Country profile Czech Republic

PPPs in the Czech Republic - time to wake up

Introduction Czech Republic is a beautiful country in the middle of Europe with very turbulent history. The 20th century was very dramatic for us, with 7 regime changes and almost 50 years of communist reign. Since 1989 the public matters came back to Czech hands again and Czechs came back to the democratic Europe where they belong. We became members of NATO in 1999 and European Union in 2004 (not the monetary union), started economic reforms and became the healthiest economy in Central Europe. Czech Republic was significantly affected by economic downturn in 2009, but its economic health compared by the public debt (42 % of GDP) criteria is still better than most of the other Euro countrys and its growth went back into black numbers recently.

Czech republic - Macroeconomics

3 950 3 900 3 850 3 800 3 750 3 700 3 650 3 600 3 550 3 500 2007 2008 GDP CZ (mil CZK) 2009 2010 GDP CZ growth (%) 2011 est. 2012 est. 2013 10,00% 8,00% 6,00% 4,00% 2,00% 0,00% -2,00% -4,00% -6,00%

GDP EU12 growth (%)

PPP in Czech republic PPP is not very common method to procure public infrastructure and services in Czech Republic. It has a short history of project failures and declines in political support. First mayor project was unsuccessful D47 (highway in Northern Moravia region) DBFO project in 2002, which was awarded to Israeli company Housing & Construction in unclear tender procedure. This contract was terminated and Czech state has paid big penalties. The biggest chance for PPPs was in 2005 when socialistic government prepared ambitious set of projects. Project Prison in Rapotice Overall project value (nominal) DBFO middle security prison Approx. 280 mil Eur in Moravia for 500 prisoners. The DBFO combined project Approx. 220 mil Eur of a lodging house for medical staff, a hotel-type lodging house and a parking lot in Prague. Description current stage Approved OBC, project is currently terminated Preferred bidder was selected but the contract was prematurely terminated by new conservative

Central military Hospital, Prague

Adam Zdenk economic advisor gsm: +420 739 062 703 email: adam.zdenek.ep@gmail.com

Country profile Czech Republic Project Description Overall project value (nominal) Approx. 1,6 bil Eur current stage government OBC is finished but not approved by government. Value for money test didnt do well. Project is currently terminated. OBC is finished but not approved by government. OBC is finished, approved by government. But recently it is reanalyzed but the project got the green light from current government.

AirCon express

DBFO high speed railway line connecting Pragues airport with city center.

Justice Court in Usti nad Labem D3 highway

DBFO project for Justice court in City of Usti nad Labem. DBFO highway project in southern bohemia with length approx 70 km.

Approx 200 mil EUR

Approx 1,20 bil EUR

After the unsuccessful election for socialists in 2006 and change in government, these so-called projects were mostly iced. There are several factors, why this has happened. One of them is the lack of political support of PPPs, within the whole political spectrum; the other is lack of intellectual capacity within public sector employees and the other is the wrong selection of pilot projects. To this matter the only, almost, implemented project the Central military hospital was unsuccessful because the project scope was too diversified (combination of public service and hotel for commercial customers) and came in the wrong time. The commercial close was in 2009 in a peak of debt crisis, so the project was majorly affected by scariness of the banks on Czech market to finance hotel projects. The other factors were problems with Czech legislative framework, still mostly determined by the communist regime. But there are some successful examples on municipal level in parking sector, senior living, waste management, water management, sport and leisure, energy generation and municipal lightning. Legal system The Czech Republic is a civil law jurisdiction operating with Civil Code and is relative stable. Main law changes are driven by EU legislation harmonization changes or following development by related ministries. Czech Republic has a public procurement act and additional concession law just for concessions. And concession is meant as PPP project defined by two main aspects the project is financially freestanding and there is a risk transfer to private sector. So the big projects with availability based payment mechanism are usually procured through public procurement act, which had some links to concession act, but recently after a anti-corruption novelization of that act are PPPs procured as any other projects.

Adam Zdenk economic advisor gsm: +420 739 062 703 email: adam.zdenek.ep@gmail.com

Country profile Czech Republic Procurement of Czech infrastructure recently Czech public services and infrastructure needs a lot of investments. It suffered a lot during the communist reign. Still the level of services is very low and there is a lot of space for improvement. The most used instrument to finance public infrastructure is combination of budget or debt money with EUs Structural funds1. However sometimes it is risky, because, as it appeared in Czech Republic the misused money needs to be handed back to Brussels, so there is a double payment for the infrastructure in case of random or intentional mistake. There is allocated approx 17 billon Euro for period from 2007 till 2013 for infrastructure spending, most of it for transport infrastructure But these funds are not to going be available forever, in the nest programming period (2012-2020) we can expect less funds and there are some serious issues with this type of funding. Necessary funds for the infrastructure needs of the Czech can be counted in the order of hundreds of billions of crowns. Highway, public transport, water supply, affordable housing - finance is missing everywhere. Several attempts to involve the private, ie bank finance in PPP projects were under way and, unfortunately, not always, and especially the most visible projects successfully. Market outlook Czech is relatively healthy economy with strong need for infrastructure investments in all sectors. Due to rigid attitude to procurement of public infrastructure it is still plenty of space for use of PPP principles. Ministry of Transport promised to implement the first PPP project - DBFO highway D3. The main issues are lack of professional capacity within the public sectors and natural anticipation to paying the advisors (which is always a big issue for media). The other is missing projects pipeline. There is also a pension system reform going on and there is a possibility to use pension funds as a reasonable source of finance for projects. The current minister of finance is not a big friend of PPPs, but the fact is, that the country needs a solution for its underinvested assets. On communal level we can see a rose in demand for PPPs usually driven by EUs environmental demands. The most attractive sectors would be transportation, waste management and affordable housing. About the author Adam Zdenk PPP and economic advisor gsm: +420 739 062 703; email: adam.zdenek.ep@gmail.com Praha / Prague, Czech Republic Useful links Ministry of finance - http://www.mfcr.cz/cps/rde/xchg/mfcr/xsl/en_ppp_czech_republic.html PPP Unit http://www.pppcentrum.cz/index.php?lang=en&cmd=page&id=1113
1

http://en.wikipedia.org/wiki/Structural_Funds_and_Cohesion_Fund

Adam Zdenk economic advisor gsm: +420 739 062 703 email: adam.zdenek.ep@gmail.com

Country profile Czech Republic Private PPP association - http://www.asociaceppp.cz/ InfraPPP World provides market intelligence data and analysis for businesses engaged in the infrastructure industry. www.infrapppworld.com Email: ama@infrapppworld.com

Adam Zdenk economic advisor gsm: +420 739 062 703 email: adam.zdenek.ep@gmail.com