PUBLIC-PRIVATE PARTNERSHIP DEVELOPMENT PROGRAM...

PUBLIC-PRIVATE PARTNERSHIP DEVELOPMENT PROGRAM (P3DP) IN UKRAINE

QUARTERLY REPORT: APRIL 1 – JUNE 30, 2015

USAID Cooperative Agreement # AID-121-A-00-10-00708

July 30, 2015 This publication was produced for review by the United States Agency for International Development. It was prepared by FHI 360 under USAID

Cooperative Agreement # AID-121-A-00-10-00708.

PUBLIC-PRIVATE PARTNERSHIP DEVELOPMENT PROGRAM (P3DP) IN UKRAINE

QUARTERLY REPORT: APRIL 1 – JUNE 30, 2015

DISCLAIMER The author’s views expressed in this publication do not necessarily reflect the views of the United States Agency for International Development or the

United States Government.

USAID Public Private Partnership Development Program (P3DP) in Ukraine 3 of 51 Y5Q3 Quarterly Report

CONTENTS

EXECUTIVE SUMMARY .............................................................................................................. 6

INTRODUCTION .......................................................................................................................... 8

OBJECTIVE 1: IMPROVING THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR PPPS .................................................................................................................................... 8

OBJECTIVE 2: IMPROVING PPP SUPPORT SERVICES OF THE MOEDT AND OTHER GOU AGENCIES AND STAKEHOLDERS .................................................................... 16

OBJECTIVE 3: DEVELOPING PUBLIC AWARENESS AND MUNICIPAL CAPACITY .................................................................................................................................. 22

OBJECTIVE 4: PILOT PPP PROJECTS .................................................................................... 27

PROGRAM ADMINISTRATION .................................................................................................. 50

ANNEXES ................................................................................................................................... 51


ACRONYMS AND ABBREVIATIONS AMDI Agriculture Marketing and Development Institute AMC Anti-Monopoly Committee of Ukraine AmCham American Chamber of Commerce (or Chamber) ARC Autonomous Republic of Crimea AUC Association of Ukrainian Cities BOOT Build-Own-Operate-Transfer BOO Build-Own-Operate BOT Build-Operate-Transfer BPP Biomass Power Plant CCDS Climate Change and Development Strategy CDCS USAID’s Country Development Cooperation Strategy 2012 –2016 CLC Commercial Law Centre CMU Cabinet of Ministers of Ukraine COM Cabinet of Ministers DBFO Design-Build-Finance-Operate DESPRO Swiss-Ukrainian Decentralization Support Project DFAIT Canadian Department of Foreign Affairs and International Trade EBRD European Bank of Reconstruction and Redevelopment EC-LEDS Enhancing Capacity for Low Emission Development Strategies EEF Eastern European Foundation ENVSEC Environment and Security Initiative ESCO Energy Service Company FBOT Finance-Build-Operate-Transfer FBOOT Finance-Build-Own-Operate-Transfer FHI 360 FHI Development 360 GCC Global Climate Change GCCI Global Climate Change Initiative GDP Gross Domestic Product GHG Greenhouse gas GHI Global Health Initiative GIZ Deutsche Gesellschaft für Internationale Zusammenarbeit GOU Government of Ukraine IBRD International Bank for Reconstruction and Development IBSER Institute for Budgetary and Socio-Economic Research IFC International Financial Corporation IMF International Monetary Fund KEI Kyiv Economic Institute KCSA Kyiv City State Administration LAESM Local Alternative Energy Solutions in Myrhorod Project LEDS Low Emissions Development Strategy LROT Lease-Renovate-Operate-Transfer M&E Monitoring and Evaluation MARPs Most-At-Risk-Populations MEP Ministry of Environmental Protection of Ukraine MHR Municipal Heating Reform


MOEDT Ministry of Economic Development and Trade MRDCH Ministry of Regional Development, Construction and Housing MLC Municipal Law Center MSFI Municipal Finance Strengthening Initiative NAESCO National Association of Energy Service Companies NAPA National Academy of Public Administration NATO North Atlantic Treaty Organization NCCSR National Commission of Communal Services Regulation NCMSR National Commission on Municipal Services Regulation NGO Non-Governmental Organization NPA National Project Agency OECD Organization for Economic Co-operation and Development OSCE Organization for Security and Cooperation in Europe PIEC PPP & Infrastructure Expert Center PPP Public-Private Partnership P3DP Public-Private Partnership Development Project REC Regional Environmental Centre for Central and Eastern Europe REDS Resource Efficient Development Strategy ROT Rehabilitate-Operate-Transfer RT Round Table SIP [PPP development] Strategy Implementation Plan SME Small and Medium Enterprises SPA State Property Agency SWM Solid Waste Management TA Technical Assistance U-Media USAID’s Strengthening Independent Media in Ukraine UNDP United Nations Development Program UNECE United Nations Economic Commission for Europe UNEP United Nations Environment Program UNITER National Initiatives to Enhance Reforms USAID United States Agency for International Development USUBC USUBC VRU Verkhovna Rada of Ukraine (Parliament) WB World Bank WG Working Group


EXECUTIVE SUMMARY As P3DP approaches its final quarter of operations, the Program continues to adjust assistance activities in response to changing needs and priorities of the Government and citizens of Ukraine. The military conflict with Russia is likely to continue for years to come, requiring the 1.3 million and growing number of internally displaced persons to find long-term solutions to their housing and healthcare needs, as well as employment. P3DP is responding to requests from municipal leaders, NGOs and aid agencies tasked with addressing these IDP issues by identifying specific project opportunities and recommending reforms needed to mobilize the private sector in addressing these needs, laying the foundation for sustainable PPP solutions. Corruption and government inefficiencies continue to be cited as the primary barriers to attracting investment and achieving economic growth. The Government of Ukraine and other stakeholders view the introduction of e-Government services as an essential component of a strategy to remove these barriers. However, the financial and other resources available to initiate e-Government are significantly inadequate. P3DP is responding by introducing PPP approaches to municipal, regional and national leaders that have been successful used in other countries to overcome financial and other barriers in order to initiate e-Government projects. On the reform front, P3DP realized a success in April 2015 when two proposed laws necessary for energy saving PPP contracts to be viable were passed. The laws introduce incentives for energy modernization (#1313) and improvements of the budget code (#1409), which enables municipalities to enter into the long-term budget commitments critical for PPP contracts. P3DP made significant contributions to the development of these laws and advocated for their passage. Another success was passage of the draft law 2010-D, allowing the Green Tariff to be applied for power generated by alternative fuel sources, such as wood/agriculture waste pellets and gas emissions from landfills. P3DP continues to advocate for adoption of draft law #1058, On Amendments to Specific Laws of Ukraine, which passed the first reading in Parliament in the last quarter. Although the draft law has appeared on the Parliament’s agenda several times, it remains to come to vote. This proposed legislation is important for PPPs in Ukraine, as it addresses the elimination of key regulatory barriers for PPP development in Ukraine and investment promotion. During this period, P3DP’s work with the MOEDT’s PPP Unit was limited due to the reorganization of the Ministry. However, the Ministry preserved and staffed the PPP Unit with new personnel, creating a need for additional capacity building during the next quarter. P3DP is supporting the development of the Unit by conducting tailored trainings and providing PPP guidance tools, policies, and procedures that will help the Unit fulfill its role as a resource to ministries and municipalities working to develop PPPs. The PPP & Infrastructure Expert Center


