgesellschaft mbH dated 10.09.2009

24

The ECJ case law added to this definition an accentuated emphasis of another two

defining attributes of concession, which is on one hand the existence of the so-called

“public service” and on the other the acceptance of the significant portion of risk,

which were borne, in relation to the provided public service, by the public partner.

PPP in the broader senses, which includes all other forms of cooperation with the

private sector, which mostly meet the attributes of PPP as defined by the PPP Green

Paper, or potentially some of the other forms (such as some of the forms of

institutional PPP, as well as some of the public procurement activities).

This Methodology considers PPP project funding in both in the narrower and broader sense.

4.1.2.2. Distinguishing between contractual and institutional PPP

Another significant division of PPP projects from the point of view of the present Methodology is their

division between:

Contractual (or purely contractual) PPP

contractual or purely contractual PPP is denoted as cooperation between a private and

public partner which is realized on the basis of a contract, and usually this contract is a

concession contract with a defined term of 5 or more years. Cooperation does not

include a formation of a special entity, in which the public and private partners would

participate.

purely institutional PPP (IPPP)

purely institutional PPP is usually denoted as cooperation between a private and public

partner which is realized on the basis of a jointly established entity such as, for

instance, a commercial corporation. This form of cooperation is delineated by the

business activities of such entity, and usually such cooperation is not limited by specific

25

term.

(partially institutional) hybrid PPP

partially institutional, hybrid PPP is normally defined as cooperation between a private

and public partner which mixes elements of the contractual and institutional PPP. Such

cooperation is usually implemented on the basis of a concession contract for a definite

term which however also regulates formation of the so-called “SPV” (special purpose

vehicle), which is a special kind of entity, in which one or both partners participate,

which is entrusted with the implementation of the part or of the entire PPP project.

SPV is usually formed in order to implement the operational part of the PPP project.

4.1.2.3. Types of PPP according to their content

Another relevant division of PPP project within the framework of the present Methodology is their

division according to their content, i.e. according to the scope and extent of the obligations and

authorizations involved which are accepted in the project by the private partner. These include the

obligation to design, build, finance, operate and transfer the subject. These obligations and their

combinations are usually denoted by their equivalents in the English language – Design, Build, Finance,

Operate a Transfer, and abbreviations based on the initial letters of these terms, i.e. D, B, F, O, T, or

potentially other terms.

Design – Build – Finance – Operate – Transfer

Figure 3: individual distinguishing components for the various PPP projects according to their content

26


Combinations of these obligations and authorizations represent a number or possible alternatives

however, typically the following types of PPP are usually applied:

O&M/FM (Operation & Maintenance Contract / Facility management) – these are also denoted as

contract for the lease of assets in public ownership) – the private partner operates and manages, on

the basis of a contract, public assets which remain in the ownership of the public partner. The public

partner usually bears the risk of demand. The economic bonus of such project is the authority of the

private partner to use the asset, under specific terms and conditions, for the provision of both the

public services and for its own commercial goals.

BOT (Build Operate Transfer) – the private partner implements the construction, operates the facility

after its completion for a specific term, and then the asset is transferred to the public partner. In the

majority of the cases the private partner ensures partial funding of the project, which however does

not remove the obligation of the public partner to eventually pay for the investment (usually in the

form of accessibility payments). The advantage of the BOT approach is that it combines the

responsibilities for normally separate activities into one entity – the concessionary – private partner.

DBFO (Design Build Finance Operate) – the public partner defines the objectives that the private

partner is to implement, and he then assumes the responsibility for all four components of the PPP

project, i.e. designs the facility / asset, obtains financing and erects the specific asset, and

subsequently operates the asset and provides related (public) service. The complexity of the provided

services by the private partner should reflect itself in the improved efficiency of the provided service.

The disadvantage of the DBFO approach is the significantly demanding preparatory phase of the

project, from organizational, technical, scheduling and financial aspects.

BOOT (Build Own Operate Transfer) – this model is characteristic for those forms of project that are

based on a concession. It is typical that the private partner obtains from the public sector the right to

implement the project in a specific sector of public services and then funds, builds, owns and operates

the built-up infrastructure. At the end of the concession term the concessionary transfers the

infrastructure to the public partner. The interests of public partner are usually overseen by a

regulatory authority or maintained in the form of contractually established competences of the public

27

partner.

BOO (Build Own Operate) – this model is rather near to privatization of public assets. The private

partner funds, builds and operates infrastructure indefinitely. The interests of public partner are

usually overseen by a regulatory authority or maintained in the form of contractually established

competences of the public partner. This project is differentiated from pure privatization by the fact

that the private partner usually has the right, under specific terms and conditions, to withdraw from

the project, and by the regulatory role entrusted in such project to the public partner.

The above defined types of PPP projects are in practice often combined and the classic most complex

type partnership is D-B-F-O-T where, after the passage of the concession term, the infrastructure

originally designed, built, funded and operated by the private partner is transferred to the public

partner under agreed upon terms.

4.1.3. Types of payment mechanisms within the framework of PPP

The majority of the PPP projects feature a system of payments between the three basic entities in the,

which are the public partner, private partner and end user (recipient of the public service). The

configuration of these payments is based on a number of factors; the most important include the

objectives of the project as well as the economic possibilities of the private and public partner and the

situation on the market. Most of the PPP projects have more than one payment mechanism active

between the said entities. This Methodology primarily deals with the most significant payment

mechanisms and these are payment for concession and accessibility payment.

4.1.3.1. Payment for concession

In cases where the economy of the PPP project rests on the revenue of the concessionary from the

end users, or potentially for the use of the managed infrastructure by the concessionary or other

entities within the framework of their commercial activities, the typical payment mechanism between

the public and private partner is the so-called payment for concession. This payment is made by the

28

private partner to the public partner in connection with the use of the given infrastructure and the

revenues generated by it. Payment for concession thus appears rather similar to a “rent” for the use of

the entrusted assets. Typically, it has a form of a fixed payment, or withholding from funds collected

during the operation of the concession, or possibly, a combination of a fixed payment plus a flexible

payment potentially reduced by the expended investment. Payment for concession (as the sole

payment mechanism between the private and public partner) is most commonly used in projects

where the private partner does not fund the investment and where the project generates sufficient

revenue from end users and third persons which cover operational costs and a reasonable profit for

the operator.

4.1.3.2. Accessibility payment

Accessibility payment or payment for the accessibility of public service is a payment that is the

opposite of the payment for concession. This payment is made by the public partner to the private

partner in exchange for the provision of the public service. The payment It is usually subject, within the

framework of the concession contract, to a faultless provision of the public service. The accessibility

payment does in fact comprise of several basic elements:

(partial or full) payment (instalment) of investment funded by the private partner;

coverage of operational losses arising during the provision of the public service;

compensation of reasonable profit of the private partner.

The existence of the necessity to make such payment to the private partner also determines what are

the typical PPP projects featuring accessibility payments. These are primarily:

projects which do not generate revenue for the private partner;

projects with high investment funded by the private partner;

projects with distinctively regulated prices for final users of the public service;

projects based on immanent loss generated by operation and suffered by the private

partner.

29

The existence of accessibility payment also establishes the necessity of resolution of issues related to

state aid within the framework of the so-called compensation payments, please see below.

4.1.4. Advantages and disadvantages (obstacles) of the PPP

Even though the cooperation based on the PPP method has been historically advantageous, referring

to the foreign experience and experience from the projects implemented in the Czech Republic, in

comparison to the traditional method of cooperation between the private and public sector, it is

necessary to realized that the PPP does not represent universal solution to all spheres of cooperation

of the public and private sector. As emphasized in numerous relevant documents, PPP does not

provide some sort of a universal “medicine” which could resolve problems faced by the state

administration. When deciding whether to choose the PPP path it is necessary to assess all advantages

and disadvantages of both (all) alternatives. This approach was even officially declared in 2007 by the

Czech government, which charged the individual state departments and other central authorities of

state administration to continuously evaluate use of PPP as one of the alternatives for provision of

public services.4

4.1.4.1. Advantages of the PPP

Complex implementation of a project by one partner – the responsibility of the

private partner for the supply of the required investment and for the provision of all

required services.

Improved distribution of risks and substantial transfer of risk to the private partner,

who is able to better manage the risks, and which may lead to the reduction of the

costs of the entire project. The aim is not to transfer all of the risks associated with the

project onto the private partner, but only of those which the private partner has a

better chance to influence and manage.

Reduction of costs related to the life-cycle of the project – by merger of the

construction and operation the private partner is highly motivated to innovate and

4 Government Resolution No.. 536 dated 23.05.2007 to the Analysis of pilot PPP projects

30

choose such methods, materials and technology, and approaches to organization of

construction and operation that lead to the reduction of operational costs and

analogically of the total costs of the project. The motivation of the private partner is

based on his effort to achieve the contractually defined reasonable profit.

Planning of costs related to the project life-cycle – contrary to projects implemented

in traditional ways, the concession contract represents a detailed overview of costs

during the implementation of the project and its operation. The guarantee of the

unexceedable contractual prices and the payment amounts represents effective

planning instrument for the costs borne by the public partner during the entire life-

cycle of the project.

Increased quality of service – application of innovations and greater flexibility of the

private partner in critical situations leads to the overall improvement in the quality of

the services.

100 % payment only for 100% results – the public partner pays the private partner

only after the final completion of the project in the required quality and on the basis of

provision of services fully in compliance with the contractually agreed terms and

requirements of the public partner. Payments due to the private partner are reduced

in the event the performance provided has any defects (delay, insufficient quality, etc.).

Uniform distribution of payments– in those cases where the project is funded by the

private partner, the public budget does not bear the brunt of construction, but the re-

payment of the investment made is distributed (sometimes only partially) in the form

of pres-set payment in defined amounts, and that usually only when the operations

commence.

31

Figure 4: Advantages of the PPP


Use of the private financial resources, no increase of public indebtness – PPP projects

allow for a temporary use of sources of funding secured by the private partner and

concurrently, provided that the Eurostat terms are observed, the PPP projects do not

add to public indebtness.

Additional revenue – the expenses of the public partner may be reduced in cases

where the project generates additional revenue, for instance from third persons

within the framework of the supplemental utilization of the administered

infrastructure for commercial purposes by the concessionary.

Savings on scale – merger of several independent project, as well as expansion of the

existing activities of the private partner by activities related to the implementation of

the PPP project may bring savings due to scale of operations.

Higher Value for Money – as a consequence of the number of herein described and

other benefits the PPP project often provides a higher value for money - VfM.

32

Figure 5: Quantitative expression of Value for Money for PPP in comparison with a series of public

tenders


4.1.4.2. Disadvantages and obstacles related to PPP

While the above described advantages of PPP are universally valid, any objective evaluation of

suitability of PPP methods within the framework of this Methodology must also consider the existing

obstacles:

Intensity of preparation of PPP projects –PPP projects are often demanding in terms

of time and cost in comparison with projects implemented in traditional ways. Their

preparation is often very complex economically (financial modelling for the entire

duration of the project), technically (definition of the required objectives, preparation

of technical documentation), as well as legally (preparation of a functional concession

contract which is concluded often for decades) and intensive stage of the project. With

regard to the unfortunate precedents set by cancellation of several important pilot

PPP projects in the Czech Republic in stages where the public partner as well as the

33

applicant expended significant sums of money for consulting, the “lack of public

confidence” with regard to PPP projects in the Czech Republic appears to form one

significant risk related to the preparation of PPP (refer to similar risk below).

Higher costs of funding provided by private sector – cost of financing secured by the

private partner are often premium than of financing secured by the public partner

(this does not apply universally, as a number of international companies are able to

fund smaller projects from their own sources; a number of public partners also needs

to solve funding by commercial loans).

High transaction costs – cost of preparation of PPP projects (for the public and private

partner) are quite high and may be a block and demotivating element for the

preparation and participation of the private partner in a PPP project.

Problems with flexibility of contracts – a serious problems and obstacle of concession

contracts which are drafted in some instances for several decades into the future is

their flexibility. It is an universally acknowledged principle that the concession contract

should stipulate more or less constant rules of cooperation of the public partner and

the concessionary selected through the concession proceedings. Excessive flexibility of

such contract would negate the import to approve it vie intensive concession

proceedings, as well as the transparency principles and equal access for all applicants.

On the other side, it is very difficult to foresee all potential changes, both in the legal

environment and in social and economic spheres.

Complexity of concession contracts, limited experience of public contracting

authorities and lack of confidence in PPP projects in the Czech Republic - the

elaborators of this Methodology are of the opinion that the sheer number of

methodologies and sample documentation prepared in the Czech Republic is to some

degree contra-productive especially in relation to smaller PPP projects. Considerable

complexity5 of these de facto recommended sample and methodological documents

which are drafted primarily for large pilot projects (which were however mostly not

implemented) contribute, in the opinion of the authors of the present Methodology,

to sometimes entirely not clear perception of the complexity of PPP and add to the

lack of confidence in this instrument to provide effective solution to needs and

5 Například Vzorová koncesní smlouva vypracovaná pro Ministerstvo financí v roce 2006 má včetně příloh celkem 173 stran

34

problems facing the public administration. This situation is assisted by a not entirely

ideal regulation of concession within the framework of the Czech law, where the

concessionary proceedings are often more tightly regulated and demanding in terms

of standards of documentation than public procurement, and that without regard to

the scope and importance of the project. Problems are also posed by a large number

of ambiguous interpretations related to the PPP method in terms of application of PPA

on Concession Act.

