The Increasing Role Of The “Kazakhstan Private-Public Partnership Center" JSC in Promoting PPP Projects


Research Paper (undergraduate), 2017

23 Pages


Excerpt

Table of Contents

Abstract

Introduction

I. Definitions in the PPP Context of Kazakhstan

II. Brief Overview of the PPP Legal Framework in Kazakhstan

III. PPP Center JSC

IV. Selected Project Cases
4.1 Prior to establishment of the PPP Center
4.1.1 The Shar-Oskemen railway project
4.2 After/Around 2008 establishment of the PPP Center
4.2.1 The BAKAD (Almaty Ring Road) Project
4.2.2 Construction of the Korgas-Zhetygen Railway Line

V. Analysis of Risks Applied to Concession Projects in Kazakhstan

VI. Research Findings

Concluding Remarks

References:

Appendices

Abstract

This research paper aims at analyzing the role of “Kazakhstan Private-Public Partnership Center” established in 2008, through the prism of the existing, as well as the newly emerging, legal framework on PPPs[1] ; the roles of the Kazakh government and key stakeholders primarily the Ministry of Economic Development and Trade, and the Ministry of Finance. The paper also explores the risks associated with implementing PPP projects in the context of Kazakhstan, generally divided into public sector, private sector, and common risk groups. A selected number of project cases are presented to better illustrate the evolution of PPP projects before and after the PPP Center was established. The ultimate research question the paper attempts to answer is what impact the introduction of the PPP Center has made on implementing PPP projects in Kazakhstan.

Introduction

In his annual address to the people of Kazakhstan as of December 2012, President Nursultan Nazarbayev highlighted the importance of implementing “Kazakhstan-2050” Strategy (Akorda.kz, 2012). The major political goal behind the Strategy is to “enter the club of top 30 most developed countries of the world” by 2050 (Appendix 1). The cornerstone for achieving this goal is to shape economic policy of the new course through universal economic pragmatism based on principles of profitability, return on investment, and competitiveness. The concept of universal economic pragmatism is defined as to include the following: 1) economic feasibility and long-term interests; 2) defining new markets; 3) establishing a favorable investment climate; and 4) creating an effective private-sector economy and developing the networks of PPPs (Akorda, 2012). The government’s newly developed PPP model is built on the basis of “strong business – strong state” relationship. To effectively develop the PPP principle, the process of business consolidation should be continued, thus inviting all entrepreneurs to jointly implement the new strategy.

As of 2013, the poverty headcount ratio was 2.9% (World Bank, 2015). This figure is remarkably different from nearly 32% in 2005, 18% in 2006, and 12% in 2008. It was the period with relatively higher poverty levels, e.g. 2005-2008, which necessitated undertaking urgent measures for large-scale improvement and expansion of the deteriorated infrastructure inherited from Soviet economy generally, and specifically to reduce the spread of tuberculosis, improve water quality, and expand infrastructure corridors (USAID, 2008). For this reason, “Kazakhstan Private-Public Partnership Center” JSC (hereinafter the “PPP Center”) was established under the Ministry of Economic Development and Trade with the goal to offer “methodological and methodical support to implementation of concession projects” (UNECE, 2009, p.3).

I. Definitions in the PPP Context of Kazakhstan

PPPs are viewed as a special type of cooperation between the government and the private sector to share financial risks in the areas of social and infrastructure development, and attracting foreign investment (Dalrymple et al., 2013). In the context of Kazakhstan, a primary type of PPP has been concession, with the main model being based on the build-operate-transfer (BOT) structure (PPP Center, 2015). Kazakhstan wishes to appear as to be implementing the best global practices in pursuing infrastructure projects (Dalrymple et al., 2013). PPP implementation is expected to bring the following benefits to Kazakhstan:

- greater cost effectiveness and time efficiency in managing infrastructure projects;
- integrating modern technology into public infrastructure;
- risk sharing, and expanding financing options for infrastructure projects (In Dalrymple et al., 2013).

