State Will Pay: PPP without Profit

In implementation of PPP projects within the framework of concession agreements the investment of private investors are paid back, in accordance with Russian laws, either through raising charges of the population for services of using the facilities or through the public partner’s payments.

The grantor’s (state’s) payment at the operation stage of concession agreement is made in favour of the grantee (private company) for availability of the facility for users. The legislation provides for several kinds of budget allocations for financing of activities of private legal entities in interests of the state — in the form of budget investment and budget subsidies.

The grantor’s payment will be used, for example, for financing, construction and fee-based operation of the high-speed car road M-11 “Moscow-St. Petersburg” in the territory of 543–684 km with the total cost of 89.15 billion rubles. 52 bridges and cross-overs, 3 road interchanges and one tunnel will be built. The public partner on behalf of the Russian Federation is SC “Avtodor”, which will finance 75 % of the project cost. The private investor has to build and operate the facility during 24 years, including repair works, as well as to raise road charges in favour of the state.

According to the current legislation of the Russian Federation, the grantor’s payment can be used as a mechanism of investment return only on condition of implementation of such projects as car roads and associated constructions. Besides, if investment return is based on the grantor’s (state’s) payment, the investor no longer has the right to charge consumers of the services for creation, reconstruction or operation of the facility in his favour.

The existing terms of using such a tool in PPP projects as the grantor’s payment excessively limit infrastructure development, especially in other fields, where return of investment exclusively through charging consumers of services is impossible, not evident or extended for decades.

To solve the given problem, on July 21, 2014 Federal Law № 265 was passed, according to which on February 1, 2015 the grantor’s payment can be established in respect of any facilities without any exceptions, including schools, hospitals, stadiums and co-generation plants. Besides, should this payment not cover the private investor’s expenses (including his profit from the project) to the extent of 100 %, he is entitled to charge other parties.

Still, many issues related to the grantor’s payment in the project remain unsolved, which include the concessional payment structure, taxation, exceeding budget planning terms and others.

Nevertheless, some changes of the Russian legislation testify to the fact that the state gradually learns to listen to businessmen and business consultants and to take decisions that are economically feasible and advantageous for both parties.