Figure 6: Confidence in PPP projects in the Czech Republic – Opinions on the suitability of application of

PPP to projects

Source: Louda, Gospič and collective of authors: Partnership of the private and public sector. Legal and

economic aspects, Ústav Práva a státu AV ČR, Praha – Plzeň 2010 (data)

4.1.5. European regulation of PPP

This Chapter contains a brief overview of PPP regulation in normative, interpretative and political

documents of the EU.

29%

67%

4%

Opinion on the appropriateness of application of PPP projects

yes not sure no

35

4.1.5.1. Fundamental sources of regulation

Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004

on the coordination of procedures for the award of public works contracts, public

supply contracts and public service contracts, as amended;

Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004

coordinating the procurement procedures of entities operating in the water, energy,

transport and postal services sectors, as amended.

Both Directives address the field of public procurement, as well as concessions. Their importance for

PPP lies primarily in them defining the term ‘concession’ for services and for construction works, and

providing leads for differentiations between situation where public contracts and concession are

available, as well as in stipulating fundamental principles of public commissions, which are applied

both on concessions and public contracts.

4.1.5.2. Implementing regulation

Commission Regulation (EC) No 1564/2005 establishing standard forms for the

publication in the Official Journal of the European Union of notices in the framework of

public procurement procedures according to Directives of the European Parliament

and the Council 2004/17/EC and 2004/18/EC;

2005/15/EC: Commission Decision of 7 January 2005 on the detailed rules for the

application of the procedure provided for in Article 30 of Directive 2004/17/EC of the

European Parliament and of the Council coordinating the procurement procedures of

entities operating in the water, energy, transport and postal services sectors (notified

under document C (2004) 5769).

4.1.5.3. Soft law

Among the most important documents falling in the area of the so-called soft law, which are not in the

form of legally binding regulation, but usually enjoy large authority and possess interpretive

36

significance belong the following:

Commission interpretative communication on concessions under Community law, 2.

2000/C 121/03);

Green Paper on public-private partnerships and Community law on public contracts

and concessions [COM(2004) 327] (Brussels 2004);

Decision of Eurostat on deficit and debt Treatment of public-private partnerships

STAT/04/18 z 11.2.2004.

Communication from the Commission to the European Parliament, the Council, the

European Economic and Social Committee and the Committee of the Regions on

public-private partnerships and community law on public procurement and

concessions dated 15.11.2005 COM(2005) 569

2008/C 91/02 Commission interpretative communication on the application of

Community law on Public Procurement and Concessions to institutionalised PPP (IPPP)

COM (2009) 615 Communication from the Commission to the European Parliament,

the Council, the European Economic and Social Committee and the Committee of the

Regions: “Mobilising private and public investment for recovery and long term

structural change: developing public private partnerships”;

ECJ case law:

o C – 206/08 Wasser- und Abwasserzweckverband Gotha und Landkreisgemeinden

(WAZV Gotha) v. Eurawasser Aufbereitungs- und Entsorgungsgesellschaft mbH

dated 10.09.2009;

o C – 300/07 ESD Hans & Christophorus Oymanns GbR, Orthopädie Schuhtechnik v.

AOK Rheinland/Hamburg dated 11.06.2009.

4.1.6. National regulation of PPP

The fundamental legislation regulating PPP in the Czech Republic include:

Act No. 137/2006 Coll., on Public procurement

http://eur-lex.europa.eu/smartapi/cgi/sga_doc?smartapi%21celexplus%21prod%21DocNumber&lg=en&type_doc=COMfinal&an_doc=2004&nu_doc=327

37

Act No. 139/2006 Coll., on Concession contracts and concession proceedings

(Concession Act);

Decree No. 217/2006 Coll., which implements the Concession Act;

Decree No. 238/2006 Coll., laying down essentials of the application for prior opinion

on conclusion of a concession contract or a contract under Concession Act

Government Decree No 78/2008 Coll., amended by No. 474/2009, laying down the

financial limits for the purposes of the Concession Act (CA).

The core of the regulation is contained in the Concession Act. Regulation laid down by the Concession

Act has several specifics in comparison with regulation abroad:

CA does not regulate the term ‘concession’, the definition of concession and of the

concession proceedings subject is given by the definition of the type of concession

contract. CA also does not regulate some of the pivotal terms in the concession area

such as the definition of the public service;

Definition of the concession via the definition of the concession contract is insufficient

in the sense of laying down clear line between the application of CA and PPA;

Definition of the concession is not very accurate in relation to Directive 18 and ECJ

case law;

Regulation provided by the Act is relatively terse, most of the aspects related to

individual phases of the concession proceedings are addressed only in the form of a

legislative reference to PPA;

In connection with the published methodologies the Concession Act stipulates, also for

the less important concessions, far more stringent formal requirements on the

organization of proceedings than for public procurement (for instance the obligation

to prepare concession project, two-stage proceedings etc.).

4.1.7. Regulation of concessions under Czech law

Regulation of concessions and concession proceedings in the Concession Act is based on three types of

38

contracts and proceedings which are differentiated on the basis of the anticipated revenue of the

concessionary.

The anticipated revenue of the concessionary comprises of all assumed revenue obtained by the

concessionary in connection with implementation of the concession during its entire term. In practice

however it is not entirely clear what all revenue shall be included in this category. The authors of this

Methodology are of the opinion that this term should be interpreted extensively and that the

anticipated revenue of the concessionary should include, besides the standard payment mechanisms

such as accessibility payments and payments from end users, also those values that were provided

free-of-charge (such as energies and media paid for by the public partner, workforce) but also all

subsidies provided in connection with the concessionary’s activities according to the concession

contract. The anticipated revenue is determined in the preparatory phases of the concession

proceedings as a qualified estimate. For overruns on this estimate no specific sanctions are stipulated,

however its significant undervaluation could be viewed, in concrete cases, evasion of the law.

The following three types of contract are differentiated on the basis of the anticipated revenue:

Concessions contract with anticipated revenue lower than CZK 20 million. These

contracts do not require concession proceedings to be initiated, and the public

contracting authority is only required to observe principles stipulated in Sec 3a of the

CA;

Ordinary concession contracts. These contracts anticipate revenue exceeding CZK 20

million, but do not reach value which would classify the project to fall with the so-

called “major” concession contracts.

Major concession contracts. These are concession contracts where the anticipated

revenue of the concessionary would reach the specific limit defined for a given type of

public contracting authority. The fundamental difference in comparison with the

ordinary concession contracts is that the prior to the conclusion of the major

concession contracts the public contracting authority is required to prepare a

concession project and have this approved by the competent body for the given type

39

of that public contracting authority.

Figure 7: Limits for major concession contract for the given types of public contracting authorities and

their superior bodies which approve the concession project


Concession project is a project documentation containing certain elements of feasibility study, which

should include, besides the economical and legal analysis (and besides requirements defined in CA and

in the implementing Decree) also the comparison of alternative solutions for the implementation of

the public service including the comparison with public tender. The concession project needs to be

approved at the very beginning of the concession proceedings which, in the more complex projects,

and especially in cases when the concession dialogue would be applied, calls for the need to update

the project during the proceedings.

40

4.1.8. Typical stages of a PPP project:

This subchapter briefly deals with individual phases of a PPP project. The meaning of this overview is

to offer a general orientation into the individual phases of concession proceedings especially with

regard to the below analysed issue of sequence of the concession proceedings to the “process” of

application for support.

Preparation of the project

The preparatory phase of the project is the pivotal phase for any PPP project. Its complexity generally

lies in the fact that within the framework of this stage the basic parameters of the project need to be

determined for the entire duration of the concession term (several years to decades).

In this stage the economic, financial and technical model of the project is elaborated which creates

significant cost fro the public contracting authority related to consulting in these three sectors,

without any guarantee that the project will eventually be implemented.

As the practice related to several pilot and smaller PPP projects in the Czech Republic shows this is the

critical stage, specifically with the view of appropriate distribution of responsibilities and risks between

the private and public partner within the compass of the future PPP project – i.e. of the rights and

obligations arising from the concession to be granted. Excessive overburdening of the private partner

by liability and risk may lead to difficulties in finding suitable or any private partner who would be

willing to submit a bid. For this reason it is often necessary to undertake market survey, which shall

indicatively verify potential interest of private partner in the project and the terms under which they

would be willing to present their bids.

The result of this preparatory stage is, besides the approved concession project, also the approved

qualification documentation which, besides the qualification criteria, needs to contain also criteria for

the evaluation of bids.

41

In cases where it is not possible to define in sufficient detail the basic parameters of the project within

the framework of the preparatory stage, it is possible to initiate the so-called concession dialogue,

within which the objectives of the PPP project may be accurately determined during a moderated

discussion with applicants6.

Commencement of proceedings (qualification proceedings)

Concession proceedings are commenced by their publication in the Public Procurement Information

System (PPIS); that initiates the first phase of the proceedings, the co-called qualification proceedings

which is in practice a call to an unlimited number of applicants to submit applications for qualification

in the concession proceedings according to the defined qualification criteria.

Qualification proceedings end by the decision of the contracting authority on who of the applicants

have met the qualification criteria, which follows opening of the sealed bids on the basis of which the

commission communicates to the contracting authority its standpoint.

The minimum length of the qualification proceedings is 52 days.

Concession dialogue

The concession dialogue is an optional phase of the process. This phase is subject to a prior express

specification in the qualification documentation. Concession dialogue commences by a call to

participate in the dialogue issued to the applicants who qualified.

The aim of the concession dialogue is to arrive at one or more potential solutions to the concession

project on the basis of a moderated dialogue with the applicants, i.e. to de facto define in more

accurate detail the objectives of the approved concession project, by interacting with the qualified

applicants.

6 The authors use, for the purposes of this Methodology, the simplified and universal term “applicant“, even though, in the qualification phase of the concession proceedings the term “interested party“ would constitute the accurate use.

42

This is a very useful instrument, especially in projects that are not entirely standardized, such as

potential PPP projects that could be co-financed from OPEI.

The result of the concession dialogue is usually the updated concession project and the contracting

documentation, which forms a part of the call to submit bids.

Approval of the concession documentation (call to submit bids)

As indicated above, the concession contracting documentation had been prepared and approved in

the preceding phases, which further specified the given PPP project, by defining rules for the

organization and submission of the bids, as well as the evaluation criteria to be used on the submitted

bids.

The contracting documentation also defines the deadlines for the submission of bids, which shall not

be shorter than 40 days.

Bid negotiations

Bid negotiation is the second facultative phase of the concession proceedings during which it is

possible to negotiate with the applicants on their bids. Again, this optional phase needs to be expressly

pre-defined in the concession documentation

The bid negotiation process may again serve as an effective tool to fine-tune some of the non-

standardized projects such as projects supported under OPEI or similar programmes. This phase could

be potentially used, within the framework of the link between the concession proceedings and the

approval process for applications submitted within OPEI or similar programme.

The result of this phase is the corrected bid of one or more applicants.

43

Selection of the applicant(s), approval and execution of the concession contract

The preceding phases lead to the selection of the winning bid, after the applicable deadlines for

objections expire, and after the CMF issues its standpoint, which is a stepping stone for the approval

and execution of the concession contract.

The issue of the CMF standpoint is the necessary pre-requisite to validity of the concession contract.

Even thought the standpoint itself is not binding (the condition of the validity is only its issue, not the

condition that this standpoint agrees) it represents, from the viewpoint of the concession proceedings,

a certain practical obstacle. In the past, in connection with the very first implemented PPP projects in

the Czech Republic, the CMF issues the standpoint already at the stage when the draft concession

contract was prepared, but the selected applicant was not yet known. That had certain advantages in

connection with the scheduling of the entire concession proceedings, as in practice the standpoint was

requested immediately after the approval of the concession contracting documentation so that even

the CMF decided on its standpoint at the very end of the two-month period available to it, this caused

no delay in the concession proceedings. However, the recent experience of the authors of the present

Methodology shows that the CMF now requires that the request for the standpoint is submitted only

when the concessionary is known, and when the amounts of applicable payments have been known as

well. The available experience of the authors shows that in the case of a prior request and additional

provision of information on the specific concessionary and the applicable prices, the CMF is able to

issue their standpoint practically immediately, before the periods reserved for filing objections expire;

however if this requirement is observed there exists a risk of a nearly two-month delay in the

concession proceedings if the request for the standpoint is filed only after the winning bid was

selected.

Another obstacle that would be applicable to the subject of this Methodology is the question of what

degree of influence would a negative standpoint of the CMF pose (even though the concession

contract could be validly executed) with respect to the eligibility of the costs under OPEI or under a

similar operational programme. The authors are of the opinion that a negative standpoint of the CMF

would in the least create a significant risk for the public as well as the private partner and could thus

serve as a factual obstacle against execution of the concession contract.

44

Implementation of the investment phase of the PPP project

Another typical phase of any PPP project, which lies in the implementation of the investment, is the

investment phase. The import of this phase from the viewpoint of the theme of this Methodology is

that it will often overlap with the implementation phase of the project in the terms used under OPEI,

however this does not need to happen in all instances (for instance, if the OPEI co-financed only

certain sub-phases of the investment phase, or in case the OPEI would co-finance the pilot operations

and the implementation phase would itself overlap, under OPEI, also with the operational phase of the

PPP project).