Ramakrishnan (2015)[2] offers an interesting hierarchy of various PPP models depending on the degree of private sector involvement. As demonstrated in Table 1, “operations concessions”, as the form of PPP currently implemented in Kazakhstan, lies in the middle of the hierarchy.

Table 1 “Range of PPP Models Based on the Degree of Private Participation”

Abbildung in dieser Leseprobe nicht enthalten

Source: This table is reproduced from Ramakrishnan (2015).

Concession is one the forms of PPP, which allows the private sector involvement to manage and finance the objects of infrastructure, along with the provision of services, which are usually provided by the government on mutually beneficial terms (PPP Center JSC, 2015). As shown in Figure 1 (p. 3), concession is a contractual type of PPEs as defined by the PPP Center. Figure 2 (p. 4) shows the applicability of one specific form of concession most commonly used in the context of Kazakhstan, e.g. BOT (build-operate-transfer). Thus, Kazakhstan developed certain experience of PPP projects throughout the 1990-s despite the economic turmoil across nearly all former Soviet Union nations. The first Law “On Concessions”, adopted in 1991 to regulate administrative, economic and legal environment concession contracts only for foreign investors, was then applied to four infrastructure projects with the Development Bank of Kazakhstan and three concession projects with the government of Kazakhstan. However, the law was largely viewed invalid by early 1993 (Chikanayev, 2012).

In the absence of a specific concession law in 1993-2006, the following concession projects were implemented over this period, which relied on the Civil Code:

(i) July, 2005 – implementation of the concession project on construction and operation of the Shar-Oskemen[3] railway;
(ii) December 2005 – execution of the concession project on construction and operation of “North Kazakhstan – Aktobe” inter-regional power line (See also Appendix 2).

Figure 1 Institutional and Contractual Types of PPP

Abbildung in dieser Leseprobe nicht enthalten

Source: PPP Center JSC (2015a)

Figure 2 Concession as the primary form of PPP applied in Kazakhstan

Abbildung in dieser Leseprobe nicht enthalten

Source: PPP Center JSC (2015a)

II. Brief Overview of the PPP Legal Framework in Kazakhstan

The PPP legal framework of post-independent Kazakhstan includes the following laws and legal acts (these exclude other numerous bylaws and regulations):

- Kazakhstan’s Constitution,
- The Civil Code,
- National Law “On Concessions”,
- National Law “On Investments”,
- National Law “On State Property”,
- The Tax Code,
- The Land Code,
- The Budget Code,
- Law “On Securities Market”,
- Law “On Project Finance and Securitization”,
- Law “On Special Economic Zones”,
- Law “On Natural Monopolies”,
- Law “On State Support of Industrial Innovative Activity” (Chikanayev, 2012).

The existence of a whole myriad of various laws and legal acts in Kazakhstan can be explained by a lack of a specific comprehensive law that would deal with all types of PPP structures. The most important concession-related part among the legislative framework is the Law “On Concessions”. This law is not industry specific, thus state-owned assets can be transferred from any industry under concession terms. The law, however, does not cover subsoil use issues that are regulated under the national Law “On Subsoil” (Chikanayev, 2012).

In addition to the Law “On Concessions”, other forms of PPP, primarily including BOOT (build-own-operate-transfer), are allowed under the national legal framework, based on the concept of freedom of contract recognized under provisions of the Civil Code. However, given a lack of a comprehensive law to deal with all forms of PPP, the risk remains that the inflexible tender rules may apply to a non-concession PPP if based solely on the freedom of contract concept. Thus, the private sector has to make its own judgement as to how such inconsistency can be resolved. To address this issue and to try to embrace other forms of PPP, a draft PPP law is now under review by the Kazakh parliament.