(PIEC), formed in collaboration with the American Chamber of Commerce, compliments this institutionalized support by serving as an effective platform for promoting PPPs, connecting municipalities with interested investors, and advocating for needed reforms. In June, P3DP and PIEC held a successful international conference jointly with the Turkish-Ukrainian Association of Industry and Entrepreneurship that explored how methods used to successfully implement PPPs in Turkey can be adapted and applied in Ukraine. P3DP’s capacity building activities were in high gear throughout this quarter. In April, P3DP conducted five PPP Stakeholder Communications Workshops for municipal leaders responsible for stakeholder communications and public relations. In parallel, PPP Media Trainings were organized for journalists to enable them to objectively report on PPPs and better fulfill their “watchdog role” in ensuring that the projects are not corrupt, bring value-for-dollar, and result in improved citizen services. Trainings were held in Lviv, Ivano-Frankivsk, Dnipropetrovsk, Zaporizhya and Odesa. In June, P3DP also conducted a follow-on training to the PPP Train-the-Trainers workshop held in 2014. Over 20 educational institutions planning to offer PPP courses were represented. After the event, participants announced their plans to establish the Ukrainian Association of PPP Trainers and Consultants to ensure that future and current municipal and business leaders in Ukraine have access to resources needed to acquire knowledge and skills necessary to create and manage viable PPPs. The Malyn biofuel pilot PPP project received a great deal of interest during this quarter; two municipalities are seeking to replicate the model and P3DP was asked to share information about the project at numerous workshops and seminars. Lviv Parking Garage pilot progressed, as the city initiated a required archeological study during this period. Although Vinnytsia’s City Council delayed issuing a PPP tender for their landfill gas conversion project until economic conditions improve, they used P3DP financial models and technical studies in convincing the private operator flaring the gas emissions to invest in the technology needed to use the gas to generate electricity. The Ivano-Frankivsk landfill gas conversion project was stalled, as upcoming October elections have delayed key decisions by city leaders. Zaporizhya is also delaying key actions needed to implement the PPP healthcare pilot due to the depressed investment environment and pending elections. Regardless, the research and experiences gained while developing this healthcare pilot is now proving quite valuable to efforts led by Ukraine’s Ministry of Health to introduce PPPs into the sector. For additional details of this reporting period’s activities and progress achieved, see Annex 1: the P3DP Y5Q3 Performance Monitoring Report.


INTRODUCTION As P3DP entered the final six months of operations, the Program began the process to create a “road map” for the long-term development of Public-Private Partnerships in Ukraine and assemble and organize resources needed for that journey. This includes collecting the lessons learned from implementing pilot PPP projects; creating tools to evaluate PPP concepts and guide their development; and developing additional training resources for building the capacity of institutions and individuals tasked with introducing and managing PPP projects. During this period, P3DP also began to identify innovative ways to motivate private sector participation in addressing the growing challenges resulting from the war. The crisis has heightened the need for the Ukrainian government to seek out new approaches to solving acute problems being exacerbated by the war. These include repairing destroyed or damaged infrastructure, modernizing the healthcare system, and identifying long-term solutions to needs of the over 1.3 million IDPs. Other areas include introduction of e-Governance, a tool that can considerably improve the efficiency of government services in a transparent manner. PPPs are essential tools that can provide the resources critical to improving infrastructure, public services, and introducing new technology. PPPs can also support development of industrial and technical parks, which hold the potential to stimulate innovation, attract additional investment and create jobs. When done correctly, the process to create PPPs also supports government priorities in accelerating reform, attracting investment, reducing corruption, and achieving decentralization. Ukraine’s troubles – both internal and those imposed from Russia – will continue to present barriers to development. But with stronger legislation in place, institutions established such as the PPP Center and the PPP & Infrastructure Expert Center (PIEC), greater awareness of the role that PPPs can play, and lessons learned from pursuit of PPP pilots, the foundation for the further development of PPPs in Ukraine has been established.

Photo: AFP/Odd Andersen


OBJECTIVE 1: IMPROVING THE LEGAL AND INSTITUTIONAL FRAMEWORK FOR PPPS In February 2015, the IMF and Ukraine signed a Memorandum of Cooperation that commits Ukraine to a reform path in return for the financial assistance needed to avoid an economic collapse. Deregulation, good governance and anti-corruption are key pillars of the reform agenda. P3DP’s work to reduce legal and regulatory barriers for investment and improve legal contracting mechanisms and transparency through PPPs directly supports these objectives. Ukraine’s reform program also targets reduction of the budget deficit and providing a safety net for vulnerable groups. P3DP assistance activities contribute to achieving these objectives as well. “Collateral benefits” of this work include reducing corruption, improving the business environment, and creation of multiple SME and other business opportunities. Successful Public-Private Partnership projects rely on a conducive, enabling environment. A robust legal and institutional PPP framework is needed, accompanied by independent regulatory bodies and a trusted dispute-resolution process to enhance regulatory performance. Reforms are a top priority for the GOU. Parliament adopted Resolution #2986, entitled Plan of Legislative Support of Reforms that directly supports Ukraine 2020, Ukraine’s development strategy. The resolution requires the Verkhovna Rada to address proposed reforms as a priority relative to other legislative documents. P3DP’s assistance and activities continue to improve the legislative framework and develop the institutional capacity required for successful PPP project development. The comprehensive assessment of the legislative and regulatory environment and institutional constraints to PPPs done early in the project coupled with the practical experience gained during implementation of the PPP pilot projects ensures that P3DP efforts are properly aligned.

Verkhovna Rada of Ukraine

Key successes realized during this reporting period include the passage of two proposed laws necessary for energy saving related PPP contracts and Draft Law #2010, dealing with tariffs on electricity produced from alternative energy (see sections 1.1 and 1.2 below).

1.1 Improving the Legal Framework for PPPs

Monitoring the PPP Legislative Environment


P3DP continued to monitor activities in the legislative environment that affect PPPs and share them with USAID in monthly Legislation Development Assessment Reports and in Weekly Highlights. Key issues included: Shortcomings in the PPP Law and

related legislation that discourage use of PPPs;

Tariff issues, including the “Green Tariff”; and

Lengthy and complex PPP processing procedures.

National PPP Policy Prior to the reporting period, P3DP contributed to the development of a PPP framework consisting of a PPP Development Concept, the National PPP Strategy, and a Strategic Implementation Plan (SIP). The Concept was approved in 2013 under CMU Decree #739 and established a basis for further PPP development in Ukraine. Although the Strategy and Implementation Plan were not formally adopted, the concepts developed guide ongoing work under this Objective.

Strengthening the 2010 PPP Law and Relevant Sub-Laws Prior to the reporting period, P3DP played a central role in developing the amendments and advocating for their adoption with the Parliamentary Committee on Industrial Policy and Entrepreneurship and individual Rada members. P3DP developed amendments to Draft law #1058 On Amendments to Specific Laws of Ukraine pertaining to PPPs, which addresses the

elimination of regulatory barriers for PPP development in Ukraine, which was passed in the first parliamentary reading in March 2015. P3DP submitted a revised draft for the second reading, incorporating input obtained at a public discussion with multiple stakeholders during a PIEC forum. The amendments, once adopted, will streamline PPP implementation. Specifically, they: Eliminate regulatory barriers and

simplify regulations regarding land allocation to PPP projects;

Delineate responsibilities between central and local governments on PPPs;

Provide for better governance of PPPs; Implement additional forms of state

support to PPP projects (e.g. availability fee);

Enable international arbitration for concession projects;

Allocate risks fairly in PPP contracts; and

Protect investors’ rights in cases of public partner fault or changing of legislation.

The draft amendments were registered on the Parliament’s plenary agenda four times during the reporting period but, like so many other key reforms, have not yet been discussed on the Rada floor. Other successes of P3DP in this area include: Tendering and Appraisal Procedures.

P3DP achieved a significant policy success with the approval of amendments developed, recommended and advocated by P3DP to CMU Decree #384, On Efficiency Analysis and


Tender Procedures of Public-Private Partnerships1 in July 2014. The amendment simplifies tendering and project appraisal procedures and resolves numerous legislative contradictions. These measures mitigate corruption and remove major hindrances to private sector participation in PPPs.

Risk Assessment Methodology. The

PPP Risk Assessment Resolution (draft CMU decree on amendments to CMU decree #232), authored by P3DP, regulates the activities of municipalities or other public partners regarding PPP risk assessment and management. P3DP provided comments and obtained feedback from relevant GOU agencies, including the Ministries of Justice, Finance and Infrastructure. The draft decree was finalized and approved by the Ministry of Finance; it is now being reviewed by the Ministry of Justice before it can be submitted to the CMU for approval and adoption. The CMU is expected to consider the proposed draft in Y5Q4.