Operational phase of the PPP project

The final phase of the PPP project is usually its operational phase. This is normally the pivotal stage, as

in this phase the private partner – concessionary provides the public service. At the end of the

operational phase, there may be the transfer from the ownership of the private partner to the public

partner, or vice versa.

Figure 8: Typical phases of a PPP project


Project preparation(approval of the

concession project)

Qualification proceedings(min 52 days) (publication

in the PPIS)Concession dialogue

Approval of the concession documentation and the

call to submit bids (min 40 days)

Bid negotiation

Selection of the winning bid, approval and execution of the

concession contract

Investment phase of the PPP project

Operational phase of the PPP project

45

4.1.9. Legislative outlook with respect to the Czech law

Due to political changes taking place in 2010 it is not clear what way the legal regulation of the PPP in

the Czech Republic could take. The Programme Declaration of the Czech government mentions the

PPP sphere only marginally7, however it focuses rather intensively on public procurement, where it is

planned that certain instrument will be strengthened especially with respect to an improved

transparency and limitation of abuses. Due to a degree of linkage between CA and PPA (the above

mentioned method of legislative references from CA to similar applications in the PPA) it can be

expected that some of the amendments will also have effect on concessions.

Among other discussed and anticipated changes also belong the following:

More accurate definition of the link between CA and PPA (including exact definition

and differentiation between public contract and concession and removal of certain

conflicts, such as the heightened stringency of the concession proceedings vis-à-vis the

public procurement proceedings etc.);

More accurate definition of concession in compliance with the European legislation

and the recent development of the ECJ case law8.

4.1.10. Current development of situation in PPP in the Czech Republic

The following sub-chapters generally maps the planned and implemented PPP projects in the Czech

Republic.

7 Programme Declaration of the Czech government dated August 4, 2010, p. 37 8 Specifically C – 206/08 Wasser- und Abwasserzweckverband Gotha und Landkreisgemeinden (WAZV Gotha) v. Eurawasser Aufbereitungs- und Entsorgungsgesellschaft mbH dated 10.09.2009

46

4.1.10.1. Pilot and other significant projects

The Table summarizes the significant and significant considered and prepared pilot projects.

Project Commencement

Form of PPP Value Status

AirCon – railway link Prague - Ruzyně airport.

Modernisation, operation and maintenance of the existing railway and construction of the new railway link to the airport and the town of Kladno

01/2005 Combination of BOT/DBFO and O&M operational contract

CZK 20 billion Concession project in

preparatory phase

Hotel-type accommodation and parking facilities for the Prague Central Military

Hospital; 300 beds and parking

01/2005 DBFO CZK 1 billion Completed 24. 05. 2010

approval of the concession

contract

Justice center in Ústí na Labem Courts, state attorney, mediation

08/2005 DBFO/BOT CZK 1.5 billion Concession project approved

(05/2008) Modifications

requested in line with the

National Audit Bureau (2009)

State penitentiary Rapotice (500 inmates)

08/2005 DBFO/BOT CZK 1.5 billion Concession project approved

(05/2008) tender for contractor

D3/R3 Motorway (Tábor- Bošilec) 08/2005 BOT CZK 59 billion Concession project approved

(10/2008) tender for contractor

Removal of environmental damage created prior to privatization

2008 ? CZK 101 billion

Concession project approved

(2008) suspended

47

Hospital ‘Na Homolce’ construction of a 7-floor facility and

parking

12/2005 DBFO CZK 0.6 billion Cancelled

Overall modernization of regional hospital in Pardubice

Renovation, new construction, funding, maintenance and provision of certain

selected services (meals, logistics)

07/2006 DBFO CZK 2.5 billion Project cancelled

Regeneration of the Brno Ponava brownfield

01/2006 DBFO CZK 2.5 billion Project cancelled

Figure 9: Survey of significant and pilot PPP project in the Czech Republic


With the exception of one, all above listed PPP projects were either terminated, suspended or

implemented using traditional methods (public procurement proceedings) and in some of the cases

this interruption came at the worst of times, when significant expenses were accrued by several

parties in connection with the required consulting services. The above listing reflects, in the opinion of

the authors, the present general lack of confidence and lack of political support of the PPP methods.

4.1.10.2. Concession contracts deposited with the Register of Concession Contracts (RCC)

According to publicly available data provided by the CMRD the following concession contract have so far been executed i the Czech Republic for the following projects:

14.11.2007 –Tachov (construction and operation of a multi-functional sports facility)

09.11.2007 –Bohumín (infrastructure for heat and hot water distribution)

18.04.2008 –Lysá nad Labem (school canteens)

21.10.2008 –Bruntál (operation of sewer system and water treatment plant)

16.03.2009 –Litoměřice (operation of social services )

31.03.2009 – Obec Velká Hleďsebe (heat and hot water distribution)

48

25.06.2009 – Plzeň (operation of a sports and recreation facility)

17.12.2009 – Liberec (operation of the municipal stadium)

01.01.2010 – Ostrava (operation of the municipal curative facility Ještěrka)

19.05.2009 – Ostrava (operation of a water management infrastructure)

29.04.2010 –Říčany u Prahy (operation of school canteens)

08.07.2010 – Ústí n. Labem (operation and commercial use of bus stops)

25.02.2010 - Písek (operation of a water management infrastructure)

Figure 10: Percentual representation of types of PPP projects, where contract has been executed

according to RCC

Source: HOLEC, ZUSKA & Partneři using RCC data as of 30. 8. 2010

The above makes it obvious (in connection with the projects which saw the concession proceedings to

their successful end), that the PPP environment in the Czech Republic can be characterized, taking

into account the theme of the present Methodology, as follows:

23%

23%

15%

15%

8%

8%8%

Areas of implementation of PPP projects in CR according to Concession contracts

registry

leisure activities

water management

public catering

energy sector

mass transport

social services

healthcare

49

Overall small number of PPP projects;

Smaller, municipal PPP projects make up majority of the projects;

Focus of the listed PPP projects falls under other state departments (Ministries) than

CMIT and into other operational programmes than OPEI.

50

5. Selected issues related to stat aid – situation which do not constitute

state aid

With respect to the fact that the issues related to state aid represent on of the main limits for funding

from structural funds, as well as for PPP, it will be necessary to discuss these selected issues in a

dedicated chapter. The subject of this chapter is however not a general discussion of state aid, but

specific discussion of its aspects which have direct impact on the given theme.

From the viewpoint of the present Methodology the pivotal significance is contained in those

situations, as defined by the European case law, or potentially in the soft law, when the attributes of

state aid may be seemingly and at the first said fulfilled, but when the interpretation by the central EU

authorities ruled that state aid is not involved.

5.1. Aid granted in accordance with Community framework

The herein analysed themes require a brief discussion of the Community framework related to state

aid provided to research, development and innovations (Community framework for state aid for

research and development and innovation (2006/c 323/01). Its importance lies in its Section 3 entitled

“State aid within the meaning of Article 87(1) of the EC Treaty” in which the interpretation of the

Commission defines some of the examples which are not considered to constitute state aid, or which

do not simultaneously fulfil all attributes of state aid, specifically the attribute of an “enterprise” as the

recipient of state aid.

The Community framework thus does not represent a block exemption, but an interpretative

document, in which the Commission expresses its approach to how it will consider the individual

concrete cases of state aid.

From the viewpoint of themes contained in this Methodology the central provision is represented by

sub-section 3.1., which defines two fundamental situations where support may be granted outside the

51

regime of state aid:

Situation described in s.3.1.1., which addresses the so-called public funding of non-

economic activities of research organizations; and

Situation where funding is granted to the so-called not-for-profit innovation

intermediaries9. According to the second paragraph of 3.1.2 this does not need to

constitute state aid in cases that these intermediaries (i) can prove that the totality of

the State funding that it received to provide certain services has been passed on to the

final recipient, and (ii) that there is no advantage granted to the intermediary.

The significance of this provision lies, in relation to this Methodology, in the fact that it makes it

possible to grant support to the not-for-profit innovation intermediaries without the need to make

notification, if the conditions defined in 3.1.2 of the Community framework have been simultaneously

met, or possibly, this regulation could be referred to by analogy within the framework of the

notification of the potential call.

5.2. Compensation payments

In relation to the present Methodology the important part is played by the block of exemptions from

the prohibition of state aid, and potentially from application of Article 107 TFEU dealing with the so-

called compensation payments (implementation of services of general economic interest)10 . This

addresses specifically those model examples of PPP projects, which comprise of regular payments

from the public to private partner in connection with implementation of a PPP project (in compliance

with PPP terminology these would be called ‘accessibility payments’). As described in more detail

elsewhere, these payments usually carry a certain portion which is in fact a repayment of the

investment made by the private partner, nevertheless these contain also a portion which serves which

9 Zde je nutno upozornit na zjevnou chybu v překladu české verze Rámce Společenství, který v první větě druhého odstavce zmiňuje „neziskové výzkumné organizace“ namísto „neziskoví zprostředkovatelé v oblasti inovací“ 10 Význam této problematiky pro analyzované téma spočívá také v tom, že většina představitelné spolupráce v rámci PPP modelu popsaného níže by v praxi byla realizována právě na bázi plateb za dostupnost.

52

is intended to cover operational losses of the project and the reasonable profit of the private partner.

The size of these payment is usually subject to bidding within the framework of the concession

proceedings, however with regard to the long-term nature of the relationship in a PPP project and

with regard to the difficulty to foresee economic development of PPP projects (such as changes in

operational costs versus changes of collected payments from end users or generated by commercial

activities) this could lead, in absence of a further contractual regulation, to advantage offered to the

private partner and which would thus constitute prohibited state aid in the sense of Article 107 of

TFEU.

The European case law and soft law defines those categories where the Commission and ECJ

interpretation concluded that state aid is not involved (even though some of its attributes were

seemingly fulfilled), and when such support does not need to be notified.

5.2.1. Altmark decision - situations which do not constitute state aid

In the Altmark11 decision the ECJ interpreted the issues related to the so-called compensation

payments in the sense that if the following conditions are met, the compensations payment does not

constitute state aid:

Entity which is the recipient of the compensation payment needs to be clearly obliged

to provide public service;

Indicators for the calculation of the compensation payment must be set prior in an

objective and transparent way;

The amount of the compensation payment shall not exceed costs accrued by the

entity during the provision of the public service after the corresponding revenues were

deducted and reasonable profit was added;

Entity entrusted with provision of public service was selected in compliance with

public contract proceedings on the basis of an open and transparent proceedings, or

on the basis of cost analysis, which would be expended on provision of such public

11 ECJ decision in the Altmark case (C-280/00)

53

service by an ordinary, properly managed enterprise, which possesses corresponding

technical equipment to provide such public service.

5.2.2. Decision on compensation payments – exemption from notification duty

Another group of cases where the four conditions formulated in the Altmark case do not need to be

fully met and where it is understood that the compensation payments represent state aid compatible

with internal market, and which do not require notification, have been defined in the Commission

Decision dated November 28, 2005 on the application of Article 86(2) of the EC Treaty to State aid in

the form of public service compensation granted to certain undertakings entrusted with the operation

of services of general economic interest (Decision on compensation payments).

Exemptions granted by the Decision are based on the factor of the total size of payment and the sector

in which the public service is provided. From the viewpoint of the present Methodology this is material

in allowing payments to cover potential operational loss and reasonable profit of the operator12.

5.2.3. Community framework of public service compensation

Complementary regulation of the above situations is then contained in the Community framework for

State aid in the form of public service compensation. (2005/C 297/04)(Community framework for

public service compensation).

Community framework for public service compensation formulates conditions under which the

Commission shall declare, within the framework of its notification, the potential compensation

payment to be compatible with internal market.

12 Art 5 of the decision on public service compensations

54

5.3. Private investor principle (private creditor)

Another situation, which could typically be viewed as provision of state aid, has been addressed within

the framework of interpretation what constitutes the so-called private investor principle, respectively

private creditor. This principle applies to cases where the public entity is a creditor, or has a share in a

private entity and provides this entity with certain benefit, typically in case where such entity would be

in a economically difficult position. Such ”benefit”, in the view of state aid terminology, could take the

form of a portion of debt being remitted, agreement on an instalment schedule, settlement agreement

etc. Czech case law13 contains an interpretation that if such benefit would be comparable with a

hypothetical behaviour of a private investor (i.e. that the public entity does behave in a similar manner

a private investor would – as a prudent manager protecting its economic interests), such conduct

would not constitute state aid.

The private investor principle could however be applied to an entire range of other cases, typically also

to institutional PPP and to potential subsidies to establish a legal entity. In this sense this would be

material for the theme of the present Methodology.

5.4. Public assets sales

Another situation which would potentially pose a risk of constituting state aid, or which would

seemingly meet its attributes, would be a situation where the public entity would transfer ownership

title, namely to real estate, to a private entity. Such method would be typical for some of the above

described most common PPP models.

This issue was also addressed previously by the ECJ. The conclusions contained in its rulings were

summarized and formulated by the Commission in its communication on state aid elements in sales of

lands and buildings by public authorities (97/C 209/03).

The communication contains definition of methods which, if observed, would not trigger the need to

13 For instance SPI decision in the grouped cases T-129/95, T-2/96 and T-97/96 Neue Maxhütte *1999+ ECR II-17 and ECJ decision in the C-342/96 Tubacex [1999] ECR I-2459 case

55

notify such transfer transactions. In simplified for, the main criterion for pronouncing such transaction

as not containing elements of state aid, is that such transfer was made for a market price, which was

verified in an open and unqualified bidding procedure by selecting the best or the sole bid, which was

in turn verified by an expert’s appraisal.