Under the draft PPP law, the definition of concession is amended to embrace other forms of PPP, such as BOT (build-operate-transfer), BOO (build-own-operate), DBFO (design-build-finance-operate) under the terms of the concession contract (Appendix 3). Furthermore, the draft law introduces the concept of PPP defined as cooperation between the state and private actors aimed at financing, building, reconstructing, modernizing and/or exploiting social infrastructure and provision of services. The draft law also stipulates a possibility of retaining a concessionary facility under private ownership subject to specific contract terms, while the current Law “On Concession” strictly states that concessionary property remains under state ownership. Finally, the new law is expected to simplify the concessionary’s qualification conditions: instead of the current law’s requirement for the concessionary to have their own capital of 20% concession value, this will be 10%, or the concessionary will need to obtain a bank’s guarantee for an equivalent of the 10% concession value (Chikanayev, 2012).

Apart from a myriad of laws with various degrees of force over concession, there are also a number of various public institutions that govern and regulate the project finance industry and PPPs in Kazakhstan. For instance, the Law on Concessions adopted in 2006 sets the responsibilities of the following major government bodies in relation to concession projects specifically (mainly excluding other types of PPPs):

(i) The Government of Kazakhstan:

- approves the list of concession projects to be implemented in a mid-term perspective;
- and approves tender/bid terms rules to select the concessionaire.

(ii) The Ministry of Economic Development and Trade:

- engages a specialized organization (e.g. the PPP Center) regarding concession-related issues. It also analyzes and reviews concession proposals and feasibility studies;
- establishes the list of concession projects accounting for the outcomes of economic feasibility studies, and then submits it to the government; and
- approves bid/tender documents, concession contracts and any amendments thereto.

(iii) The Finance Ministry:

- approves bid/tender documents and draft concession contracts and amendments, if the object of concession is state property owned by the government of Kazakhstan (thus, excluding municipal state property);
- registers concession obligations;
- executes state guarantee agreements as applied to concession acting on behalf of the state;
- monitors the implementation of concession contracts;
- accepts property formed under concession contracts into state ownership. (Chikanayev, 2012).

III. PPP Center JSC

As evident from the list of responsibilities for each of the major government bodies outlined in the previous section, the PPP Center operates under the Ministry of Economic Development and Trade. Its sole shareholder is the Government of Kazakhstan represented by the ministry. The PPP Center is responsible for evaluating concession projects throughout their preparation, including investment proposals, feasibility study, bidding/tender documentation, and concession contracts (Chikanayev, 2012). It is interesting to note that city governments of Oskemen and Karaganda opened their own PPP centers to boost regional development, respectively.

The absolute significance of the new PPP Center is undeniable. Established in 2008, the Center was introduced at a time when the Law “On Concessions” had been adopted two years earlier, the state had gained only certain experience in developing PPP projects primarily based on concessions, and global economy was undergoing a financial crisis with further repercussions on implementing international PPP projects across borders. Furthermore, this was the time when the poverty level still remained relatively high at 12%, which had also spurred establishing this institution (World Bank, 2015). The PPP Center was introduced with the mission of uniting the state and business capabilities to bring benefits to the people of Kazakhstan (PPP Center 2015b).

The Center has stipulated the following goals, which can be broken down into short-term, medium term, and long-term goals:

- Short-term goals (2012-2014) : complete the introduction of amendments to the current PPP legislation to broaden the scope of PPP applicable in Kazakhstan and introduce new types of PPP contracts to better engage foreign investment cooperation; and to boost the interest of the business sector and the state in implementing PPP projects.
- Medium-term goals (2012-2017) : five-fold increase in the number of operated facilities using PPP mechanisms; and developing human capacities based on PPP skills.
- Long-term goals (2012-2022) : to establish a sustainable structure of PPP partnership in Kazakhstan, according to the best international practices (PPP Center, 2015b).

Although it is too early to draw any definitive conclusion regarding the operational efficiency of the PPP Center, one of its short-term goals is yet to be implemented. As explained earlier in Section I, the draft PPP law which seeks, among other things, to expand to other forms of PPP, is still in the “waiting list” of parliament agenda. This signals the necessity for the PPP Center to more accurately assess, and possibly revise, some of its stated goals.