Green Tariff. P3DP played an important

role the development of Draft Law #2010, On Amendments to Specific Laws on Competitiveness Conditions for Electricity Produced from Alternative Resources of Energy, which was approved by the Verkhovna Rada on June 3, 2015. The draft law was based on proposed legislation developed with P3DP input and registered in the Verkhovna Rada in March. During the reporting period, P3DP continued to

1 Specifically, P3DP provided input to draft CMU decree #585, which amends CMU decree #384.

participate in stakeholders discussions on the renewable energy sector. The legislation improves methods of energy payment calculations for companies and facilitates PPP projects in solid waste management. Uncertainty about the tariffs has reduced incentives for the private sector to participate in SWM projects and has had a negative impact on P3DP’s pilot PPPs in the sector (see section on Objective 4).

Licensing. On March 26, 2015, President Poroshenko signed Draft Law #0934 On Licensing of Certain Types of Economic Activity. The law provides simplified licensing procedures, including in the heating and water sectors. P3DP addressed many issues covered by the law identified in the P3DP legal diagnostic report done early in the project as an obstacle to PPP development through its work on CMU Decree #756.

Collaboration with Kyiv City State Administration During the reporting period, P3DP worked with the Kyiv Investment Agency (KIA), a municipal company established by the Kyiv City State Administration (KCSA) to promote investments focused on socially-significant infrastructure, to help address components of its overall municipal waste strategy. P3DP is analyzing shared data and work performed to identify what assistance can be provided to improve the viability of attracting investment to the sector through PPPs.


Having worked on PPPs through collaboration on the Kyiv Education and Kyiv Sports & Recreation Pilot PPPs, the KCSA has continued to collaborate with P3DP for input and recommendations on its PPP policies. P3DP also advised KCSA in creating its Guide on PPP Implementation and provided recommendations to the draft PPP Development Policy of Kyiv. The following month, P3DP submitted another set of recommendations to this draft policy. As a result of its work with P3DP, KCSA now views PPPs as an essential tool for attracting private investment needed for their high priority infrastructure projects. KCSA plans to engage the private sector to address priority issues in transport, solid waste management, parks and recreation, education, and other sectors.

Improving Concession Legislation On April 27, 2015, P3DP met with the Ministry of Infrastructure and shared its research focused on road concession legislation as part of its work to support the proposed Kyiv Ring Road PPP. The GOU had requested P3DP’s support in identifying regulatory obstacles to the project and proposed changes in legislation to address them. The study is relevant to a planned concession for the construction of the Lviv-Krakovets highway near the Polish border. In the study, P3DP reviewed how legislation impacts the process for selecting a concessionaire, public spending, contracting issues, permits, land rights, construction and other issues. Identifying barriers that

discourage private participation was highlighted and alternative ways for their mitigation evaluated. P3DP has enjoyed other successes on improving concession legislation. Its recommendations on draft law #0857 On Amendments to the Laws on Leasing or Concessions of District Water, Heating Supply and Sanitation Communal Facilities were adopted in October 2013, affecting compulsory rules on tendering, sub-lease rights, and regulation of lease payments, contract termination and fees. These amendments increase the attractiveness of concession contracts for the delivery of public services by the private sector. P3DP also provided recommendations to the draft decree on amendments to CMU Decree #639 on concession fee calculation methodology. The draft recommends an economically viable methodology for concession fee calculation, which will make the use of concessions more attractive to investors. In August 2014, the MOEDT published the proposed amendments and recommended adoption of a more streamlined method for calculating concession fees.

1.2 Budget Code Amendments and Energy Efficiency P3DP realized a policy success in April 2015 when two proposed laws necessary for energy saving related PPP contracts to be viable were passed. The laws introduce incentives for energy modernization (#1313) and reform of the budget code (#1409), which enables long-term budget commitments. P3DP made significant


contributions to the development of the laws and advocated for their passage. The draft laws passed the first reading in February 2015. P3DP’s work on PPP pilot projects highlighted the importance of the issues addressed by these laws. Prior legislation created obstacles for municipalities in making long-term budget commitments necessary for successful, multi-year PPPs. P3DP’s input was provided at the request of the National Commission to help the GOU meet energy efficiency goals. Prior to the reporting period, P3DP provided comments on draft law #1566 On Energy Efficiency of Buildings, which aims to facilitate private investment in energy efficiency projects and improve compliance with EU directives. This initiative resulted from discussions at PIEC with the Parliamentary Committee on Construction, Urban Development, Housing and Communal Services.

1.3 Solid Waste Landfill Tariff Methodology Ukraine’s solid waste management sector is in urgent need of financing and modernization. According to a recent World Bank study, less than four percent of the 13 million tons of solid waste generated annually is recycled. Of the country’s 6,000 landfill sites, 3,500 are uncontrolled, posing health risks to the population and contributing to greenhouse gas emissions. With appropriate incentives, the private sector could contribute significant financing, technology and expertise. P3DP learned about this issue first-hand through a series

of roundtables and discussions between the private sector and government on landfill tariff calculation policy. These discussions, part of strategic communications efforts for the pilot PPPs in SWM in Vinnytsia and Ivano-Frankivsk, led to the development of a methodology for calculating landfill tariffs. P3DP submitted the draft SWM Tariff Calculation Methodology and supporting documents to the Ministry of Regional Development.

1.4 Solid Waste Management P3DP highlighted legal and policy changes needed to attract investment through PPPs to Ukraine’s solid waste management sector at a working group meeting of the Ukraine Environmental Alliance Association. P3DP is joining GOU officials, NGOs and experts to develop a set of recommendations that can guide the development of a national strategy for the sector. Prior to the reporting period, draft law #5129 On Amendments to Certain Laws of Ukraine in the Solid Waste Management Sector, developed with P3DP input, was registered in the Verkhovna Rada. The proposed amendments will improve the attractiveness of the SWM sector to the private sector and better align practices with those of the

European Union. Key provisions of the draft law include:

In April 2015 two proposed laws necessary for ESCO-related PPP

contracts to be viable were passed.


Approval authority for landfill tariffs will be transferred from the National Communal Services Commission to municipal authorities;

SWM terminology will be aligned with those used by the EU;

Penalties will be introduced for breaching SWM regulations on SWM collection and landfill issues;

A mechanism to broaden participation in solid waste management collection contracts will be introduced.

The draft law has not yet been considered by the Rada; P3DP continues to monitor developments.

1.5 Industrial Park Development In Y5Q3, P3DP began a review of the policy, legal, regulatory, and institutional framework for industrial parks in Ukraine and propose recommendations for improvements needed to accelerate park development, in the light of best international practice while taking into account circumstances in Ukraine. P3DP will analyze various modes of ownership and management of industrial parks, including PPPs, and provide recommendations on how to improve current legislation so that the PPP model can be used to further the development of industrial parks. This work will support Ukraine’s economic recovery, especially when it enters a post-conflict period. Industrial parks have the potential to become growth hubs, creating high growth regions that drive national economic development. When properly designed and integrated with area education and training institutions, the parks can support start-ups, new enterprise incubation, the development of knowledge-

based businesses, and offer an environment where local and international firms can interact with a particular center of knowledge creation for mutual benefit. P3DP participates in a working group organized by the U.S. Ukraine Business Council (USUBC) to provide advice and identify key areas where P3DP can contribute to improving the environment for park development. In 2012, the Law of Ukraine on Industrial Parks was established determining the organizational and legal principles for creating and operating industrial parks in the country. The scope of the law explains the requisite processes for establishing a park and describes the relationships arising during the creation, operation, and liquidation of the park, as well as rights and obligations of the involved parties. The law was passed with the intent of increasing the investment attractiveness of Ukraine, creating new jobs, stimulating the economic development, and developing infrastructure for the market and industry.

1.6 Collaboration P3DP participates in working groups comprised of government bodies, NGOs, private sector organizations and other stakeholders to strengthen the legislative and instructional framework for PPPs. The effectiveness of these various groups differs considerably but as a whole they provide valuable information and data for analysis and have proven to be useful conduits for “creating ownership” and dissemination of recommendations.