56

6. Reasons to combine PPP and funding from OPEI (or a similar

operational programme in the next programming period) and the

possibilities of support of PPP projects under OPEI

The authors of this Methodology are, on the basis of the analysis of the above mentioned facts and

documents, of the opinion that there exists a number of reasons to combine PPP method and

processes with funding from OPEI, and that both for the reasons of the necessary support to PPP in the

existing environment related to PPP in the Czech Republic, and also from the point of view of

suitability of support to PPP projects from OPEI with respect to the fulfilment of goals in the individual

priority axes. These reasons can be formulated as follows:

PPP = partnership and cooperation of the private and public sectors which in its nature

fulfils the aims of some of the priority axes of OPEI (specifically the indirect, mediated

support of the entrepreneurial sector);

PPP almost always leads, thanks to the synergy of the private and public potential, to

improved support and development of business, which allows both the private and

public partners (from the viewpoint of the goals and focus of the OPEI) to receive

support (which is, from the viewpoint of PPP, often more appropriate);

PPP – entrusts a public service (a service of a fundamentally economic interest) to a

private partner – often incorporates elements of needed improvement or innovation

of the existing operation; in material extent thus, to some degree, substantiates

application of support from OPEI;

PPP - the generally accentuated issue related to implementation are the relatively

higher initial costs for the preparatory phases of projects (consulting services,

feasibility studies, concession projects, management, which applies both to the public

partner and to the applicants), which the OPEI is able to partially resolve by suitable

subsidy policies applicable to public partners as well as to potential applicants;

PPP often excludes SMEs, thanks to the usual pre-sets of concession proceedings, due

to their lower economic strength (lower ability to obtain loan facilities) – a suitable

financial instrument within OPEI could, in marginal extent and under condition of strict

57

adherence to the requirements of anti-discrimination in concession proceedings,

provide the necessary comparative advantage to participate in the concession

proceedings, and thus to support a real chance to a successful partnership in a PPP

project, and to break the existing actual preference of larger enterprises, at least for

the smaller PPP projects.

In general, it is possible to envisage a support of a model PPP project under the PROSPERITY

programme in all its basic phases, i.e. in its initial preparatory stage (covering primarily the cost of

consulting), but also in the investment stage (subsidy aimed at the investment) and marginally also on

some parts of operations; the potential recipient may either be the private or the public partner.

PPP project with OPEI elements

Concessionary

Support to consulting

Feasibility study for PPP project

Support of consulting to

SME

Support of investment/opera

tions

Support of ‘innovative’ investment

Subsidy of start-up of innovated

operations

Support of SME investment

Concedent / public partner


Support of feasibility study


Support of investment

Support of ‘innovative’ investment

Public partner

Planned innovation of operationsi

Need to invest into operations

Planned cooperation with private partner

operations –public service

Figure 11: Alternatives of providing support to a PPP project from OPEI

Source: HOLEC, ZUSKA& Partneři.

58

As summarized in the introduction of the present Methodology, the authors focus on potential

support of the PPP projects within the framework of the PROSPERITY programme.

6.1. Risks and obstacles of combination of PPP project with funding from

OPEI

This chapter summarized the specific risks and obstacles to funding of PPP projects from OPEI. Within

the framework of analysis of these obstacles the authors focus on the more exact definition of the

commissioned analysis which has been requested to reflect funding of PPP projects under the

PROSPERITY programme.

6.1.1. Scheduling, organization and technical problems

One of the generally known obstacles to combination of funding of PPP projects from structural funds

is the problem of scheduling. This problem is based on the fixed time-frame of the programming

period, the actual availability of funds to be disbursed and on the actually insurmountable rule of ‘n+2;

on one hand and the typical length of PPP projects, which may extend to decades, on the other hand.

A significant scheduling and organizational (technical) obstacle is also posed by the temporal intensity

necessary to prepare PPP project, not only with respect to deadlines defined for individual steps within

the specific call issued under the programme, abut also with respect to the duration of the

programming period.

In the given situation, when the current programming period enters its second half and there are only

three years before the current programming period ends, bearing in mind that the last eligible cost

may be disbursed before the end of 2015, this particular obstacle gains further significance.

Evaluation of the obstacle vis-à-vis the Methodology:

The scheduling issue needs to be viewed on two levels:

59

Specific call within the framework of OPEI supporting PPP projects should stipulate

longer deadlines namely for the submission of project applications (in order to allow

for a sufficient time to prepare a new or revised PPP project). In this sense, it is

necessary to refer to available experience according to which the preparatory phase

of a larger PPP project may take more than one year.

The scheduling issues also applies to a large degree on the potential sectors of eligible

costs, where:

o Nothing would bar specific support provided in connection with consulting related

to PPP, or possibly other activities within the framework of preparatory phases of

a PPP project;

o Support of the investment phase of a PPP project could be considered more or

less only in case of an already prepared or currently contemplated PPP project;

o Support of the operational phase of a PPP project would be (if we look away from

the general limitation of funding of operational costs from structural funds) in

reality rather limited.

6.1.2. State aid

State aid represents one the fundamental barriers in interaction between the public and private sector,

both in connection with PPP and OPEI.

State aid issues need to be resolved on the level of the funds grant, as well as on the level of

interaction of the recipient with other entities, and on the level of disposition with the assets acquired

with the assistance of the grant (here, the issues related to the so-called hidden or indirect forms of

state aid arise)

In the introduction to this sub-chapter is should be noted that under the PROSPERITY programme,

there exist two basic regimes under which grants are provided:

A grant may be provided “within the regime constituting stat aid”, in compliance with

60

the so-called aid intensities under regional aid maps in accordance with Regulation

800/2008/EC;

Or in the form of a grant provided within the framework of the PROSPERITY

programme where the grant is provided outside the regime of state aid, which is

provided on the basis of conditions formulated by the Commission within the

framework of the pre-notification procedure within the PROSPERITY programme. Aid

granted in this regime does not constitute public aid, as its recipient acts as a not-for-

profit innovations intermediary and the received aid is passed, in the de minimis

regime to the end users in the forms of advantage in providing services in comparison

with market prices. The subject of consultations within the framework of pre-

notification procedure, nor in the approved conditions, did not include accession of a

third subject – concessionary acting as the provider of public service, in the form of

cooperation based on PPP.

Evaluation of obstacles in relation to the focus of this Methodology:

State aid represents significant obstacle to the analysed possibility of supporting PPP

projects from OPEI, and that is mainly due to the fact that the current conditions

formulated by the Commission outside the regime of state aid under the PROSPERITY,

in the opinion of the authors, do not allow potential private partner to act as the entity

which would pass on the represented by the aid to the end users. The contents of the

call of the support programme, which would include this specific support – aid

provided to public partner outside the regime of the state aid, with the option to

implement the project in the form of PPP, should be discussed within the pre-

notification procedure, or possibly notified to the Commission.

Due to prohibition of indirect state aid a call realized under OPEI, or in the next

programming period, should formulate binding parameters for concession

proceedings, specifically the mandatory contractual mechanisms ensuring reasonable

profitability for the concessionaries (including the method of definition what

reasonable profit entails), and also for the observance of conditions related to the

passage of the aid value so as to maintain the regime of the not-for-profit innovations

intermediary in compliance with Article 3.1.2. of the Community framework, i.e.

separate records which would draw clear division between benefits obtained from the

61

implemented investment, and the value passed onto the end user in compliance with

the conditions formulated by the Commission.

State aid issues are also a determining factor in relation to who would be the

appropriate recipient of the aid between the public and the private partner. In order

that the granted aid under OPEI maintains the motivating element from the viewpoint

of support provided to PPP, it would be advisable that the aid provided in connection

with the investment made would be directed, in the regime not constituting state aid,

to the public partner, who would then take over the management of infrastructure

under conditions primarily prohibiting occurrence of indirect forms of state aid.

6.1.3. Issues related to revenue-generating projects in accordance with Article 55 of

Regulation 1083/2006/EC

Another specific obstacle for funding of PPP projects from OPEI is related to the so-called revenue-

generating projects in the sense of Article 55 of Regulation 1083/2006/EC.

These issues related to Article 55 have impact on:

projects funded from the European Regional Development Fund or from the

Cohesion Fund, whose total cost exceed EUR 1 million;

and which are simultaneously not funded in the regime that would constitute state

aid according to Article 107 TFEU et seq.

A revenue-generating project is defined by the above provisions as

any operation involving an investment in infrastructure the use of which is subject to

charges borne directly by users; or

any operation involving the sale or rent of land or buildings; or

any other provision of services against payment.

62

The basic rule for revenue-generating projects is that the eligible costs shall be deducted pro rata to

the generated net revenue, respectively only by the part corresponding to the amount of co-financing

from the structural funds.

This can be simplified by saying that the need to calculate funding gap and the net revenue in the

sense of Article 55 arises:

during the period before the grant for projects where the revenue is possible to

estimate with its potential impact on the deduction of eligible costs at the time of their

disbursement;

subsequently, for the purposes of corrections of the estimates, or in the cases where

the estimates do not exist – with the potential impact of the subsequent deduction of

costs.

In this connection it should be noted that any PPP project preparation will involve preparation of the

concession project, whose always integrates an estimate of the concessionary’s anticipated revenue.

As a rule, it will always be possible, using the documentation prepared for PPP project, to estimate

such revenue, and thus to resolve the issue related to eventual deduction of the eligible costs pro rate

to the net revenue already in the preparatory phase of the project.

These issues were addressed by a number of methodologies, and this Methodology considers relevant

primarily the Commission Recommendation for COCOF dated 18. 6. 2008 - note on application of State

aid rules (Article 55 of Regulation 1083/2006/EC) and the Methodology on deductions of revenue

issues within the framework of OPEI.

Several basic models may be considered in connection with combination of PPP methods with funding

from the structural funds, in terms of regulation of financial flows for the purposes of calculation of

the funding gap and net revenue.

Within these models, it may however be often debatable how to figure in the individual financial flows

in a PPP project into the calculation of the funding gap, and that often in dependence on the

63

regulation of financial flows within the framework of a PPP project (for instance, payments from end

users directly to the public partner, or through the private partner acting as intermediary etc.).

This present a question on what level (what level of which entity) it is necessary to calculate the

funding gap, i.e. whether on the level of the public partner who is the recipient of support, (who does

not need to be the recipient of the generated revenue), or on the level of the private partner, for

whom the payment for the concession represents a cost, while for the project the same payment

represents revenue generated in exchange for the use of infrastructure.

With regard to the fact that the available methodologies do not address these issues, it would be

advisable to consult them within the framework of preparation of operational programme or of the

individual calls, in connection with preparation of relevant methodology with the Commission.

This Methodology presents in the text below an outline or relevant approaches to the calculation of

funding gap and its possible alternatives. Taking into account the prevalent interpretation of Article 55,

we base these models exclusively on financial flows based on revenues and expenses. For the sake of

simplicity, this involves a listing of several typical models from the viewpoint of their financial flows.

The diagrams and the text assume that the individual financial flows in place within the framework of a

PPP project fully coincide with the financial flows that are relevant from the viewpoint of a concrete

project under OPEI, however in practice the situation may become more complex. For this reason, it

may be necessary in specific projects that the private partner would be obliged, in reporting to the

public partner, to separate their records of financial flows falling under specific projects under OPEI

and having effect on the calculation of the net revenues and on the funding gap from the other

financial flows achieved within the given PPP project.

64

6.1.3.1. PPP project or a quasi-PPP project with payment by end users directly to the public

partner based purely on accessibility payment provided to the private partner

Figure 12 - Model of financial flows for combination of PPP and OPEI funding based on accessibility

payment and payments of end users directly to the public contracting authority


This model counts on the implementation of the investment phase by the public partner using OPEI

funding and its own funding, or potentially, using additional funding provided by private partner. The

investment phase may or may not be implemented by the private partner.

The operational phase counts on all services provided within the concrete OPEI project by the private

partner, who will be, in compliance with the current definition of OPEI, entrusted to pass the full value

onto the end user.

65

This model counts on the fact that the negative operational balance of costs including the reasonable

profit of the operator will be compensated by an accessibility payment.

In the initial phase it will be necessary to consider also some of the other costs accrued by the public

contracting authority besides the accessibility payment (such as administrative overhead).

End users pay, within the framework of this model, directly to the public contracting authority, which

uses this revenue to fully cover operational costs and the reasonable profit, in the form of accessibility

payment, to the private partner.

This model is based on the negative difference between the operational costs and revenues collected

for the provided of the service, which is, in the experience of the authors with existing project, a rather

typical situation.

The advantage of this model is its greater exactness and simplicity of calculation of the funding gap.

From the point of view of PPP theory, this model is however problematic as the risk of due payment

from end users remains to be borne by the public contracting authority, which does not necessarily

offer an advantage, and moreover, it may be debatable whether there would be any material

handover of the risk to the private partner, which is necessary to fulfil an important attribute of a PPP

project in its narrower sense. From the accounting point of view, this model would be acceptable only

in situations where infrastructure is being leased and/or technical services.

Within the framework of this model it would be possible to calculate the funding gap exclusively on

the level of revenues and costs on the part of the public contracting authority, where the material

portion of the accessibility payment (covering the operational loss and reasonable profit of the private

partner) would represent a cost expended in order to generate revenue in the form of payment from

end users.

