The Law on Public-Private Partnership and Concessions of the Republic of Serbia (Law) defines public-private partnership as a dynamic and developmental process of financing infrastructure projects, which represents a form of cooperation between government bodies and the private sector, intending to modernize the infrastructure and improve the provision of public services.
The key elements of the public-private partnership concept are an allocation of responsibilities, risk-sharing, and a long-term, stable, and sustainable partnership between public and private partners, who find their basis in the mutual and complementary benefits. Risk-sharing allows each of the partners to take the risk that they can manage most adequately, thus achieving greater efficiency in these projects. The concept of public-private partnership frees the public partner from a good part of the costs that they would otherwise have to bear and reduces the problem of fiscal pressure.
Another clear advantage of a public-private partnership is the fact that the public sector typically lacks the appropriate level of expertise, knowledge, and know-how to tackle and implement complex infrastructure projects itself, so involving a private partner is usually a more practical solution that allows the utilization of the managerial, technical, financial, and innovative capabilities of the private partner.
The growing need to build new public infrastructure, invest in projects of general interest, and provide services of public interest in Serbia has required the creation of a legal and institutional framework for attracting private investment. The Law was adopted in 2011, by which a concept of public-private partnership was introduced into the legal system of Serbia.
Aware that investments in infrastructure can impact the economic growth and living standards of the population, the Government of Serbia has focused its strategic choices in the past years on infrastructure projects. As a developing country with limited resources, Serbia is inclined to use public-private partnerships as a more innovative form of providing public services and a suitable mechanism for ensuring sound and quicker delivery of infrastructure projects.
The existing legal framework enables various types of cooperation between the public and private sectors. According to the Law, a public-private partnership may be contractual or institutional, which may or may not include elements of concession.
A public contract that solely regulates all the rights and obligations of the parties is the legal base for the contractual public-private partnership establishment. On the other hand, an institutional public-private partnership is based on the relationship between the public and private partners being the shareholders of a legal entity, which leads the public-private partnership’s project.
The Law includes concessions, which represent a contractual or institutional public-private partnership with elements of concession, governing the commercial use of a natural resource or assets in general use owned by the public partner. Through a public agreement, the public partner assigns to the private partner the right to use the subject of the concession for an agreed period. For the utilization of the subject of the concession, the private partner shall pay a concession fee.
Practice shows that the challenging phase of a public-private partnership project in Serbia is its implementation and contract management, which presupposes that both public and private partners have dedicated teams that will cover all aspects of the delivery of the PPP project, i.e., operational, technical, legal, and financial aspects. Progress should be made in this regard and the public sector’s capacity in this respect overall should be strengthened.
Although popular in many European countries, the concept of public-private partnership had relatively little application in Serbia until amendments were adopted in 2016. According to the European Investment Bank, in 2016, Serbia implemented only one project worth more than EUR 10 million based on public-private partnerships. However, its practical implementation has mostly been seen in the past several years, in relation to which it is noted that the Public-Private Partnership Commission has approved 217 public-private partnerships to date.
Despite the COVID-19 pandemic, the dynamic growth of public-private partnership projects is evident in 2020 and 2021, which has been confirmed by several major ongoing infrastructure projects at a national and local level. In addition, several large-scale projects currently in the preparation phase seem to be a constructive step forward toward the full exploitation of the public-private market potential.
Overall, it appears that the rules now in place for the successful realization of public-private partnership projects are adequate, but their potential has not yet been fully used.
By Igor Zivkovski, Partner, Zivkovic Samardzic
This Article was originally published in Issue 9.4 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.