During this reporting period, P3DP organized and/or participated in numerous conferences, round tables, workshops, trainings, and consultations to facilitate the development of PPP-related legislation and policy.

1.7 Objective 1 Plans for Y5Q4 Improving PPP Legislation. Conduct a

diagnostic review of current and pending PPP legislation in Ukraine, including the PPP Law and Competitive Procurement legislation. This is needed to guide future reform efforts after completion of the P3DP project. Continue to work with the MOEDT and the Verkhovna Rada on Draft law #4237a On Amendments to Specific Laws of Ukraine (Regarding Elimination of Regulatory Barriers for PPP Development and Investment Promotion) to facilitate passage in the second reading in Parliament.

Monitoring. P3DP will continue to

monitor policy and legal initiatives, track and update previous P3DP recommendations, identify stakeholder concerns and review existing PPP legislation.

Industrial Park Development. P3DP will complete a study on industrial park

legislation and make recommendations for strengthening them.

Working Group Participation. P3DP will continue to participate in working groups, conferences, round tables, workshops on national and regional levels, provide trainings, consultations and other types of assistance to facilitate PPP legislation development in relevant areas. P3DP is active in the Health Reform working group that is focused on increasing private sector investment through PPPs and has been invited to participate in the recently formed working group focused on Port development.

Work with KCSA. P3DP will continue to support efforts of Kyiv municipality to improve policies, regulations, and programs needed to introduce PPPs needed to improve key services and infrastructure.


OBJECTIVE 2: IMPROVING PPP SUPPORT SERVICES OF THE MOEDT AND OTHER GOU AGENCIES AND STAKEHOLDERS Challenges to Ukrainian municipalities and government agencies have been exacerbated by the economic crisis; tight budgets, the war with Russia/Russian-backed separatists, and the influx of internally-displaced persons, whose numbers now exceed 1.3 million. PPPs can provide support in addressing these issues. Even prior to the crisis, officials generally lacked the experience and technical capacity to develop and manage PPP transactions. This prevents the government from engaging the private sector in addressing urgent infrastructure and public service needs. The PPP Unit, established in 2011 within the MOEDT to address these deficiencies, is designed to provide support needed for PPP development. P3DP assists the PPP Unit, regional and municipal governments, and other agencies working to improve the legislative and policy environment and supporting the development of viable PPP projects that bring value to citizens.

A robust legal and institutional PPP framework is needed, accompanied by independent regulatory bodies and a trusted dispute-resolution process, to enhance regulatory performance. Institutional support should include a PPP Unit with clearly specified responsibilities and adequate executive authority and resources to fulfill those duties. Creation of national PPP policies and dissemination of standardized guidance tools and knowledge products needed for agencies and municipalities to implement PPP projects that reflect those policies should be a priority of that Unit. Throughout the program, P3DP has supported government agencies, including the PPP Unit, by enhancing capacity to develop PPPs. P3DP also provided critical assistance in defining the role and responsibilities of the PPP Unit and in developing a national policy framework to promote PPPs. The main objectives of the PPP Unit are to: Create and implement a National PPP

Strategy;

Improve the policy, legal and regulatory context for PPPs;

Support municipalities and agencies wishing to introduce PPPs; and

Establish systems and processes to monitor the use of PPPs that improve infrastructure and public services.

The PPP Unit remains in place even after reorganization of the Ministry and changes in its leadership. The PPP Unit Action Plan, developed with P3DP support, was approved on June 29 (see section 2.1 below). P3DP’s continued role in supporting the PPP Unit remains an important component of its work so that it will continue to fulfil its responsibilities after the Program closes.

The PPP Unit Action Plan, developed with P3DP support, was

approved on June 29.


2.1 Create PPP Standards, Guidance Tools, and Procedures P3DP played an important role in the establishment of the PPP Unit, helping it define PPP procedures, providing advice, and promoting the use of PPPs in accordance with the National PPP Strategy. P3DP has been assisting the PPP Unit in developing its Institutional Development Action Plan, which was finalized and approved on June 29. The document reflects the needs of the re-organized PPP Unit within the Department of Investments of the MOEDT and consists of two parts. First, P3DP will work with the PPP Unit on policy and legal environment issues. Specifically, they will work to facilitate the approval of resolution 232 on risk assessments; resolution 81 on PPP project implementation and monitoring; and the draft law on amendments to the PPP law, now awaiting the second reading in the Verkhovna Rada. Second, P3DP will organize and conduct a series of seminars on PPP topics, as well as disseminate PPP materials. P3DP and the MOEDT’s PPP Unit have also collaborated to simplify PPP procedures and contribute to anti-corruption efforts. P3DP assessed the legal and procedural details of draft resolutions that affect the PPP appraisal methodologies, risk assessment, and licensing regulations. Resolution #384, which amends the procedure for tendering and efficiency analysis, was adopted by the Cabinet of Ministers.

2.2 Enhancing MOEDT and Other Agencies’ PPP Knowledge and Skills P3DP uses practical workshops to teach PPP knowledge and skills, study tours to learn first-hand from experiences of international colleagues, and tailored consultancies to apply acquired knowledge to PPP project evaluation and approval. P3DP also contributes to working groups in various GOU bodies on PPP-related issues. Prior to the reporting period, P3DP provided the PPP Unit with its analysis and review of a water supply project in Morshyn and comments to the PPP Unit on a feasibility study for modernization of a plant in Zaporizhia. Earlier, P3DP conducted a study tour to Turkey to learn from their experiences in PPP policies, operations and management, which it followed up with in June 2015 with an international conference (see section on PIEC below).

2.3 PPPs in e-Government With transparency and anti-corruption forming a core part of Ukraine’s reform efforts, interest in e-Government has soared in recent months. For example, in April, Ukraine’s Justice Ministry announced it would launch an online service to enable citizens to access business and property rights registration services. In May, MOEDT announced plans to develop an electronic procurement system for use by local authorities and municipal and state enterprises. When rolled out in 2016, the public will be able to monitor purchasing practices to increase transparency and reduce corruption. In June, the Health Ministry announced it would implement an


electronic healthcare management system within one year. The Kyiv Investment Agency is planning to pilot e-Government projects in procurement, budgeting, and citizen services. Several private companies, most notably Kyivstar, a leading telecommunications firm, have shown strong interest in introducing innovative e-Government services. The newly-established State Agency on e-Government requires technical assistance and support to develop employees’ professional skills and capacity. The Agency requested assistance from P3DP in organizing a number of professional educational activities to support implementation of e-Government with private sector participation. The focus of P3DP’s efforts include introducing various PPP e-Government models; exploring policies needed to facilitate use of PPPs; and assessing the main stakeholder and political constraints, risks and challenges. Research shows that by having the private sector perform an e-Government or ICT service on behalf of the government, a “win-win” solution can be realized. The private sector finances and operates a system, enabling government to be better positioned to ensure effective delivery of the service. The customer/citizen receives a higher quality service and is engaged more constructively in customer interfaces with the public sector. Prior to the reporting period, P3DP kicked off its efforts in this area with a two-day practical workshop in February 2015. The event targeted management and staff

members of the State Agency for e-Government and other stakeholder organizations who will be implementing e-Government in Ukraine. Among them were experts of the State Agency on e-Government, experts from the Working Group on development of state policy in e-Government under the Deputy Prime Minister, representatives of the Administration of the President of Ukraine, representatives of City Councils of Vinnytsia and Lviv.

2.4 The PPP & Infrastructure Expert Center (PIEC): Developing Communication and Cooperation between GOU and the Private Sector Established in 2014 by P3DP and the American Chamber of Commerce, the PPP & Infrastructure Expert Center (PIEC) has proven effective for disseminating knowledge about PPPs, promoting reforms, and facilitating collaboration between the GOU and municipalites, businesses, donors and NGOs. In June, P3DP and PIEC held a successful international conference jointly with the Turkish-Ukrainian Association of Industry and Entrepreneurship that explored how methods used to implement PPPs in Turkey can be adapted and applied in Ukraine. The Turkish government and business representatives shared their experiences with over 100 participants in developing roads, hospitals, ports, and energy through PPPs. Ukrainian government officials described efforts to adjust PPP legislation and presented plans to improve infrastructure through PPPs, concessions


and privatization. The journal Business Ukraine featured the conference in its June edition (see Annex 3).