Available methodologies and the wording of Article 55 however permit also a different interpretation

(which seems to the authors of the Methodology somewhat absurd), under which the accessibility

payment (or the portion corresponding to the reasonable profit) could not be counted, for the sake of

calculation of the funding gap, against the revenue generated from the end users.

66

6.1.3.2. PPP project with end user payments to private partner based purely on accessibility

payment to the private partner

Figure 13 - Model of financial flows for combination of PPP and OPEI funding based on accessibility

payment and payments of end users directly to the private partner


This model counts on implementation of the investment phase by the public contracting authority

using funding from OPEI, and on complementary funding secured by the public contracting body,

potentially with sources provided by the private partner.

In operational phase, all services provided within the framework of a concrete OPEI project will be

provided by the private partner, who will be, in compliance with the current definition of OPEI,

entrusted to pass the full value onto the end user. The potential negative operational balance between

67

revenues and costs on the part of the private partner shall be compensated by the public partner in

the form of the accessibility payment.

From the viewpoint of regulation of the involved financial flows this model features, in comparison

with the previously discussed model, a larger degree of attributes of a PPP project, where the collected

revenue is administered directly by the concessionary, and thus bears the risk of collection of

payments form the end users.

Using this model, the obstacles related to calculation of the funding gap may be well illustrated in case

of accession of a private partner into the project. The following approaches to calculation of the

funding gap and net revenues may be simply considered:

Calculation on the level of the public contracting authority

In those cases, where the sole financial flow in the operational phase would be the payment of the

public contracting authority to the private partner, it might seems that the project does not generate

any revenue at all. Such approach would however not be correct, because the wording of Article 55, as

well as other available methodologies implies, that it is not a decisive factor who is the recipient of the

revenue from the infrastructure users.

Calculation on the level of the private partner

This approach would be more appropriate for the sake of calculation of the net revenues, because it

does take into considerations the financial flows in the form of gross revenues for the use of

infrastructure, as well as of the total operational costs on the part of the infrastructure operator;

however, these cannot be use for calculation of the funding gap, as they do not reflect potential

financial flows on the part of the public contracting authority, who would be the recipient of the aid

and the primary party responsible for the calculation of the funding gap.

Complex calculation – combined balance of revenues and costs

The third possible approach is the more complex calculation based on the inclusion of revenues and

68

costs on the part of both participants, i.e. the public contracting authority and the private partner,

provided that:

A portion of the concession payment corresponding to pro rata coverage of the

negative operational balance and reasonable profit of the concessionary would be

calculated as a cost of the public contracting authority and a revenue of the private

partner;

Operational costs on the part of the private partner would be calculated as cost of the

project;

Other potential operational costs on the part of the private partner would be

calculated as cost of the project;

Cost of provision of services subject to the project would be costs of the private

partner;

Revenue form the end users would be calculated as revenue of the private partner;

and

The net revenue for the calculation of the funding gap would be calculated as the sum

of the operational balance of revenue and costs of the private and the public partner.

This approach, notwithstanding its complexity, appears to represent the most appropriate approach,

because it reflects economic specific of the cooperation in the form of PPP, as well as the logic of the

regulation of revenue-generating projects contained in Article 55 of the Regulation 1083/2006/EC and

the published methodologies.

The following model example of calculation of net revenues in one operational cycle of the project

follows:

69

As shown in this calculation above, the net revenue in this model will be as a rule negative, and as such

it will not influence eligible costs of the project (OPEI) in the sense of Article 55.

6.1.3.3. PPP projects with end users payment to private partner based on concession payment

(“profitable projects”)

70

Figure 14 - Model of financial flows for combination of PPP and OPEI funding based on concession

payment and payments of end users directly to the private partner


This model differs from the previous models in the fact that the payments from the end users will

exceed the cost of providing the service to the aid recipients to such a degree that even if reasonable

profit of the private partner is covered it will allow the so-called concession payment by the private

partner to the public contracting authority.

Even here the net revenue will need to be calculated, in the sense of Article 55, on the basis of

combination of revenues and costs, as given above.

The following model example of calculation of net revenues in one operational cycle of the project

follows:

As shown by the above model calculation, this model will generate positive net revenue, a thus the

deduction of eligible costs will need to be carried out, whether during the preparatory phases of the

project or subsequently when the funding from the structural funds is added. This may appear as a

certain demotivating element, both for the private partner and the public contracting authority; in the

given example the otherwise economically logical efforts of the private partner aimed at achieving of

71

positive net revenue (by making the operations more effective) may lead to the project becoming

more expensive. On the part of the public contracting authority this will lead to the increased own cost

of the investment itself, which may negatively reflect itself in the reduction of the concession payment.

Figure 15 – Model of financial flows for combination of PPP and OPEI funding based on concession

payment in the form of deductions from end users directly to the public contracting authority.


For this model the above remains valid, with the difference that the operational costs of the project

implemented by the private partner would be covered, including his reasonable profit, in the form of

deductions from the payments made to the public contracting authority. This model thus differs from

the above model only by the technical difference in processing the payments.

Evaluation of obstacles vis-à-vis the Methodology:

The issues related to revenue-generating projects represent several obstacles for funding of PPP

72

projects from OPEI on the two following basic levels:

These issues increase with the accession of the private partner into the project by his

intentions to achieve a profit for himself, or to increase the net revenues of the project

while, from the viewpoint of the PPP project as a whole, further generation of profit

on the part of the concessionary reduces eligible costs of the project, which may have

demotivating effect within the framework of regulation of relations in the PPP project,

which is in contract with the traditional implementation of projects under PROSPERITY

programme, for instance, which are typically, according to the experience of the

authors of the present Methodology, loss-making with regard to net revenues.

The issues related to deductions in eligible costs represent another obstacle in the

sense that in typical projects, within the framework of contractual relationship

established between the public and private partner, there occurs a certain fusion of

economic factors, such as of, for instance, investment costs, operational costs,

financing costs, risk-related costs etc. into one uniform system of payments, which is

usually based on one periodic accessibility payment or concession payment. A PPP

project funded from OPEI will need to ensure rigorous separation of accounting and

reporting in the sense required by funding standards from OPEI (project application,

decision on the grant of aid) and in the sense of PPP project standards (concession

proceedings, concession contract) and to regulate economic relations in the

concession contract as required, in order to clearly separate these two spheres, so

that the funding gap may be at all calculated. That however leads to increased

intensity during the preparation of the PPP project and on the documentation for the

concession proceedings.

Within the framework of support of PPP project from OPEI or a similar future

programme it may be necessary that a separate methodology addresses the funding

gap calculation itself, which would specifically reflect particulars of PPP projects

funded from structural funds.

73

6.1.4. Issues relating to the integration of the concession proceedings with OPEI

application

Another significant obstacle, which is related to scheduling and technical and organizational aspects,

would be the integration of the OPEI application submission and its approval within a project realized

under OPEI with the process of preparation and implementation of a PPP project. The problems of

combining PPP and funding from OPEI arise mainly due to the complexity and time-related intensity of

both processes, as well as from practical need to maintain certain degree of flexibility during the

preparation and implementation of the PPP project. This stands against the need to flexibly react, by

individual calls within the framework of OPEI, to the status of individual projects being implemented

under OPEI and to the disbursement of allocated funds.

Another important problem that needs to be resolved within the framework of this obstacle is the fact

that PPP projects often require modifications of their objectives during the concession proceedings,

which is true especially for and larger more complex projects, where it is difficult to accurately assess

the preferences and possibilities of the private partners. These modifications do usually take place

during the qualification proceedings in the so-called concession dialogue stage or during the optional

stage during the so-called bid negotiations. The authors of the present Methodology are of the opinion,

based on their experience with PPP projects, that it will be necessary to use these two institutes in the

sphere of innovations, which will lead to modifications of the PPP projects on the basis of interaction

with the applicants.

The last important problem, which will need to be addressed within this obstacle, is the application of

selection criteria in those phases when the private partner has not yet been identified and in cases

when the final shape of the project is not yet known.

Here, one needs to consider that contrary to traditional situations where the infrastructure is operated

directly by the aid recipient, who is able to define the objectives at the very beginning on the basis of

an internal analysis of his possibilities (which can then be subject of evaluation), the situation in

eventuality that project would be realized in the form of PPP would be rather different. In PPP, the

project is often finalized only on the basis of interaction with the applicants during the concession

proceedings. Such need for later finalization may be less evident in smaller sectors, where there is a

large competition and where conditions can be easily monitored (for instance in the highway

74

construction sector). However, in the innovative services sector, such need to finalize the project later

with the benefit of interaction with applicants may be significantly larger.

Selection criteria may also include parameters that are wholly in control of the person who

implements the project (such as its history, experience, qualifications of the team members etc.). In

traditional projects, these are usually the aid recipients, or their colleagues, who are known in advance.

In PPP projects the majority of such parameters may be discovered only at the moment when the best

bid was selected in concession proceedings.

In relation to the two problems noted above, it will be necessary to resolve, which of these criteria

having direct influence on the quality of the project, will need to be applied

as selection criteria within the framework of ‘procedure’ for support form OPEI;

as criteria applied during potential regulated influence of the Managing Authority

during concession proceedings;

as criteria, conditions or binding parameters of the concession proceedings or binding

terms of the concession contract.

The answers to these questions are tied to the contemplated role of the Managing Authority (MA) in

the individual phases of the concession proceedings:

without MA’s participation;

with passive participation – MA as observer;

as an entity authorized to wield its binding influence into the concession proceedings, i.e. such

as entity authorized to assess qualifications of applicants, or to submit or not submit

documentation used in evaluation of the bids.

The definition of potential involvement of MA would need to be regulated within the framework of the

general conditions of the programme for individual calls or its annexes, and their specifications could

not obviously be modified ad hoc. The authors of the present Methodology are of the opinion that the

current regulation of concession proceedings does in principle allow for interaction of MA into the

process of private partner selection. It can be imagined, for instance, that a mandatory condition

75

within the framework of the concession proceedings / qualification proceedings would be inserted in

the form of an approving standpoint of the MA to the qualification of the applicant, or within the

framework of the contracting documentation which would require that the execution of the

concession contract would be subject to an approval by MA. Such procedure would constitute a

mandatory regulation of concession proceedings stipulated by MA and implemented voluntarily by the

contracting authority within the framework of certain freedom of concession proceedings authorized

by the Concession Act. Any such influence effected by MA during concession proceedings would need

to be regulated beforehand by detailed conditions (for instance for the standpoint relating to

qualification) similar to the existing binary exclusion criteria so that such influence could not be

contested as discriminatory14.

In this sense, three basic alternatives could be considered as analysed in the following three

subchapters.

6.1.4.1. Model concession proceedings followed by application for support

The first alternative considers a model where the concession proceedings selecting the concessionary

will take place first, then the concession contract will be signed and only subsequently the application

for support from OPEI will be submitted (in order to finance the investment, implemented within the

PPP project by the selected concessionary as the general contractor of the building, or by the public

partner as its contribution into the PPP project on the basis of a separate tender to implement the

investment provided that the concessionary’s role with be, for instance, facility management).

The advantage of this model is its greater suitability from the viewpoint of the current regulation of

OPEI. The authors of the present Methodology are of the opinion that this model is, with reservations

to certain other herein described obstacles and illegibility of some of the costs, in most instances

supportable already within the existing calls under the PROSPERITY programme. The private partner is

already known at the time of submission of application for support, as well as the complete team and

all other parameters of the project that are necessary for the evaluation on the basis of current criteria

14 In this connection, it should be noted that the decision-making practice of the Anti-monopoly office in the area of discrimination is interpreted relatively extensively.

76

and for the approval of the application.

The disadvantages of this model lie in the practical obstacles linked to the implementation of the

concession proceedings. This model does create a large degree of uncertainty within the concession

proceedings on how the PPP project will be financed. As shown by experience with PPP projects

implemented abroad with support from the structural funds, in these cases the private partners

demanded contractual guarantees for cases when the application for structural fund support would

not be successful. This would trigger the need to work with two funding alternatives during the

concession proceedings and in the concession contract. Such model, which would require that public

guarantee of alternative source of funding be obtained during within the concession proceedings in

case the OPEI support did not materialize, would also reduce the motivating effect of such aid.

Conclusion: This model would be, in the current situation of PPP projects in the Czech Republic, only

very difficult to envision, due mainly to its high demands on the concession proceedings and due to

the uncertain fate of the future project application under OPEI.

6.1.4.2. Model application for support first, then concession proceedings

The second potential model is a model where the application for OPEI would be submitted, evaluated

and approved first, and then, if successful, and if the MA would issue an assurance (containing at the

same time binding parameters for concession proceedings and concession contract), the PPP project

would be implemented through concession proceedings which would select the private partner.

The most obvious advantage of this model is its greater attraction for the PPP project (to be

implemented on the basis of the assurance for funding from OPEI) for the potential private partners,

improved certainty within the framework of the concession procedure, simplified concession

proceedings (within which no alternative source of financing would need to be secured, and to two

alternative solutions prepared) including maximalization of motivating effect for PPP projects in the

Czech Republic.

A disadvantage of this model would be a more complicated definition of potential call namely with

77

respect to a narrower room for evaluation criteria, where the identity of the private partner would not

be known on the date of submission of the project application (nor the identity of all key members of

the project team, etc.), nor would be the exact terms of cooperation between the private and public

partner.

