Annex S.1 - Evaluating readiness for public-private partnerships in the transition region

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Structural reform

The development of public-private partnerships (PPPs) for infrastructure investment in the transition region has had a mixed history. Progress has been slower than anticipated and has been influenced by external market conditions and political considerations which can mask the underlying readiness of a country to develop PPP projects. The EBRD, in collaboration with the Economist Intelligence Unit (EIU), has therefore developed a "readiness index" that measures the capacity of countries to carry out sustainable PPPs, trying to subtract from cyclical factors that could inhibit the successful implementation of PPPs.¹

The index is based on a methodology developed by the EIU in 2009-10 for Latin America and the Caribbean and the Asia-Pacific region with the Inter-American Development Bank and Asian Development Bank, respectively. This makes it possible to compare countries both within and across different regions. The analysis looks at PPP policies and regulations, standards and practices, relevant country experiences and attitudes towards private participation in infrastructure provision.

Methodology

The index compares countries across six broad categories spanning the PPP project life-cycle from inception through implementation and oversight to termination. The aim is to measure the quality of project implementation and the longer-term sustainability, quality, and efficiency of such projects. There are 19 indicators, 15 of which are qualitative and four quantitative (see Table A.S.1.1).

Data for the quantitative indicators are drawn from the World Bank Public-Private Infrastructure Advisory Facility database and from the EIU's Risk Briefing service. Estimates have been made for data gaps. The scoring of qualitative indicators, ranging from 0 to 4, is based on a range of primary sources (legal texts, government websites, press coverage and interviews), secondary reports and data. Scores for all indicators are normalised on a scale of 0 to 100. The index is calculated as a weighted sum of the six category scores, and expressed on an overall scale of 0 to 100 for a country, where 100 represents the ideal environment for PPP projects.

Results

Table A.S.1.2 shows the PPP readiness scores for 25 transition countries.² Overall, Croatia received the highest score, primarily due to its mature legal, environmental and institutional capacity. Lithuania and Slovenia are also in the "developed" group of countries – equivalent to Brazil and Mexico in Latin America and India and Japan in the Asia-Pacific region. The biggest group – from Latvia in fourth place to Montenegro in nineteenth – is classified as "emerging", while the bottom six countries are considered "nascent".

In general, CEB countries gained the highest rankings on account of their relatively strong legal frameworks and institutions, established procurement practices and the capacity of their governments to support low-income users. SEE countries were both above and below average, although most scored under 50 per cent indicating the need to make the environment for PPP projects more business-friendly. EEC and Central Asian countries, apart from Russia (which ranked eighth), were below the regional average as laws and institutions remain underdeveloped.

Room for improvement

Areas for improvement differ significantly by country. Those grouped in the "developed" category still require experience and a track record, as their laws and institutions, although in place formally, have not always been tested.

In contrast, countries in the "nascent" category need to focus on building their legal frameworks and institutions. Most countries in this group are relatively isolated from key markets and are therefore of less interest to investors. Extra effort is required to make the business environment more attractive. In the "emerging" group, countries need to continue to improve institutions and also to gain more transaction experience.

Across the whole transition region, consistent political will is essential to attract investors. All countries should pay more attention to domestic market factors, such as the development of local financial and capital markets, the expansion of local construction and the fostering of legal and advisory firms.

PPP readiness assessments – country profiles

1. The report, its unofficial Russian translation, and an Excel-based learning tool kit were published in July 2013 and can be downloaded from http://www.eiu.com/EECISInfrascope2012. [back]
2. Note that the study does not cover all EBRD countries of operations. It excluded those countries where PPPs are absent or where there is no political willingness to develop such projects (for example, Turkmenistan) and also new member countries (Kosovo and the SEMED region). [back]

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