Furthermore, other issues remain. First, in terms of organizational structure, the Center reports to the Ministry of Economic Development and Trade. Thus, as of now it can hardly pursue its agenda in the true interests of the national private sector and foreign investors. Furthermore, scope of the Center has been rather broad, as it considered PPP projects in which a government agency would partner with a quasi-state organization (Dalrymple et al., 2013). While this would not qualify as a PPP project in the developed world but rather a partnership of public entities, in the legal context of Kazakhstan it is viewed as a PPP. In general, PPPs are perceived in broad terms in Kazakhstan, which may be related to the wide scope of the PPP Center, accordingly.

IV. Selected Project Cases

PPP projects throughout Kazakhstan have been largely carried out in transportation e.g. railway and airports, and energy sectors (Mouraviev et al., 2012). Regarding railway PPPs, there have been three major projects either planned for implementation or already implemented, including the Shar-Oskemen railroad in the East Kazakhstan region (already implemented), a segment of railroad between Yeralievo and Kuryk near the Caspian Sea in the west, and a segment of railroad between Khorgas and Zhetigen in the east (Appendix 4). A number of concession project cases – one implemented before the PPP Center was established, and the rest implemented afterwards – are given below to observe evolution of PPP projects in Kazakhstan since the 2000s.

4.1 Prior to establishment of the PPP Center

4.1.1 The Shar-Oskemen railway project

Following the collapse of the Soviet economy, Kazakhstan inherited poor infrastructure, which necessitated a different degree of upgrading for almost every piece of infrastructure, such as roads, power plants, and the public utilities system (Chikanayev, 2012). The Shar-Oskemen infrastructure concession project has enabled to resolve several infrastructure bottlenecks across the country. The line connects the railway junction of Ore Altay (with cities of Oskemen, Ridder, and Zyryanovsk) by the shortest route with the Turksib[4] main transit line at Shar station, further allowing East Kazakhstan region’s access to the other regions of the country. The transportation distance as compared to the pre-existing route has been shortened by 311 km, hence eliminating the need to pass double customs control and travel 82 km across Russian territory. The passenger and cargo delivery time should now be accelerated by 12–14 hours. This road project is both socially and economically significant, since it has boosted passenger volumes and favorably impacted regional competitiveness of East Kazakhstan products in the markets of the rest of Central Asia, Iran, Afghanistan etc. (Tashimov, 2008).

[...]


[1] A more general term “PPP” is included here, instead of “concession” for good reason. As explained in the remaining part of the paper, the PPP agenda in Kazakhstan is now expanding to include other forms of PPP, such as BOT, BOO, DBFO, etc.

[2] V. Ramakrishnan presented an interesting and thought-provoking guest lecture as part of class PP6704 “Economics of Public Policy” with Professor Mukul Asher, semester 2, 2015.

[3] Shar is a small town located in the East Kazakhstan region. Oskemen (also spelled Ust’-Kamenogorsk in Russian) is the capital of the East Kazakhstan region.

[4] Turkestan-Siberia railway network connecting Central Asia with Siberia

Excerpt out of 23 pages

Details

Title
The Increasing Role Of The “Kazakhstan Private-Public Partnership Center" JSC in Promoting PPP Projects
College
National University of Singapore  (Lee Kuan Yew School of public policy)
Author
Year
2017
Pages
23
Catalog Number
V356446
ISBN (eBook)
9783668426726
ISBN (Book)
9783668426733
File size
1937 KB
Language
English
Tags
kazakhstan, public-private partnership, PPP, Central Asia, Former Soviet Union
Quote paper
Mergen Dyussenov (Author), 2017, The Increasing Role Of The “Kazakhstan Private-Public Partnership Center" JSC in Promoting PPP Projects, Munich, GRIN Verlag, https://www.grin.com/document/356446

Comments

  • No comments yet.
Read the ebook
Title: The Increasing Role Of The “Kazakhstan Private-Public Partnership Center" JSC in Promoting PPP Projects



Upload papers

Your term paper / thesis:

- Publication as eBook and book
- High royalties for the sales
- Completely free - with ISBN
- It only takes five minutes
- Every paper finds readers

Publish now - it's free