Other disadvantages of such model would include no possibility of subsequent modifications of the

(PPP) project during the concession dialogue, or during bid negotiations. The concession dialogue itself

could however form an essential step in many PPP projects of the analyzed kind, due to the difficult

monitoring of the market during the preparation of the concession proceedings.

A possible solution to this disadvantage would be a definition of binding parameters for applicant

selections (for instance, by defining the qualification criteria) and conditions of cooperation between

the private and public partner (binding conditions in the concession contract).

Conclusion: This model of cooperation is also only very difficult to envision with regard to the

regulation of specific call within the framework of OPEI. From this viewpoint, any expansively (i.e.

broadly formulated call in the sense of application of selection criteria) formulated call for the support

of PPP projects could be viewed as discriminatory in relation to evaluation of projects which were

approached traditionally.

6.1.4.3. Potential synchronicity of both processes

The last imaginable alternative is the model under which both processes would run parallel with

possible element of influence of MA within the concession proceedings.

It is possible to imagine for instance the following synchronicity of individual steps in both processes,

with a certain degree of simplification in the following phases:

78

Preparatory phase

Figure 16 Combination of preparatory phase of PPP and OPE processes


At this stage, approximately during the first 6-month period, the primary stage of contemplating the

feasibility of the project with support from OPEI and with application of the PPP method would take

place. If these contemplations would lead to a potentially positive decision on the part of the public

contracting authority, it would submit a registration application within a concrete programme with

definition of the basic parameters (i.e. primarily identification of the applicant, maximum budget and

possibility of implementation in the form of PPP).

In the subsequent phase the preparation of the project application for support from OPI and the

preparation of the concession project for PPP would be carried out in parallel, including concession

documentation and draft concession contract. The preparation of the PPP project could form, from the

viewpoint of OPEI, an independent project with independent project application (in the Figure

denoted as Project application 1) with the possibility of the aid being granted only under the condition

79

of proper approval of concession documentation by the competent authorities (entities). The result of

this phase would be the approved concession documentation, which would define the basic

parameters of the concession proceedings (in the concession documentation) and the basic conditions

of cooperation with the private partner (within the framework of the draft concession contract).

Project application evaluation phase

Evaluation Evaluation /

selection criteria

Application 2 (innovations center)

Eval

uat

ion

of

Ap

plic

atio

n 2

an

d

com

men

cem

ent

of

con

cess

ion

pro

c.

3-4

mo

nth

s

Commencement of the concession

proceedings

Interlocutory decision on aid grant

Figure 17: Project evaluation phases under OPEI


This phase, taking approximately 3-4 months, would comprise of the evaluation of the project

applications for the preparation of the PPP project and of the implementation of the project within the

framework of OPEI. In the phase the MA would apply those selection and evaluation criteria which

would enable project evaluation in the given phase (i) without knowing the identity of the private

partner and (ii) with the assumed definition of objectives of the PPP projects with the perspective for

certain modifications of the project at the concession dialogue phase or in the bid negotiation phase.

80

The result of such evaluation should be the relatively binding interlocutory “decision” (in the Figure

denoted as “ID”) by the MA on the grant of aid with potential definition of conditions under which the

aid will be granted, and possibly with definition of binding parameters for the concession proceedings

and terms of the concession contract. Such decision may trigger the need to approve up-to-date

version of the PPP project and of the concession documentation. The purpose of such a decision would

be to provide, for the sake of the concession proceedings, the necessary degree of certainty that

funding from OPEI will be granted as long as certain conditions or certain criteria are met. From the

formal point of view, it would be up to the Managing Authority to select the appropriate legal and

procedural of such a “decision”. This may include an entire spectrum of acts, starting with a non-

binding promise, or declaration of general interest to support the project, up to interlocutory decision

or partial decision in accordance with Sec 148 of Act No. 500/2004 Coll., on Administrative Proceedings,

as amended.

Following onto the pervious steps, the public contracting authority and the future recipient of aid

would announce concession proceedings and commence its first phase – qualification proceedings.

81

Concession proceedings stage

evaluation/ selection criteria

Imp

lem

enta

tio

n o

f th

e co

nce

ssio

n p

roce

edin

gs

5-8

mo

nth

s

Commencement of the concession proc.

Interlocutory decision to grant aid

Qualification proc.

Concession dialogue

Bid evaluation

Bid negotiations

Selection of applicant/ execution of

concession contract

Ch

anges in

the p

roject

Final decision to grant aid

Figure 18: Concession proceedings phase


This phase, with estimated duration of 5-8 months, the concession proceedings would take place; this

opens a room for MA to influence the proceedings in instances previously defined in the

documentation to the operational programme.

Generally, it can be imagined that the MA would now have the chance to apply selection criteria

related to the person(s) entrusted to implement the project within the framework of the qualification

proceedings, for instance in the form of a binding approval of the MA in terms of programme

conditions being met of the private partner, as a condition for the qualification of the applicant within

the concession proceedings.

It could also be imagined, that the MA would participate in evaluation of the bids, for example by

82

issuing a standpoint to certain part of the bids, which could have an impact (could serve as a binding

document for the assessment of the bids) on the points allocated to the bid (while preserving the

principle that the bids are independently evaluated by the public contracting authority), or by personal

representation on the part of MA in the commission evaluating the bids, etc. Direct involvement of the

MA in this phase of the proceedings would clearly be somewhat more problematical than involvement

in the qualification phase, specifically due the need to maintain the principle of impartiality in

evaluation of the bids.

During this phase, some modifications of the PPP project would be possible, especially during the

concession dialogue or, marginally, during bid negotiation. The concession documentation should

define that any of these changes would be at least notified to the MA.

The final result of any PPP project is the selection of applicant and execution of the concession

contract. In this phase, on the basis of the submitted decision on the selection of the best bid and on

the basis of an executed concession contract (including the standpoint issued by the CMF) the MA

would issue the final decision granting the aid.

Conclusions: the synchronous model alternative

The main advantage of this solution is the minimization of disadvantages illustrated in the previously

formulated alternatives.

Obstacles of this solution include:

greater complexity – the need of the specific detailed regulation for the support of PPP

projects under OPEI, including regulation on the level of procedural mechanisms;

the need to address modifications, for instance modification to the concession

contract which arose on the basis of the concession proceedings (a mechanisms for

granting approvals to such modifications by the MA would need to established);

the existence of a standpoint form the CMF constitutes a condition to validity of the

concession contract and the CMF currently issues such standpoint only once the

applicant was already selected.

83

Conclusion: even this model represents a formidable task with respect to the OPEI regulation. It may

therefore be envisioned (in the next programming period) for instance within the framework of

implementation of the more individually evaluated major pilot projects (for instance in the form of

support of Major project for large infrastructure under OPR&DI).

Evaluation of the obstacles from the viewpoint of focus the present Methodology:

It would be necessary, within the framework of the potential specific call for support of PPP projects,,

to analyse the concrete possibilities of integration of the aid application process with the process of

preparation and implementation of PPP project, specifically in relation to the current legislative

regulation of the concession proceedings.

The authors of this Methodology are of the opinion that the most appropriate form will most often be

the synchronous run of both processes provided that it appears workable that the operational

programme documentation would also define certain binding parameters for the concession

proceedings, including potential influence of the MA during the individual phases of the concession

proceedings, as illustrated above.

6.1.5. Sustainability and compliance with other OPEI terms

Another obstacle to the support of PPP projects under OPEI is the issue related to compliance with

OPEI conditions, primarily in connection with the sustainability of the project and specifically, in case

of the PROSPERITY programme, with passing the value to end users.

This obstacle arises from the very nature of the contemplated project, where the private partner

within the framework of PPP takes over a material portion of tasks of the public partner in connection

with facility management of science and technology park, innovations center, business incubator or,

potentially in the future, the innovations center of the existing OPR&DI center (Innovations center).

This creates a situation where, in accordance with decision granting the aid, the public partner, as the

recipient of the aid, is responsible to the MA for compliance of terms stipulated by operational

programme documentation, but where the actual implementation of these terms is in the hands of a

third party – private partner (concessionary).

84

With regard to issues relating to operation of Innovations-center-type-of-facility, another obstacle may

also be created by one of the motivating factors of the private partner in the sense of making the

operations of the center more effective and minimizing operational loss. Should the private partner

handle the operations of the center conservatively, in order to minimize its operational losses, such

approach may lead to the reduction of value passed onto the end users, to the smaller number of

supported riskier project, and eventually lead to a situation where the aims of the project would not

be fulfilled, which is, among other, elimination of market failure which lies in the conservative

approach of developers and other lessors. On the other hand, it is necessary to realize that the reason

for invitation of a private partner does not rest with the reduction of the financial losses (financial

benefit), but also in overall improvement of the provided services, and improved management of the

infrastructure, which should have positive impact within the given region.

Evaluation of the obstacles in relation to the focus of the Methodology:

Within the framework of solution of this obstacle the following measures could be considered by the

MA:

The OPEI documentation of another similar programme to define certain basic

requirements of the concession proceedings and concession contract (among other,

besides the general liability of the private partner for compliance with conditions

under which aid was provided, also compliance with the entire OPEI documentation,

specifically in the area allowing supervision of the private partner);

Within the framework of approval of the project application, the MA to define other

binding principles of cooperation which should e reflected in the correct adjustment of

motivating mechanisms contained in the concession contract, so that the

concessionary is primary economically motivated to fulfil the conditions of the

operational programme.

In this sense, it is up to the MA to consider, in accordance with the concrete regulation of the

programme, to what degree it will influence, or maintain control over the regulation of relations

between the aid recipient and its private partner who is entrusted with the actual provision of the

85

public service. There is no doubt that in certain cases it will be possible to proceed under the

assumption that compliance with the programme terms is the matter of the public partner, as the aid

recipient, and that it is up to him to secure such contractual terms with the private partner, which will

lead to such compliance. In the more complex cases, with higher threat of risk tied to the accession of

the private partner, posed for the MA as well as for the aid recipient it would make sense that the MA

would influence, at least in some minimum degree, these relations. The purpose of such interventions

would not need to be limited to efforts preventing risks, but also a general attention of the MA to

improve the quality of the implemented project, among other in connection with the integration of

processes related to evaluation of project applications seeking aid, and the concession proceedings,

where the room for evaluation of the project narrows down due to the fact that the application is

being evaluated when the private partner is not yet known.

6.1.6. Impact of legislative amendments, considerations de lege ferenda

Other general obstacles for combinations of PPP and funding under OPEI may be created by the future

legislative amendments. This is a problem that would need to be addressed in PPP projects with

concession terms exceeding horizon of 10 year, for example. Within the framework of such projects

the legislative factors enters the frame as well as other economic and social changes. One of the

possibly applicable and comparatively effective approaches is to maintain a certain flexibility of the

contractual relation within the framework of PPP cooperation. Such approach might not however be in

compliance with the need to regulate, relatively rigidly, these relations from the viewpoint of

implementation of the project under OPEI.

A certain mechanism that could assist in resolving this problem would be the contractual mechanism

for amendment of the concession contract with involvement of the MA. This obstacle might not be

relevant in all cases – operational programme documentation may for instance generally exempt

changes to the concession contract, which would not affect the programme terms in terms of

sustainability, from the regime of mandatory approval by the MA.

86

6.1.7. Situation on the Czech aid ‘market’ (OPEI, OPR&DI, OPEC) in relation to a typical

solution of economics of Innovations center

Another obstacle, which the authors of the Methodology discovered during their market survey, is

related to the current situation in the system of granting aid in the Czech Republic in connection with

the typical economical arrangement of a typical innovations center in the Czech Republic.

According to the experience of the authors of the present Methodology, the majority of the existing

and future projects contemplating creation of science and technology parks operated by the public

(not-for-profit) entity maintain an immanent, approximately 30%, operational loss. A part of these

projects is thus the effort to cover these losses from own, public, sources, and potentially with the

assistance of funding from the existing and planned aid programmes.

A certain problem, which was communicated to the authors during their consultations in connection

with the questionnaire investigation, was the anxiety that at the moment the private partner joins a

project as a manager of the Innovations center, such private partner will find himself at a significant

economic disadvantage which lies in the generally fewer possibilities available to the private partner to

cover the immanent loss of the center from these ‘public’ sources, because he will not be eligible to

receive aid, or if eligible, then with a significantly lower percentage of compensation of eligible costs.

A possible solution of this obstacle would be to adjust the PPP project so as to make the public partner

the recipient of aid. The authors of the present Methodology are however of the opinion that this

might not be always possible.

6.1.8. Current development in the area of PPP in the Czech Republic

The final obstacle to combination of PPP and funding under OPEI would be the general lack of

confidence in PPP projects in the Czech Republic, and insufficient political support of PPP. Besides that,

the ongoing PPP projects in the Czech Republic are typically implemented in areas falling under other

operation programmes than OPEI. Political support is usually granted to transportation projects, which

would as a rule not be eligible, due to the arrangement of operational programmes in the Czech

Republic, to receive aid under OPEI.

87

6.2. Analysis and evaluation of the application of PPP principles within the

framework of OPEI to date

Within the framework of this Methodology the authors thoroughly investigated which of the aid

programmes would be appropriate for support of PPP projects taking into account the PPP situation in

the Czech Republic, and whether there are instances where the OPEI already effectively support

projects and PPP methods. The results of this investigation are summarized in the following table.