Chairman of the Parliamentary Committee on Industrial Policy and Entrepreneurship speaks at the Turkish-Ukrainian conference on PPPs and Investment.

On May 31, PIEC also hosted the regional roundtable of the International Chamber of Commerce in Odesa. Prior to the reporting period, PIEC conducted a roundtable on healthcare reform and mobilizing private sector finance, technology and expertise into the sector through PPPs with over 60 participants. Chernigiv’s Regional State Administration also used the venue to introduce the goals and services of a newly-established regional PPP Center to an audience of over 20 business representatives and other stakeholders. P3DP shared its experiences in renewable energy PPPs at a PIEC-hosted seminar with over 50 participants. Officials from Malyn, the site of a PPP pilot project to provide heating with renewable fuel, described the process and benefits of engaging the private sector through a PPP agreement. This resulted in a city in Poltava Region

seeking to replicate the Malyn model and subsequently submitting the required documentation to the MOEDT’s PPP Unit. These successes demonstrate the broad reach and value of PIEC events. P3DP will work with the Chamber’s new leadership to ensure that PIEC continues to grow and serve as a sustainable mechanism capable of advocating for needed PPP related reforms and promoting PPP opportunities to interested stakeholders.

2.5 PPPs for Internally Displaced Persons Ukraine now has over 1.3 million internally displaced persons (IDPs) in dire need of housing and public services, particularly healthcare and education. It is essential to start developing policies and approaches to create a framework to address evolving needs of IDPs, society in general, and infrastructure in the long term. Private sector participation through public-private partnerships can provide a mechanism that may address many issues related to rehabilitation of infrastructure and long-term needs of displaced citizens. P3DP is identifying and evaluating various methods and working to identify specific opportunities in Ukraine. The Ukrainian government and civil society organizations are struggling to effectively use the funds to address short term needs. Resources for IDPs are insufficient and the government does not have the capacity to coordinate assistance in housing, health, education and employment. P3DP continued its work supporting IDPs throughout the quarter. In April, it


participated in the IDP Shelter Cluster meeting organized by the Coordinating Humanitarian Center under the UN Refugee Agency. While the Cluster’s activities focus on short-term needs, P3DP highlighted the importance to begin longer-term planning. Participants agreed that a technical committee should be organized to develop a long-term framework that engages the private sector to rehabilitate or build, maintain, and manage housing facilities. In May 2015, the IDP Support Coordination Center, the U.N. Commission for Refugees, P3DP and several business associations agreed to cooperate in creating a road map to guide support that engages the private sector to address IDP needs and contribute to economic growth. P3DP also joined a working group focused on identifying long-term solutions for IDPs for officials (see next section). In May, P3DP met with Head of the Dinpropetrovsk Oblast Administration, Oleg Kuzhman, and his team responsible for social protection, health, and housing to prioritize areas needing assistance. It was agreed that P3DP will provide tailored PPP training for staff tasked with developing PPPs in housing and health, and e-Governance. Additional assistance will provide guidance in attracting investment

and addressing growing IDP needs through private sector participation.

In June, P3DP brought in a housing expert to review ways in which the private sector can address long-term IDP housing issues, particularly in Kharkiv, Dnipropetrovsk and Odesa, where the problem is particularly acute. An IDP health expert will conduct a similar study in July. Findings will be shared in August 2015.

2.6 Collaboration P3DP actively collaborates with government bodies through discussion and working groups to highlight the important role PPPs should play in improving public infrastructure and services and revitalizing the economy. In Y5Q3, P3DP held the following meetings with the government and working groups under this objective: State Agency of e-Government in

Ukraine: PPPs in Ukrainian e-Government sector. Potential approaches to PPP projects development - 12 GOU participants;

P3DP joined a newly-formed working group hosted by UNHCR for representatives of government agencies, international and local organizations, and NGOs to share information on IDP long-term needs and review ongoing and planned assistance.

P3DP collaborated with the Kyiv Investment Agency (KIA), the Department of Communal Utilities, and Kievkommunservis, a municipal SWM company, to address components of their overall municipal waste energy

In June, P3DP brought in a housing expert to review ways in which the

private sector can help address IDP long-term housing needs.


strategy and evaluation of several municipal enterprises in the sector.

P3DP meet with the head of the Dnipropetrovsk Regional Administration and his team to discuss the possibility of providing PPP training for staff tasked with developing PPPs in housing, health, and e-Governance.

Department of communal Utilities, Kharkiv Mayor’s Office: Using PPPs and other approaches to solve Increasing Social and Economic Needs in Ukraine (related to internally displaced persons) - 24 GOU participants;

Kharkiv Regional Council IDP Support Working Group: Technical Assistance to Support IDP Social and Economic Needs in the Kharkiv Region - 54 GOU participants.

2.7 Objective 2 Plans for Y5Q3 To support Objective 2 activities in Y5Q4, P3DP will: Continue to provide counselling, advice,

and recommendations to MOEDT and other agencies through participation in working groups;

Work with the PPP Unit to develop its capacity and provide ongoing support in processing PPP projects;

Guide development of the PIEC to better prepare it for a sustainable role in facilitating public-private partnerships and advocating for needed reforms;

Organize discussions on PPP experience of municipalities, presenting amendments to the PPP law; and legal issues on road concessions and other PPPs;

Identify and evaluate specific opportunities and outline methods to engage the private sector in addressing IDP housing and health needs;

Develop capacity of State Agency for e-Government to introduce needed reforms and guide municipal introduction of e-Government services; and

Support GOU, municipalities, NGO and other stakeholders in their efforts to provide long-term solutions to housing and healthcare needs of IDPs by facilitating private sector participation that can lead to PPPs.


OBJECTIVE 3: DEVELOPING PUBLIC AWARENESS AND MUNICIPAL CAPACITY P3DP continues to raise PPP awareness among key stakeholders while enhancing the capacity of municipalities and other government agencies. As a result, PPPs are now included in the national development strategy and are being pursued by a growing number of regional and municipal governments throughout Ukraine. For public-private partnerships to thrive, stakeholders must understand the important role the private sector can play in improving infrastructure and public services. Equally important is the need for government and municipal leaders to have the knowledge and skills necessary to design and implement PPP transactions that are both attractive to the private sector and beneficial to citizens. A recurring theme is the demand for PPP training materials in the Ukrainian language – a need which P3DP is addressing. As the economic crisis continues, budget constraints have put additional pressure on municipal, regional and national officials to find alternative financing. Increasing public awareness of PPPs as a tool for addressing these issues and developing municipal capacity to execute them has taken on greater significance as a result. In all awareness and training activities, P3DP emphasizes the importance of transparency in the decision making processes, the value of consulting key stakeholders throughout the PPP development cycle, and the need to address environmental and gender issues involved in PPP projects.

3.1 Develop Capacity of Pilot Municipalities to Implement PPP Projects In June 2015, P3DP conducted follow-on training to the PPP Train-the-Trainers workshop held in 2014. Over 20 educational institutions planning to offer PPP courses were represented. P3DP’s capacity development events provide officials,

private sector partners, civil society, the media and the general public with knowledge and skills needed to identify, launch and manage successful PPP projects. Enthusiasm for the course was high. After the three-day event, the participants announced their plans to establish the Ukrainian Association of PPP Trainers and Consultants. Their goal is to ensure that future and current municipal and business leaders in Ukraine acquire knowledge and skills necessary to create and manage viable PPPs. Kyiv Mohyla Business School presented how PPP modules are now incorporated into each of their MBA programs.


3.2 Development of e-Learning PPP Course In response to demand for Ukrainian-language PPP learning materials, P3DP is developing an online e-learning course, an important part of P3DP’s efforts to create sustainable knowledge resources on PPPs. The latest version of the course can be seen on http://moodle.ppp-ukraine.org/.

