Various types of public-private partnerships (PPP) are gaining popularity in Russia. Authorities invite entrepreneurs to launch joint projects at sites of federal, regional, and municipal ownership. PPP envisage diverse mutually beneficial cooperation between authorities and businesses.
Moscow took a lead in promoting various forms of PPP by inviting businesses to solve local problems. Since 2013, Moscow’s PPP contracts exceeded RUB 900 bln ($16.8 bln).
“Moscow’s main advantages are substantial demand for services, high return on investment, and easy access to financial, labor and other resources. The local government designs and implements new mechanisms of cooperating with businesses. Investors in PPP projects can also enjoy substantial cuts in income, property, and land taxes, as well as reduced land rent,” Leonid Kostroma, Director of Moscow Investment Agency, says.
By partnering with business, Moscow authorities solve one of the main challenges, namely, traffic problems, through employing concessions, a classic form of PPP which permits developing infrastructure projects of social significance through investors’ funding, whereas the capital city receives an operational facility (while retaining a title thereto), and business generates revenue by providing services for a set period of time. Currently, a high-speed road of a throughput of over 40K vehicles per day (estimated investment is RUB 40 bln ($615 mio)) and a cableway (estimated investment is RUB 3.16 bln ($48.6 mio)) capable to transport 19K passengers per day, are being advanced through a concession mechanism.
Along with the concession, Moscow city government employs quasi-PPP in the form of public procurement. In the public transportation, the municipal authorities make life-cycle contracts (LCC), envisaging procurement of goods subject to their further maintenance and repair by the supplier throughout the entire lifetime. The government of Moscow has made three LCC (RUB 19.3 bln ($297 mio) in the aggregate) on purchase and subsequent maintenance of 300 electric buses and 98 charging stations for them. In 2019, Moscow plans to acquire 300 electric buses. Since 2021, the city will stop purchasing diesel buses for its needs. Over the past five years, LCC in public transportation amounted to RUB 435 bln ($6.7 bln).
Since 2017, Moscow government has been also making offset contracts, under which goods are purchased for municipal needs subject to investor’s obligation to localize their production. For business, offset is, first of all, a long-term guarantee of supply of products, since the capital city is one of the largest and most reliable public customers.
To date, Moscow has entered into two offset contracts – with Biocad and R-Pharm – envisaging localization of production and the subsequent supply of medicines for municipal needs. The aggregate investment in the two offsets is RUB 8.8 bln ($135 mio), the anticipated supply scope is RUB 32.4 bln ($496 mio). In the future, the authorities of the capital city intend to also make offset contracts in industries such as transport engineering, manufacturing of machinery and materials for housing and public utilities, IT equipment, medical products and food.
Through PPP, Moscow government progresses with implementing a project of launching 251 transport hubs at metro lines (both under construction and already in operation), the Moscow Central Circle, and urban rail transport.
“19 sites have already been handed over to investors. This involves approximately RUB 134 bln ($2.1 bln) of investments, and the aggregate program provides for investments of over RUB 700 bln ($10.8 bln). Within the framework of already concluded contracts, investors will launch sites of a total area of up to 1.68 mio square meters of the total area of 9 mio square meters within the entire program, including technological sites (stations, transport stops, road network) and commercial facilities that will allow businesses to get back investments in infrastructure,” Leonid Kostroma said.