88

Priority axis

Area of intervention Programme Programme aims Possibility of application of PPP model

1. Creation of enterprises

1.1 Aid to starting entrepreneurs

START Promote implementation of business plans for starting entrepreneurs for the first time or after a longer break by providing support in the form of interest-free loans or preferential guarantees with financial contributions on top of the guaranteed loan.

In principle NO, the possibility to apply PPP in start-up is minimal

1.2 use of new financial instruments

2. Development of enterprises

2.1 Banking instruments supporting SMEs

‘ZÁRUKA’ [GUARANTEE] Using preferential guarantees and preferential guarantees with financial contribution on top of guaranteed loan to facilitate implementation of business projects of small and mid-sized enterprises, focusing on investment and improved competitiveness of such businesses. Emphasis is placed on the support of projects submitted by SMEs in regions enjoying concentrated support of the state.

In principle NO, the possibility to apply PPP in start-up is minimal

‘Rozvoj’ [Development] Supporting increased output and competitiveness (flexibility) of SMEs leading to their improved position on the market and in this connection also the sustainability or increase of jobs. Support within the ‘Development’ programme will be channelled into regions enjoying concentrated support of the state, as defined in the Annex to the Government Decree No. 560/2006, Government Decree No. 829/2006, and into region with higher unemployment rates defined by methodology for the selection of these regions, which is attached as Annex 1 to this programme.

89

‘PROGRES’ [PROGRESS]

a) Using support in the form of subordinated loans to strengthen capital facilities of entrepreneurs up to the period of 6 years, to allow implementation of development business projects for SMEs, which face the barriers of external funding due to lower own capital funds or limited availability of security for loans. The programme also seeks to motivate entrepreneurs to increase employment, by providing a financial contribution on top of the subordinated loans; b) using support in the form of preferential loans and preferential guarantees with financial contribution to the guaranteed loan to allow implementation of project by SMEs in energy sector, which seek to reduce energy consumption and improved energy efficiency of energy production (see annex to programme for more details).

2.2 support of new production technologies , ICT and selected strategic services

‘ICT V PODNICÍCH’ [ICT in Enterprises]

Supporting competitiveness of SMEs through qualitative increases of their potential in the area of acquisition and utilization of modern information and communication technologies (ICT), respectively supporting ICT in order to increase efficiency of SMEs.

In theory, YES, but in practice the potential PPP projects would rather fall under OPE, OPIRC, OP transportation and similar.

90

‘ICT A STRATEGICKÉ SLUŽBY’

[ICT AND STRATEGIC SERVICES]

Supporting competitiveness and growth of the ICT sector in CR, supporting new information systems, ICT solutions, new software and services. Programme also focuses on development of information knowledge society. Promoting availability of information on ICT products. Furthermore, the programme supports selected strategic services which are narrowly tied to information and communication technologies with significant international focus, which could lead to reduction of cost intensity of processes and improved efficiency of enterprises, thus increasing their competitiveness. Development of human resources (mobility) and creation of qualified of service sector jobs

3. Effective energy

3.1 Energy savings and renewable sources of energy

‘EKO-ENERGIE’ [ECO ENERGY]

Using aid or subordinated loans with financial contribution in order to stimulate entrepreneurial activities, especially of SMEs in the sphere of reductions of energy intensity of production, consumption of primary energy sources and increased use of renewable and secondary sources and their sustainable growth. Support is provided to projects which aim: • to reduce energy intensity on production unit while maintaining long-term stability and availability of energy for business sphere, • to limit dependence of the Czech economy on imports of energy commodities, • to reduce consumption of fossil (primary) fuels, • to increase use of renewable energy sources (RES), • to exploit the potential of energy savings and use or RES in large enterprises, • to sue available potential of secondary sources of energy.

In theory, YES, but in practice the potential PPP projects would rather fall under OPE

91

4. Innovations

4.1 Improving innovative production of enterprises

‘INOVACE’ [INNOVATIONS]

Increase of innovation potential of the business sector using aid aimed at implementation of innovative projects by enterprises (chiefly by SMEs) and for projects of public research institutions, universities, natural persons and SMEs leading to IP protection.

In theory, YES, but in practice the potential PPP projects would rather fall under OPE, OPIRC, OP Transportation etc.

‘POTENCIÁL’ [POTENTIAL]

Supporting introduction and increase of capacities of companies in terms of implementation of research, development and innovative activities and increase of companies which carry out their own research, development and innovations. Programme also aims to improve cooperation between companies and research organizations, creation of qualified jobs and development of knowledge economics, improvement of conditions for integration of companies into national and European R&D programmes, sustainable improvement of Czech economy competitiveness.

4.2 Capacities for industrial research and development

INOVACE – Projekt na ochranu práv

průmyslového vlastnictví [INNOVATIONS – project

for the protection of industrial rights]

Using aid to support increased intensity of use of instrument protecting IP by SMEs, R&D organizations, universities and citizens.

5. Environment for business

and innovation

5.1 Cooperation platforms ‘SPOLUPRÁCE’ [COOPERATION]

Supporting creation and development of cooperative clusters, technological platforms and cooperation projects on the regional, supra-regional and international level, as na instrument of development of economic competitiveness economic growth. Th general aim of the programme is to continuously create favourable entrepreneurial environment, improve conditions for business and innovations and development of competitive edge by strengthening the link between research, universities and business.

YES, here OPEI already effectively supports specific forms of the so-called institutional PPP in the broader sense

92

5.2 Infrastructure for development of human resources

‘ŠKOLICÍ STŘEDISKA’ [TRAINING CENTERS]

Increasing competitiveness of enterprises in pre-defined business sectors by securing high quality facilities to carry out, organize and manage education, personal activities and other activities related to development of human resources, as well as increasing employability of individuals in relation to needs triggered by introductions of new technologies and innovations, production processes, increase capacities and professional growth of employees in relation to efficiency and quality of production or services.

From the viewpoint of aims of the given priority axis in principle YES; indirect support of training in the PPP sphere , however the current focus of the programme is currently entirely different (infrastructure construction)

PROSPERITY Using aid to support establishment and further development of infrastructure for industrial research, technological development and innovations focused on implementation of new technologies and product and service competitiveness. The programme further focuses on support aimed at infrastructure for newly created innovations firms, creation, activities and further development of business incubators. Special attention is paid to the Business Angels network which supports SMEs.

In principle YES, however the market research shows that there is a general lack of interest of in PPP projects in this area

5.3 Infrastructure for business

‘Nemovitosti’ [REAL ESTATE]

Stimulating creation and development of business real estate and connected infrastructure and contributing to creation of functional real estate market and improvement of investment environment and environment. The programme focuses on the support of project implemented in all main phases of real estate life-cycle, i.e. on preparation, construction, development, and renovations of real estate. The programme focuses on support to knowledge and information bases for the development of regional business infrastructure and support of business real estate.

in principle YES.

93

6. Services for

business development

6.1 Support for consulting services

‘PORADENSTVÍ’ [CONSULTING]

Improving quality and accessibility of consulting, information and education services for SMEs which will thus lead to their increased competitiveness thru comprehensive concept of consulting services, where the individual parts of the programme mutually support each other and follow up on. The programme further creates environment of global and Czech development trends having influence on innovative activities in the Czech economy and its competitiveness. The programme has 4 specific activities: 1. Creation, maintenance and development of National register of consultants (NRC) as a source of competent professional consultants who are able to provide quality consulting services to businesses in the Czech Republic; 2. Support to consulting services for SMEs provided primarily by NRC consultants; 3. Provision of subsidized informative, consulting and education services to SMEs thru the Regional information and consulting infrastructure (RICI); 4. Analyses of Czech and global development trends (Trends) having an influence on innovation activities in the Czech Republic and its competitiveness.

In principle YES, support to training in the area of PPP, however the current focus of the programme is different.

6.2 Support for marketing services

Marketing Strengthening of the international competitiveness of SMEs located in the Czech Republic thru individual participation at trade fairs abroad, exhibitions, presentation of the Czech Republic as specialized trade fairs and exhibitions abroad with individual participation of enterprises, organized by the CzechTrade and support of alliance activities for SMEs.

From the viewpoint of aims of the given priority axis in principle YES; indirect support of training in the PPP sphere , however the current focus of the programme is currently entirely different (export)

7. Technical assistance

7.1 TA in managing and implementation of OPEI

NO

7.2 Other TA NO

94

As shown above, most of the existing programmes under OPEI would not be suitable, from the

viewpoint of their focus and with regard to the development of PPP to date, for the support of PPP

methods; this is complemented by the fact that imaginable PPP projects in areas which are served by

the corresponding programme already fall under other operational programmes in the Czech Republic,

or would not be appropriate for the support of the PPP thanks to the current focus of the individual

programmes under OPEI (especially consulting and training in the PPP sector, which also fall under

different OPs).

Areas where OPEI already effectively supports PPP is the COOPERATION programme which supports

creating and development of clusters, technological platforms and cooperation projects on the

regional, supra-regional and international level, as an instrument of development of economic

competitiveness and economic growth. The general aim of the programme is to continuously create

favourable entrepreneurial environment, improve conditions for business and innovations and

development of competitive edge by strengthening the link between research, universities and

business. This represents support to institutional forms of PPP in the broader sense15.

6.3. General recommendations and Model example

This chapter presents a model example, which verifies the interest of the market and analysis of

specific obstacles and which corresponds to the more exact definition of the focus of this Methodology.

6.3.1. General description

As indicated in the introduction to the present Methodology, the authors have focused, as requested,

on the specific model of construction, completion, or adaptation of an Innovations Center in the form

of a PPP project with the subsequent facility management performed by a private partner.

15 PPP in its “broader sense“ is here so defined due to a less distinct fulfilment of the attribute of provision of public service which in this specific case is “create favourable entrepreneurial environment, improve conditions for business and innovations and development of competitive edge by strengthening the link between research, universities and business“. The authors are however convinced that even this attribute is sufficiently fulfilled in these projects to be able to speak of PPP, even in its broader sense.

95

The reason for selecting such model is its suitability especially for some of the existing, or potential

future Innovations centers which may have problems in the future with the maintenance of

sustainability and other conditions stipulated for such projects, provided that the invitation of the

private partner into the project could to a certain degree solve some of the potential problems.

In order that support provided from OPEI would have motivating effect for PPP project it is necessary

that the public partner is the recipient of aid, if at all possible outside the regime of state aid, or

possibly in the corresponding regime pro rata compensating eligible costs, or at least in the regime

ensuring a higher pro rate compensation of eligible costs than the existing call does for the regime

constituting state aid. In the opposite case it may be assumed that he private partner would not be

motivated to joint the PPP project, but would prefer to submit a separate application within the

regime constituting state aid for its own project, without the interaction of the public sector.

In relation to the analysed model of the Innovations center, the following three basic conditions may

be imagined:

PPP model focusing on adaptation of an existing Innovations Center with facility

management outsourced to a private partner; or

PPP model focusing on completion of an existing Innovations Center with facility

management outsourced to a private partner (within the framework of this model the

potential integration with OPR&DI center will be verified); or

PPP model focusing on construction of a new center similar to science and technology

park, innovations center, business incubator with facility management outsourced to a

private partner.

It is not necessary that the private partner – concessionary would simultaneously carry out the

investment – to be the general contractor and technology supplier (BFO model), although that

alternative would be more convenient for the public partner from the viewpoint of risk distribution.

An alternative may be allowed, under which the selected partner – concessionary would participate

within the framework of the PPP project on the funding of the necessary investment (i.e. participates

in payment of the remaining portion of eligible costs of the investment not covered by OPEI).

96

Figure 19: financial flows within the illustrated model


6.3.2. Points for the Call within PROSPERITY programme

Potential Call should specifically address the points following below in excess of the framework of the

existing regulation

Mandatory selection of the private partner by concession proceedings in compliance

with the Concession Act;

Eligible costs – as eligible the following cost should allowed:

o Cost of concession proceedings incl. costs of preparation of the PPP project (i.e.,

among other costs, also the cost of legal, economic and technical consulting

during the preparatory phase) – potentially as an independent part of the project;

o That particular part of the accessibility payment which serves to cover the

investment provided by the private partner under a BFO model (obviously, with

97

time limitation by 31.12.2015);

Separate records for the OPEI project and PPP project, in particular mandatory

separate records of payment mechanisms on the investment implementation level

(payment mechanisms related to the passing of value to the end users need to be

separated from the potential aid to the private partner covering operational losses and

compensation of reasonable profit) so that the net revenues may be calculated within

the meaning of the wording or Article 55 of the Regulation 1083/2006/EC;

A system of mandatory (defined in the OPEI documentation) contractually-economical

motivation mechanisms aimed at the private partner for the purposes of fulfilling the

aims of the project (not only the profitability of the center, but also the number of

projects and passing of the value to end users, etc.);

A system of contractual mechanisms limiting profit raised by the private partner,

definition of the reasonable rate of profit directly in the Call primarily for the purposes

of preventing state aid being constituted;

Other mandatory requirements for the concession contract, in particular the

obligation to contractually bind the concessionary to allow control (supervision);

A system of integration of the concession proceedings into the aid application process,

provided that the synchronous model described above could be recommended;

A system of potential interventions by the MA during the concession proceedings. The

following mandatory consultations with MA on the below defined subjects can be

entirely recommended:

o Qualifications of the participants;

o Selection of the concessionary

o Final wording of the concession contract;

o Subsequent modification of the concession contract.