The course will be refined prior to launch in Y5Q4, when it will be made available to the public. The course provides knowledge of PPP fundamentals such as legal and institutional frameworks for PPPs; characteristics of viable PPP projects; developing feasibility studies; financial analysis and modeling of PPP projects; and risk assessment and management. The course will serve as a platform for other P3DP guidance tools, such as case studies and sample documents for pilot projects and videos highlighting development experience of the PPP pilots.

3.3 PPP Awareness Raising As interest in PPPs grows in Ukraine, P3DP has increasing opportunities to share the lessons of its experience at conferences, workshops, seminars and roundtables. In addition to providing a forum for sharing and

discussing key elements of PPP transactions and P3DP’s pilot PPP projects, these events have led to increased interest in PPPs by regional and municipal leaders. At the Clean Energy Workshop organized by the USAID Municipal Energy Reform Project (MERP) in Kamyanets-Podilsky in April, P3DP shared its experiences from the pilot biofuel PPP project in Malyn. P3DP presented lessons learned, challenges, and key success factors of the project. About 60 people attended, including local government representatives and the Association of Ukrainian Cities. On April 17, P3DP spoke at a conference organized by the Ivano-Frankivsk branch of the International Chamber of Commerce on how PPP approaches are being used in Turkey and Poland to establish technology parks and infrastructure needed for economic development. On April 23, the USAID-funded LAESM Project organized a roundtable in Lubny, Poltava Region, to introduce new tools and methods that address public needs in energy and services. P3DP provided an overview of forms of PPPs and the practical example of implementing a pilot project on converting the heating of public buildings to using biomass. Municipal and regional leaders attended the event. On April 24, P3DP presented PPP approaches and facilitated a panel discussion during the seminar entitled Impact Investing and Local Economic Development Models for Ukraine. The Lviv Mayor highlighted that the City Council recently voted to support the development of a PPP parking garage, as well as

P3DP is developing an online e-learning course, an important part of P3DP’s efforts to create sustainable

knowledge resources on PPPs.


exploring alternative ways to create incentives needed to attract industrial park investment. The event was organized by the Chamber in strategic partnership with P3DP and the Lviv City Council. On May 13, P3DP shared guidance materials and PPP development experience at a round table in Poltava focusing on PPPs in the biomass/gas sector. P3DP made the case that concessions are a suitable form of PPPs that can enable substitution of natural gas with locally-produced biofuels. The event was attended by 15 local officials. On May 19-20, P3DP participated in the Information Fair organized by the USAID-funded RADA project to educate members of parliament about technical assistance available to support reform. In response to multiple requests, P3DP provided a half-day PPP training in June to Rada members.

P3DP will continue to participate and contribute to conferences, seminars and round tables to raise PPP awareness and share PPP knowledge gained through practical experiences in Ukraine.

3.4 Strategic Stakeholder Communication Strategic stakeholder communication allows government leaders to communicate with key stakeholders such as the business community, NGOs, the media and the general public. As a result, stakeholders better understand the benefits of specific PPPs and are afforded the opportunity to provide input during their development. Municipal leaders and other decision makers need the tools to determine how

proposed PPP projects will be received and whether any negative impact or risks outweigh the potential benefits. In April 2015, P3DP conducted eight PPP Stakeholder Communication Workshops for municipal leaders responsible for stakeholder communications and public relations. In parallel, PPP Media Trainings were organized for journalists to enable them to objectively report on PPPs. The sessions were held in Dnipropetrovsk, Ivano-Frankivsk, Kyiv, Kharkiv, Lviv, Odesa, Vinnytsia and Zaporizhya. In total, 120 local officials were trained (45 men; 75 women) and 87 journalists (34 men; 53 women).

Participants learned how to identify the benefits of proposed PPPs, overcome the challenges to their successful implementation, and assess the impact on stakeholder groups and the environment. The importance of transparency in PPP development and the selection and monitoring of the private partner were emphasized. The training improved the capacity of officials to effectively communicate with stakeholders throughout the PPP development process and the ability of media to play its important role in monitoring the development and implementation of PPP projects. In May, the trainers of the workshops met with P3DP to highlight regional PPP priorities identified by municipal leaders.

In April 2015, P3DP conducted PPP Stakeholder Communication

Workshops and PPP media trainings for 120 local officials and 87

journalists.


Solid waste management and alternative energy were commonly-mentioned sectors, as were the use of PPPs to address IDP issues. Participants consistently requested additional PPP guidance materials in the Ukrainian language. Previous work in this area included preparing a communications strategy for the municipality in Lviv to support the city’s Parking PPP and introduced the concept of PPPs and highlighted the “watchdog role” media must play in ensuring transparency in development of PPP projects that bring benefits to the community at a seminar held by the USAID-supported DIALOGUE project.

3.5 Partnerships with Educational Institutions P3DP's experience in providing transaction advice on PPP projects has given it unique and valuable experience that can be used in case studies and teaching materials. To ensure that municipalities, government agencies and other stakeholders have access to PPP knowledge and support in the future, P3DP is institutionalizing the trainings by working with Ukrainian educational and training institutions and making a PPP course, case studies and guidance materials readily available via the MOEDT and online. In May 2015, at the request of the Lviv City Council, P3DP agreed to support sessions on PPPs being delivered by the Lviv Business School (LBS), which is training municipal authorities in effective public administration practices. Sessions in June highlighted PPP finance and the importance

of stakeholder communications. PPP topics will be included in their MPA program being launched in September. P3DP is also supporting the Kyiv-Mohyla Business School and has incorporated PPP modules into each of their MBA programs. Its course for municipal and private sector leaders will utilize P3DP’s case studies and other resources as well as teaches methods learned during P3DP’s Train-the-Trainers workshops. In order to ensure its PPP capacity development activities are sustained, P3DP is identifying educational and training institutions in Ukraine that can use P3DP materials in their own coursework.

3.6 PPP Awareness Survey On April 30, P3DP launched its 3rd and final PPP Awareness, Attitudes and Needs Survey in pilot cities and non-pilot cities, and among central level government representatives to measure the level of PPP understanding, general attitudes, and capacity to develop successful PPPs. Field work was completed during the reporting period, with preliminary results indicating that awareness of PPPs has significantly risen during the life of the Program. The full report will be available in the final quarter of Year 5.

3.7 PPP Video Case Studies Video is an excellent way to share knowledge and experience, as well as to raise awareness of PPPs. In April, P3DP began making its first case study video on the Malyn biofuel project. The video can be


seen on YouTube at https://youtu.be/6aUgoXr84XY.

Mayor Shostak of Malyn speaks about the positive impact of P3DP’s biofuel PPP on the city budget [screen shot].

Videos are underway for the Ivano-Frankivsk and Vinnytsia landfill gas power generation pilot PPP projects. In Y5Q4, videos will be made on other pilots describing the opportunities, benefits and challenges of PPP development in Ukraine.

3.8 Objective 3 Plans for Y5Q3 In the Y5Q4, P3DP will continue developing the capacity of the local municipal leaders to effectively communicate with stakeholders and design viable PPP projects and media to fulfil their important role of ensuring the projects bring benefits to citizens. P3DP will continue developing the

series of educational videos based on

the pilot projects, highlighting the challenges, opportunities and potential benefits of PPPs. The videos will focus on key sectors such as health, education, solid waste management, alternative and renewable energy, and transport. They will underline environmental issues as well as gender considerations. In addition to being made available online and broadcast in the media, they will be used in P3DP trainings, conferences, seminars and other events.

Ukrainian-language learning materials are being developed. Case studies of pilot PPPs and sectoral studies are underway to guide others interested in replicating similar projects. Sample bidding packages and used PPP agreements will also be made available as examples for adaptation.

Participants of the P3DP Train-the-trainer workshops will create a PPP Textbook.

The PPP Awareness, Attitudes and Needs Survey will be completed.

P3DP will organize PPP panels within the multiple national conferences focused on economic growth, regional development, and improving local governance.

The online PPP course will be completed and launched.

