Municipal Heating Reform Project Public Private Partnership Stocktaking Report
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Municipal Heating Reform Project Public Private Partnership Stocktaking Report December 2009 This publication was produced for review by the United States Agency for International Development. It was prepared by RTI International. Municipal Heating Reform Project Public Private Partnership Stocktaking Report Energy II IQC, Task Order 7 Contract No. EPP -1-09-03-00006-00 Prepared for United States Agency for International Development Prepared by RTI International 3040 Cornwallis Road Post Office Box 12194 Research Triangle Park, NC 27709-2194 RTI International is one of the world’s leading research institutes, dedicated to improving the human condition by turning knowledge into practice. Our staff of more than 2,800 provides research and technical expertise to governments and businesses in more than 40 countries in the areas of health and pharmaceuticals, education and training, surveys and statistics, advanced technology, international development, economic and social policy, energy and the environment, and laboratory and chemistry services. For more information, visit www.rti.org. RTI International is a trade name of Research Triangle Institute. The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the United States Government. Table of Contents Page Table of Contents ............................................................................................................... iii List of Table Boxes ............................................................................................................ iv List of Exhibits................................................................................................................... iv Acronyms........................................................................................................................... vi Executive Summary and Foreword......................................................................................1 1. Introduction....................................................................................................................2 2. Types of PPP Arrangements...........................................................................................2 2.1 Prevalence of PPP................................................................................................4 2.2 PPP in Different Sectors ......................................................................................6 3. Experience with PPP in CEE and Russia.......................................................................7 3.1 Central and Eastern European (CEE) Countries Experience...............................7 3.2 Latvia .................................................................................................................11 3.3 Lithuania ............................................................................................................11 3.4 Russia.................................................................................................................12 4. PPP in Ukraine.............................................................................................................13 4.1 Factors Favoring PPP Arrangements in Ukraine...............................................15 4.1.1 Public Finance and State Budget ...........................................................15 4.1.2 Market Size ............................................................................................15 4.1.3 Macroeconomic Conditions...................................................................16 4.1.4 Institutional Quality and Rule of Law ...................................................16 5. Public Private Partnerships and District Heating in Europe ........................................17 6. District Heating in Ukraine..........................................................................................20 6.1 Lack of Budget Funds........................................................................................21 6.2 Inadequate Tariffs..............................................................................................22 6.3 High Cost of Heat Production and Supply.........................................................23 6.4 Inflexible Technical Design (constant flow/variable temperature) ...................23 6.5 Arrears................................................................................................................23 6.6 The Case for PPP in Ukraine .............................................................................24 7. Analysis of Private Investment in Municipal Heat Supply..........................................24 7.1 Concession .........................................................................................................26 7.2 Leasing...............................................................................................................27 7.2.1 Unfavorable PPP Leasing Experiences..................................................29 7.3 PPP Water Projects in Ukraine ..........................................................................31 8. Lessons.........................................................................................................................32 8.1 Lack of Stability and Predictability ...................................................................32 8.1.1 Recommendation ...................................................................................32 Municipal Heating Reform Project—Public Private Partnership Stocktaking Report iii 8.2 Lack of Trust and Sustainable Cooperation.......................................................32 8.2.1 Recommendation ...................................................................................33 8.3 Lack of Financial Accountability and Risk Management..................................33 8.3.1 Recommendation ...................................................................................34 9. Conclusion and Further Actions...................................................................................35 9.1 Regulatory and Contractual Framework............................................................36 9.2 Institutional Capacity to Prepare District Heating Projects ...............................36 9.3 Transparency and Accountability ......................................................................37 Attachment I: List of Sector Basic Enterprises (according to data of the Ministry of Housing and Communal Services of Ukraine) ...............................................38 Attachment II: Information on Tariffs for Heat Supply Services at Basic Enterprises as of September 1, 2009..................................................................................47 List of Table Boxes Box 1. Detailed disclosure requirements for PPPs ............................................................34 Box 2. Disclosure requirements for guarantees .................................................................35 List of Exhibits Page Exhibit 1: Number of Projects by Type of Private Participation in Europe and Central Asia...........................................................................................4 Exhibit 2: Number of Projects by Primary Sector for Europe and Central Asia ..............................................................................................................5 Exhibit 3: PPP by Sector in the UK..............................................................................6 Exhibit 4: PPP by Sector Outside of the UK ................................................................7 Exhibit 5: PPP Projects in Upper-Middle Income Countries in Central Europe and Asia ...........................................................................................8 Exhibit 6: PPP Water Sector Projects in Upper-Middle Income Countries in Europe and Central Asia ........................................................................10 Exhibit 7: Total Projects by Primary Sector and Subsector (US$ million) ................13 Exhibit 8: Total Number of Projects by Type and Primary Sector .............................14 Exhibit 9: Selected PPP Investment............................................................................14 Exhibit 10: PPP Activity in Ukraine .............................................................................15 Exhibit 11: Investment in Energy Projects with Private Participation in Europe and Central Asia, by Subsector, 1990–2008..................................17 Exhibit 12: Investment in Electricity Projects with Private Participation in iv Municipal Heating Reform Project—Public Private Partnership Stocktaking Report Developing Countries, by Segment and Implementation Status, 2005–2008..................................................................................................18 Exhibit 13: Total Investment in Electricity Projects with Private Participation in Developing Countries, by Segment, 1990–2008..............18 Exhibit 14: District Heating PPP in Western and Central Eastern Europe ...................19 Exhibit 15: Ukraine Planned v. Actual Expenditures, 2009 .........................................21 Exhibit 16: Heat Production and Supply Business Entities with Private Sector Ownership.......................................................................................25 Exhibit 17: Heat Supply Leasing Companies in Ukrainian Cities................................26 Municipal Heating Reform Project—Public Private Partnership