6.3.3. Consultations and potential notifications of the Call

As indicated above, it would be advisable that such a Call is consulted, for the sake of legal certainty,

with the Commission as a regime not constituting state aid, on the basis of the similar scheme, which

the Commission allowed for the PROSPERITA programme – regime not constituting state aid, i.e.:

98

The aid recipient does not receive state aid because he is a no-for-profit innovations

intermediary in compliance with Section 3.1.2 of the Community framework (received

value is passed onto the end users of the aid in the form of preferential treatment);

End users receive the aid in the de minimis regime with obligation to report such aid

on the part of the public as well as the private partner (specific procedure would be

defined in the concession contract) within PPP, and on the part of the end users of the

aid;

The private partner receives the potential accessibility payment to cover operational

losses and / or reasonable profit in the regime of public service compensation in

compliance with the Altmark decision, and this aid does not form an eligible cost of an

OPEI project.

On the basis of consultation results the decision whether to notify the aid regime or not would be

taken.

6.3.4. Evaluation of the obstacles in relation to the model example

Regardless of the potential interest on the market for such model there are two basic obstacles to this

model:

Obstacle related to state aid which does, among other, trigger the need to consult and

potentially notify the future Calls to the Commission. The potential need to notify,

taking into account the length of notification proceedings before the Commission,

practically makes implementation of this model within the current programming

period nearly impossible, with possible exception of PPP projects in the advanced

stage of preparation;

Economic obstacles – taking into account the current situation, the entry of the private

partner into the project conceptually limits and reduces the possibility of the project

to obtain additional aid for the center operation. It can be then assumed that the

99

feasibility study, or concession project, would eventually show that from the financial

point of view the more suitable method of funding would be to realize the project by

the public partner and the question remains whether additional economic benefits

(such as the anticipated improvement in quality of the provided services) would in

specific cases would outweigh these disadvantages.

6.4. Market survey

6.4.1. Methodology of the survey

A part of the commissioned work to be carried out under this Methodology was the survey of interest

on the market for the model example, or potentially for support of another type of PPP project within

the PROSPERITY programme.

On the basis of experience gained by the authors of the present Methodology the following approach

was selected:

A simple and brief questionnaire;

containing only a limited number of questions;

focusing on professional s active in the field.

Selecting the addressees of this questionnaire the authors followed the basic thesis that due to the

considerable specificity of the analyzed issues it was necessary to contact only those professionals with

sufficient professional background in the innovations sector, which is the subject of the analysed

model. Following this thesis, a list of respondents was drawn up, including entities in the field and the

current applicant under the PROSPERITY programme. The contacted entities could act as the public

partners, as aid recipients, as well as some potential private partners within the framework of PPP.

With regard to the fact that there are only several dozen entities in the innovations sector the list of

the 37 respondents is without doubt sufficiently representative.

100

The questionnaire form, the lost of the contacted recipients and the returned questionnaires are

attached hereto.

6.4.2. Evaluating the survey

Rate of questionnaire’s return

contacted questionnaire returned no reaction

37 7 30

19% 81%

We have received 7 filled in questionnaires from the total of 37 contacts directed at public and private

entities in the innovations sector.

This fact was evaluated by the authors as an expression of general lack of interest in PPP projects in

this field. This conclusion is also supported by the results of the follow-up calls that were placed in

order to increase the rate of the questionnaire’s return respectively to check on reasons for its low

rate or return. The responses to these calls made it clear that there is little or no interest in the

analysed type of project, or in other types of PPP project funded from OPEI, as well as subjectively

perceived unreality of such PPP projects.

Figure 20: Reaction to the questionnaire


19%

81%

Reaction to the questionnaire

returned unreturned

101

Potential interest in support and implementation of the project illustrated by model example

returned questionnaire interest in support of the

model example of PPP

project YES

NO

7 2 5

in per cent 28% 75%

in percent from the total

questionnaires sent

5%

From the 37 sent out questionnaires and seven received properly filled in, only two indicated interest

in the support of the model example. The commentary received in the questionnaire however

indicates that in both cases the expressed interest does not specifically relate to the implementation

of the project in the form of PPP, but more to the support of a specific contemplated and prepared

project, one which is being realized with the support from OPEI and the second related to the 2013-

2020 programming period.

In the received commentaries the respondent expressed their conviction that implementation of such

projects in the form of PPP are viewed as contra-productive, because the “system would gain yet

another intermediary”, or that the operations of these institution are by their nature a loss-making

and entry of a private partner would either trigger the need to subsidize his activities, or it would lead

to a reduced rectifying effect on market failure in this filed, and that its economics and approaches to

innovations in SMEs would resemble more the private institutions of the similar type which function

on purely commercial basis.

Respondent, who expressed interest in the support of PPP project in the future programming period

mention the area of “support of energy development in the sector of renewable resources” and this

aspect has been addressed in the recommendations for the next programming period given below.

102

Figure 21: Interest in the support of the model PPP project


With respect to the model PPP project the questionnaire confirmed a completely minimum interest in

the support of the model or similar PPP project from OPEI.

Potential changes in the PROSPERITY programme, which would be viewed as motivating to

implement the project in the form of PPP

Commentaries returned to this question express primarily the future need for aid to Innovations

centers directed to the operational costs, or funding of applied research and innovations (purchases of

services, human resources etc.). Respondents also expressed the need for the support of consulting.

81%

14%

5%

Interest in the support of the model PPP project

unreturned returned - no interest returned - interest expressed

103

Potential interest in support directed at consulting in relation to the implementation of the model or

similar project

returned questionnaire interest in support of the model

example of PPP project YES

NO

7 2 5

in per cent 28% 75%

in percent from the total

questionnaires sent

5%

From the seven returned questionnaires only two respondents expressed interest in a specific support

of consulting services. In one case the interest relates to the support of a feasibility study for further

development of a science and technology park, business incubator and TTC (Technology Transfer

Centre), which however relates to an existing project, where the respondent already filed the

registration application. In the second case the respondent expressed interest in the support of the

consulting services related to the model example in the future programming period.

Figure 22: Interest in the specific support of consulting in relation to the model PPP project


81%

14%

5%

Interest in the specific support of consulting in relation to the model PPP project

questionnarie not returned

returned - no interest in specific forms of support expressed

expressed interest in specific support of consulting

104

The questionnaire confirmed also in this case that there exists only entirely minimum interest in the

specific support of consulting in relation to the model or similar PPP project under OPEI.

Potential interest in support for a different PPP project from OPEI

From the seven returned questionnaires only two respondents expressed their interest in support of

another, different type of PPP project, and in both cases in relation to an institutional PPP. In one case

the expressed interest relates to an existing project in Northern Moravia and in the second case to a

more general model of institutional cooperation.

The concept of institutional PPP raised an interest in the authors of the present Methodology and

therefore this concept was additionally discussed with the selected survey participants. These

discussions gave rise to a thought, that in the next programming period there will be significantly

lower demand for new investment, but there will be a need to fund in particular the innovation

projects. In this connection, the respondents referred to the conservative approach of the Czech

financial institutions, which do not posses sufficient know-how to evaluate innovations projects. In this

connection a though was voiced to consider the possibilities of support to institutional PPP in the form

of an institution of the venture-capital fund with participation of a public body active in the field of

innovations and a private financial institution, where the aim of such fund would be to support

innovative activities of entities that are active in Innovations centers following the inspiration of the

existing supported financial engineering instruments (JESSICA, JEREMIE and JASPERS).

6.4.3. Analysis of reasons for lack of interest on the market

Generally, it can be summarized that the questionnaire as well as the follow-up telephone

consultations with the respondents confirmed a general lack of interest in support of PPP projects

from OPEI, both in relation to the analysed model example and in relation to other PPP projects. The

only meaningful support was expressed in relation to institutional PPP.

As the undertaken analysis of the model example shows, the form of cooperation on the basis of PPP

105

would not, especially in short-term outlook, resolve problems related to sustainability of operations of

the Innovations centers. On the contrary, the public entity operations a center of this type will have a

comparatively better position due to its ability to received funding to operate the center from other

available sources with, as a rule, a larger pro rata portion of eligible costs.

Another reason of the expressed lack of interest ion support of PPP projects from OPEI is, in the

opinion of the authors, a general current lack of interest and confidence in PPP projects in the Czech

Republic which is based from insufficient (small number of projects in the Czech Republic, usually not

in areas supported from OPEI), or negative experience (large number of cancelled projects) with PPP

projects in the Czech Republic.

106

7. Recommendations

7.1. Recommendations for the current programming period:

With regard to the above, the authors of the present Methodology wish to make the following

recommendations to the OPEI programming period 2007-2013:

Not to implement, for the time being, a specific Call aimed at the support of PPP

projects, due to the verified insufficient absorption capacity, and due to the

impossibility to timely resolve issues related to state aid so that a Call with sufficiently

long deadlines could be announce, which would accommodate specifics of PPP project

preparation;

To consider, before the end of the current programming period, with reference to

the development of innovations centres under the PROSPERITY programme, a

specific Call to support consulting, that also would include consulting focused on

possibilities to solve potential issues of innovation centers by the application of the

PPP form of cooperation. Potential definitions of such Call should reflect the actual

development of these centers and their actual needs. A sufficient absorption capacity

and interest on the marker in such support should be a pre-requisite to such Call. The

contents of such Call is not possible, nor meaningful, to specify at this point of time.

7.2. Recommendations for the next programming period

With regard to the minor increase in the number of PPP projects recently, the authors of the present

Methodology assume that in the future there could be a greater development in cooperation in the

form of PPP. Following up onto such development it would perhaps be appropriate to consider, within

the framework of preparation of the operational programme similar to OPEI for the next programming

period, to build in a concept of a specific support for PPP projects.

107

We are of the opinion that in drafting of the future operational programme with focus similar to OPEI

it would be appropriate to:

Choose such approach to drafting of the new OP, that would enable such OP, aimed at

the support of industry and innovations, to support innovations in innovative PPP

projects, including those which have a cross-section effect on more areas, and

including regional PPP projects, which would contain a material innovative elements

(such as regional catering establishment which would provide catering to more public

entities within the region, with application of innovative production and logistical

technologies, innovative ecological regional enterprises processing bio-waste and

producing bio-fuels, i.e. with distinct elements introducing innovative technologies),

which would constitute indirect support of the industry and innovations in the given

areas and where the implemented PPP projects would profile themselves;

Continue in the support of the institutional partnership in the innovations sphere

(support offered to clusters and other similar groupings);

Consider the possibilities of support to the institutional forms of PPP in the area of

financial engineering – support of the creation of the venture-capital funds supporting

innovative activities of entities active in the existing innovations centers.

108

8. Conclusion

It is possible to conclude that the present Methodology confirmed the insufficient absorption capacity

for the support of the PPP projects under OPEI. A minimum amount of interest was expressed in

relation to investment into infrastructure within the framework of the model or similar example PPP

project, as well as in connection to the specific support of consulting. This expressed lack of interest is

in material extent related to the general lack of interest and lack of confidence in PPP projects in the

Czech Republic, which arises due to an insufficient number (small number of PPP project in the Czech

Republic, which usually do not fall within areas supported by OPEI), or negative experience (large

number of cancelled projects) with PPP projects in the Czech Republic.

The reasons why there is little interest in the market for such kind of support are also tied to certain

economic obstacles related to the entry of the private partner into activities supported under the

PROSPERITY programme, which was the focus of analysis carried out by the authors of the present

Methodology. The analysis of the model example showed that entry of private partner into the project

does not need, in every instance, to bring the typically higher value for money in relation to operation

of the innovations center due to the private partners reduced ability to cover operational losses for

various sources of available aid. As the analytical part of the Methodology verified, the entry of the

private partner may create obstacles in the area of fulfilling the purposes of the supported activities,

when a potentially conservative approach of the private partner could lead to the suppression of

function of the managed infrastructure and to reduction of the remedial effects on the failure of the

market in the area (i.e. that the park operations would be brought closer to the mode of operation of

the existing developer’s center of the logistic parks type, etc.).

The Methodology also points out to obstacles which relate to the law regulating state aid, where there

would be a need to consult the support to the PPP projects, or potentially the need to notify the

individual specific Calls, which would, in relation to the average length of the notification proceedings,

and in relation to the intensity of preparation of PPP projects and the a ‘n+2’ rule, would make any

specific support of PPP projects under OPEI impossible to implement, in practical terms.

Notwithstanding the described obstacles, it should be emphasized that in the authors’ opinion the

Czech Ministry of Industry and Trade already does the maximum that is possible, within the framework

109

of the current regulation of OPEI in the area of support of PPP, and in relation to the current situation

surrounding PPP in the Czech Republic, and that within the framework of the COOPERATION

programme it does provide support to the institutional forms of PPP by supporting innovative

groupings of the cluster type.

Regardless of the particular obstacles the authors of the present Methodology are of the opinion, that

specific support of PPP under OPEI, or similar programme during the next programming period, does

without doubt have substance, specifically in the filed of support provide to consulting in the PPP area,

as well as support of innovations and indirect support of industry in the form of PPP projects with

cross-section focus and effect and with innovative potential.

Documents

Possibilities to implement PPP within the Operational Programme Enterprise … · 2012-02-14 · Introduction ... Within the framework of the commissioned analysis and its more exact