OBJECTIVE 4: PILOT PPP PROJECTS The process of designing and implementing pilot PPP projects in partnership with municipal governments helps to identify areas where the business environment can be further strengthened to accelerate not just the use of PPPs, but investment and business growth in general. In addition to providing municipal governments with practical experience in PPP implementation, the process provides positive and negative lessons vital for improving the overall environment for PPPs. PPPs are used to attract investments, rehabilitate depreciated and build new infrastructure, create jobs, and improve the local business climate. This “learn-by-doing” approach has provided key insights valuable to improving the PPP legal and regulatory environment while demonstrating their benefits, increasing awareness, and building capacity of government leaders to design and launch viable PPPs.

4.1 The PPP Pilot Process

The economic crisis and ongoing war in Ukraine had significant impact on the progress of the pilot PPP projects. Key impacts included: Devaluation of the UAH – the cost in

local currency for any imported inputs or

equipment needed is greater, impacting local investors’ costs and ability to compete for PPPs;

Worsening of the overall investment climate;

Delayed decision making and authorizations by local authorities;

Project Identification

Concept Paper

Feasibility Study

•Ivano‐Frankivsk Landfill Gas

•Lviv Parking

•Zaporizhia Healthcare

•Kyiv Education

Municipal Approval

•Vinnytsia Landfill Gas

Tender & Award

•Malyn Biofuel

•Kyiv Park & Recreation


A growing number of internally dispersed people (IDPs) who need public support.

The PPP development process as defined in Ukrainian legislation continues to be improved as P3DP leverages lessons learned during the experience of serving as transaction advisor for municipal PPP pilots. The process involves numerous steps to ensure that sufficient information is

available to key stakeholders, including potential private sector partners, officials, civil society and the public. Preparation of the feasibility study requires a legislative analysis, risk assessment, financial assessment, and an environmental impact study. The process also includes market sounding to assess private sector interest, and stakeholder communications to ensure the communities’ interests and concerns are addressed.

4.2 Status of Pilot PPP Projects

Project Description Status as of March 31, 2014

Malyn Municipal heating with Alternative Fuel

Sector: Renewables & Alternative Fuel Type: Build-Operate-Transfer (BOT)

Heats three public schools using pellets made from renewable, alternative fuel sources. Expected benefits: Heating costs reduced by at least 10%; initial

savings were as high as 40% Four jobs created Estimated $150,000 in private investment (in

part depending on exchange rate) Carbon emissions reduced by 11,000 tons Increases energy independence.

Status: PPP bidding completed and private partner

selected Contract signed with Energiya Tepla, a

private Ukrainian firm, and approved by MOEDT

Equipment installation completed and operational

P3DP captured lessons learned, is sharing the project findings among sector participants, and has used project structure to identify legal drawbacks which now feed certain Objective 1 initiatives

Environmental evaluation completed in February 2015

Municipalities including Kyiv and Oster, Chernigiv Region seeking to replicate the PPP.

Ivano-Frankivsk SW Landfill Management and Gas Treatment Sector: Solid Waste Management Type: Build-Own-Operate-Transfer (BOOT) Private partner builds and operates power generation facility using landfill gas. City to construct connection to the power grid. Expected benefits upon successful completion of the PPP: Six jobs created Up to $2 million in private investment

Status: City Executive Committee formally launched

PPP preparation in April 2014 Feasibility study completed and submitted to

municipality following incorporating their comments

City Council and Executive Committee expected to approve PPP Appraisal Opinion documentation in Y5Q2

Presentation to City Council and Executive Committee conducted in February 2015



Carbon emissions reduced by 450,000 tons over life of project.

Environmental evaluation approved City committed to conduct 1-2 market testing

meetings with potential operators City Council approved the Feasibility Study

and Appraisal Opinion in May 2015 Tender documents drafted; next step is to

establish the Tender Committee and announce the tender.

Vinnytsia SW Landfill Management, Gas Treatment and Electricity Generation Project Sector: Solid Waste Management Type: Build-Own-Operate-Transfer (BOOT) Project will generate power from landfill gas at a municipal landfill. Expected benefits: Six jobs created; six more expected in 2015. Up to $2.2 million in private investment UAH 60 million in taxes to be collected during

life of project Carbon emissions reduced by 20,000 tons

annually.

Status: Financial model updated to reflect current

economic situation in Ukraine Feasibility study and tender documents

completed Environmental evaluation approved PPP is on hold, but City entered into a short-

term agreement with the existing private business on the landfill to produce energy until Ukraine’s economic conditions make it more viable to issue a PPP tender.

P3DP’s feasibility study, financial models were used by the City in this decision.

Kyiv Summer Sports and Recreation Facility Sector: Parks & Recreation Type: Build-Own-Operate (BOO) Established a sports and recreation zone on Dolobetsky Island in the Dnipro River in Kyiv. Benefits: 5 new jobs created, with 10 more expected Up to $4.5 million in private investment.

Status: PPP contract signed between KCSA and

Misto Sportu Ltd Facilities installed and operational P3DP is monitoring continued

implementation of PPP and results achieved Environmental impacts assessment

completed Vyshgorod City Council (Kyiv Region)

exploring replication of the pilot.

Kyiv Maintenance of Educational Facilities PPP Sector: Education Type: Maintenance Agreement A private operator to provide utility, maintenance and adjacent services to education facilities in Podil district through 5-10 year PPP contract. Expected benefits: Ten new jobs created 73 facilities to be served Strong replication potential

Status: Legal report on internal KCSA project

development procedure, financial model, public procurement issues and general legal structure of the PPP finalized

Education Department of KCSA has requested long-term budget allocation for the PPP

Kyiv City’s 2015 budget was scrutinized and it was determined that it cannot feasibly maintain the PPP.

P3DP updated the financial model at the request of KCSA and is following up with next steps.



Lviv Parking Management Sector: Urban Transportation Type: Design-Build-Finance-Operate (DBFO).

Builds an underground parking facility in city center. Expected benefits: $11 - 25 million in investment expected Ten jobs created Congestion in city center reduced

Status: Feasibility study completed and under

review by City Executive Committee Market sounding materials completed and

shared with potential bidders and City Council representatives, who will provide feedback to P3DP in Q3

Environmental Scoping Statement completed.

City is conducting a geological and archeological study expected in August 2015 and plans to move forward with the project at that time.

Zaporizhia Healthcare Sector: Healthcare Type: Lease-Renovate-Operate-Transfer (LROT) PPP to make facility improvements and deliver medical services to the public at competitive costs. Expected benefits: 50 jobs created Up to $2 million in private investment Higher quality medical services available to

public

Status: Project delayed because of political and

security situation in Zaporizhia Deputy Mayor said city office plans to

approve PPP Appraisal Opinion, which is the next stage before tendering preparation begins

Environmental evaluation in progress. The City informed P3DP that it does not

intend to move forward with the PPP until economic conditions improve so investors can be attracted.

4.3 Pilot PPP Project Details

Renewables & Alternative Heating By partnering with the private sector in PPPs, local governments can access financing and technology to generate heat and power from renewable fuel sources. Today, this is especially relevant to Ukraine, which is vulnerable to both the price and availability of natural gas from Russia. Using biofuel cuts both costs and greenhouse gas emissions and increases energy independence. Expanding use of alternative and renewable energy in Ukraine holds great promise, particularly because

Ukraine’s rich agricultural and forestry sectors produce large amounts of bio waste. Renewable energy also can contribute to reducing the country’s dependence on Russian natural gas. The armed conflict with Russian-backed separatists and disputes over gas prices has made Ukraine highly vulnerable to energy cutoffs. This in turn has increased interest in energy efficiency and alternative fuels, a trend reflected in multiple requests for information about the successful Malyn Biofuel PPP (see below). In addition to supporting legislative changes to reduce harmful emissions, P3DP


supports PPP pilots focused on capturing landfill gasses, utilizing renewable energy, and protecting the environment. P3DP’s

programming activities support USAID’s Global Climate Change and Development Strategy.

