PPP projects under scrutiny, Ministry of Finance adopts new criteria

2025-09-25 19:25:48, Ekonomi CNA

Every project proposed through the Public Private Partnership (PPP) model will have to be accompanied by a feasibility study according to new criteria approved by the Ministry of Finance.

According to the guidance, projects will have to undergo a detailed qualitative and quantitative analysis to justify its efficiency compared to the traditional model.

The Instruction "On determining the methodology for preparing a full feasibility study and a simplified feasibility study" stipulates that every high-value investment project will be subject to a feasibility analysis.

But PPP projects are required to undergo detailed "Value for Money" and "Quantitative Value for Money" analyses, combining a comparison between the costs and benefits of the PPP model and the traditional one of project implementation by the state.

The analysis includes qualitative assessments of social benefits, risk sharing, market appetite and potential innovation, as well as a detailed financial comparison to see if PPP actually brings savings to the state.

The guideline stipulates that if, after comparing two ways of implementing a project through PPP or with traditional state financing and implementation, it turns out that PPP brings more benefits (i.e., has higher value for money), then it is considered the more efficient way.

To make the final decision, both qualitative (non-financial benefits) and quantitative (financial calculations) analysis must be conducted, as well as seeing if there is market interest (i.e., private companies that are willing to take on the project).

If it is decided that the project will be implemented through PPP, the proposing institution must also provide other details: how much the project will cost, how many years the contract will last, what the maintenance costs will be, and any other information necessary for the preparation of the tender according to the law on concessions and PPPs.

11. Value for money analysis for public private partnerships

11.1 Methodological approach This chapter applies only to projects to be implemented under the PPP modality. PPP is an implementation modality that can be used in public projects, when justified. The analysis that compares the efficiency of project implementation under the PPP formula compared to the traditional formula of implementation by the public entity is called “Value for Money” analysis.

14. Value for money analysis should be carried out for each PPP project, once its feasibility (including economic effectiveness) has been confirmed. Its purpose is to answer the question of whether the project under consideration should be implemented using the PPP or the traditional method. Value for money analysis should be carried out for projects that have been shown to be potentially feasible using the PPP modality at the stage of completing the investment project concept form, when the preliminary reasons for considering this approach should have been identified. Value for money analysis includes qualitative analysis and quantitative analysis.

11.2 Qualitative value for money analysis

The qualitative value for money analysis should consider the benefits that can be obtained from a societal interest perspective in the following areas:

1 Project scale – Is the project scale sufficient that any efficiency improvements can offset the procurement costs?

2 Time required to complete the project – Will using the PPP mode for project implementation allow for faster project implementation? – Will using the PPP formula reduce the risk of delays compared to the traditional model?

3 Division of tasks – Will the implementation of the project, using the PPP modality, allow for the provision of better quality infrastructure in the long term compared to the traditional model? – Is an increase in the quality of services provided within the PPP project? Can the same level of service quality be provided in the traditional model? – Does the private partner have greater experience/expertise than the public partner in providing services? – Are specialized competencies required for the implementation of the project?

4 Risk sharing – Will the private partner be able to manage the risks transferred in the PPP mode better than the public entity? – Can these risks be transferred to contractors in the traditional investment implementation model?

5 Project duration costs – Is the project relatively complex so that private partners can provide innovative design, construction and management solutions that together can create synergies for increased efficiency? – Is there potential for innovation? Is it different for investment implementation models?

6 User and third-party fees – In the PPP model, can the private partner obtain additional revenue by reducing user fees?

7 Public Fund Expenditure Profile – Have the benefits of establishing long-term project costs been identified? – Will the use of the PPP model allow the public entity, for a given project, to carry out other projects thanks to the greater availability of funds in the short term?

8 Market appetite – Is there evidence that there are sufficient potential private partners with the appetite and capacity to deliver the project? – Does the nature of the transaction (e.g. its strategic importance) suggest that it will be seen by the market as a profitable venture?

9 Ability to determine and monitor results – Can the results and quality of contract implementation be easily monitored?

10 Future demand characteristics -Is the demand for the services provided under the project subject to rapid changes due to changes in technology?

If the answers to the above questions indicate at most that the project has a chance of being successfully implemented in the PPP formula, you should move on to the quantitative analysis.

11.3 The quantitative value for money analysis is based on a comparison of the public sector financial flows in the two scenarios. For this purpose, it is necessary to build a financial model for the implementation of the project in the traditional formula (discounted cash flow method), the so-called Public Sector Comparator (PSC).

The present value of the public sector cash flows is compared to the present value of the public unit cash flows in the PPP model over the same analysis period, using the same interest rate.

When developing the public sector comparative model, which presents the cash flow projection for the scenario in which the public authorities implement the project, it is necessary to consider several important steps to make it comparable with the PPP model.

If, as a result of comparing the present values ??for both delivery models, the resulting present value of the public entity flows in the PPP model is higher than the estimated PSC values, this indicates a higher efficiency of the PPP mode. Finally, the decision to choose the project implementation method should be based on qualitative and quantitative analysis, including market testing, which should provide an answer to what extent the market can complete the project within the assumed parameters.

In case of selecting the PPP option as the best form of implementing a project, the proposing institution must also submit estimates on the estimated value of the contract, the proposed duration of the contract, as well as any other information necessary for the preparation of the tender documentation, maintenance costs, etc., in accordance with the legislation on concessions and PPP./ Monitor