Malyn Municipal Heating with Renewable Energy

STATUS: Operational BACKGROUND In Malyn, a town of 27,000 in Zhytomyr Region, city officials looked into converting heating systems of public buildings to use wood or straw pellets as an alternative, renewable biofuel. This was motivated in part by the risks of a gas cutoff and unpredictable gas prices. P3DP assisted the municipality in preparing the PPP feasibility study, the financial model, technical and legal reviews, and environmental impact assessment. The pilot PPP was approved by the MOEDT’s PPP unit, tendered, signed and approved in September 2014, making it the first PPP to be executed fully within the provisions of Ukraine’s 2010 PPP Law. The heating system is flexible and can burn wood, wood pellets, or compressed straw pellets. Straw is an agricultural by-product abundant in Ukraine. When compressed into pellets, it burns at a high temperature suitable for heating buildings. Furthermore, it does not contribute to greenhouse gas emissions, as the carbon released by burning equals the carbon absorbed by

crops during the growing season. However, numerous technical and legal issues had hindered Malyn from moving forward on a biofuel heating project. City leaders turned to P3DP for support needed to overcome barriers and identify and engage a private partner through a PPP. The project was evaluated and approved by both the MOEDT’s PPP Unit and the Malyn City Executive Committee. In February 2014, the City Council of Malyn announced the PPP tender. Several private companies expressed interest, but only one bid was ultimately submitted. A thorough review indicated that it was technically feasible, conformed to legislative requirements, and would bring value to the community. The bid went through a final technical and financial review by the tender committee with P3DP support. In April 2014, the Malyn City Council formally approved the Tender Commission’s selection of a private partner, thereby authorizing the mayor to conclude a contract with the winning bidder, Energiya Tepla, a private Ukrainian operator. This makes the Malyn project the first project in Ukraine to convert a natural gas boiler to an alternative fuel one using the PPP model.

Project Idenification

Concept Paper

Feasibility Study

Municipal Approval

Tender Award


In September, P3DP submitted the Environmental Review Checklist to USAID for its review, addressing comments and recommendations of the Mission’s Environmental Officer. The PPP agreement was approved by the MOEDT on September 2, and signed on September 19. Installation of equipment is expected by early November, in time for the 2014-15 heating season. In December 2014, P3DP held an event at the PPP and Infrastructure Expert Center to share knowledge and experience gained through the implementation of this landmark PPP transaction. Malyn city officials described the process and benefits of engaging the private sector through PPP agreements to the 50 representatives of municipalities, companies and media attending the event. Municipalities, businesses and government bodies have expressed strong interest in using the pilot as a model that can be replicated elsewhere in the country. P3DP will continue to monitor progress of the project and share information about the model during Year 5 at sectoral seminars in regions. Regional administrations elsewhere in Ukraine have made inquiries to P3DP about the project, and many have expressed interest in adapting the approach.

ACTIVITY DURING THE REPORTING PERIOD This project is in the operational phase; the three schools obtained heat through the biofuel PPP project throughout the 2014/15 winter season. P3DP recognizes that the model can be implemented elsewhere in Ukraine and actively disseminated information about the project through PIEC, workshops, and conferences. This has already resulted in one effort to replicate the project. Key activities and events during the reporting period related to the Malyn pilot PPP are as follows:

P3DP’s first case study video was released featuring the Malyn pilot PPP. The video demonstrates how the PPP was structured, how it addressed specific needs of the municipality, and how it benefits the public. The video can be seen at http://ppp-ukraine.org/en/2015/ppp-in-ukraine-heats-schools-with-biofuel/.

USAID published a success story on the project, emphasizing that the city can save up to 40 percent of heating costs through the Malyn PPP model. See http://www.usaid.gov/results-data/success-stories/malyn-finds-private-sector-partner-heat-its-schools.

MOEDT informed P3P that the Municipality of Oster in the Chernigiv Region announced plans to replicate the biofuel PPP project. Oster officials have already submitted the PPP tender announcement to the MOEDT’s PPP Unit. Officials from Oster


learned about the Malyn project through participation in a PIEC event and used P3DP’s models to conduct due diligence on its own project.

P3DP shared its experiences from the Malyn pilot at a clean energy workshop held by the USAID Municipal Energy Reform Project (MERP) in Kamynets-Podilsky, attended by approximately 60 local officials and representatives from the Association of Ukrainian cities.

P3DP shared information about using biomass to heat public buildings at a roundtable organized by the USAID-funded LAESM Project in Lubny, Poltava Region. It was attended by municipal and regional officials.

P3DP also participated in a roundtable in Poltava specifically focused on the biomass and landfill gas sectors. P3DP provided guidance materials and shared its experience in substituting natural gas with locally-produced biofuels.

Over 40 municipal officials participated in an event sponsored by the Canadian government to share experiences and learn ways of improving economic growth, public services, democracy and governance. P3DP demonstrated the process used in developing the PPP project in Malyn using biofuel to provide heat.

The Kyiv Investment Agency (KIA) requested P3DP assistance in converting six boiler houses to biofuel by replicating the process used to develop the Malyn pilot. P3DP provided KIA in-depth

consultation on the technical aspects, legal structure, financial model and process used for developing the alternative energy PPP pilot.

Boosting prospects for this form of energy production were reforms approved by Parliament that better align green tariff rates with European practices. The amended legislation support municipal efforts to attract private sector investment needed to replicate P3DP’s alternative energy PPP pilot. RISKS AND MITIGATION Technical and political risks have largely been mitigated. The key remaining risk is that budget constraints could possibly lead to the inability of the municipality to pay the private sector partner in a consistent and timely manner. During project development, P3DP reviewed local budgets and determined that the city has the resources to pay for long-term service and provide advice and support to the project.

P3DP’s studies show that using straw or wood pellets as a substitute for natural gas is economically feasible and does not present health risks to the public.


EXPECTED PROJECT RESULTS P3DP’s studies show that using straw or wood pellets as a substitute for natural gas is economically feasible and does not present health risks to the public. Furthermore, improved heating efficiency will enable Malyn to increase temperatures at its schools, which can reduce student absenteeism due to illness. Other expected benefits include: Municipal energy costs should fall by

up to 40 percent; Over 1,600 students and teachers will

benefit from warmer and more reliable heating;

Carbon emissions will be reduced by over 11,000 tons over the life of the project;

The feasibility of using wood or straw pellets as a carbon-neutral renewable fuel source will be demonstrated in Ukraine;

Attraction of nearly $150,000 in new investments and creation of four new jobs; and

Ukraine’s energy independence will be strengthened by demonstrating a highly replicable model.

Solid Waste Management The Government of Ukraine aims to reform its highly-inefficient solid waste management sector. By involving the private sector through PPPs, government can reduce costs, increase recycling, introduce new technologies, improve management, and protect public health and the environment. P3DP has collaborated

with the National Commission for Communal Services Regulation and the Ministry of Regional Development, Housing and Communal Services to establish a rational, clear, and consistent SWM tariff methodology for the disposal of waste at municipal landfills, an essential factor for successful public-private partnerships in the sector. A promising component of a comprehensive SWM strategy is generating power by harnessing harmful methane gas produced by landfills. This approach not only produces energy, but reduces negative environmental impact and contributes to long-term maintenance and post-closure activities on the landfill. P3DP is working with municipal governments in both Vinnytsia and Ivano-Frankivsk to develop PPPs that harness biogas emissions as part of their comprehensive SWM systems. P3DP has joined other stakeholders to advocate for reform of the sector to establish a modern and effective system based on EU standards. Led by the Ukrainian Ecological Alliance, a working group was formed comprising over 15 leading waste management companies and key government agencies. The working group is developing a unified advocacy plan to reform the regulatory and policy environment. Members include representatives from the Verkhovna Rada, the Ministry of Ecology and Natural Resources, the State Ecological Inspection, and the Ministry of Regional Development. P3DP and key educational institutions are also participating.


Vinnytsia SWM and Landfill Gas Utilization Project

STATUS: On hold awaiting better investment climate BACKGROUND Vinnytsia, a city of 370,000 located 260 km west of Kyiv, plans to generate electricity using landfill gas at an existing municipal landfill through a PPP. Earnings from the produced electricity will be used to re-cultivate and close down the landfill once its capacity expires and provide resources for post-closure care. This is important for addressing long-term environmental safety at closed landfills. In addition, the city will reduce its carbon emissions and need for power generated from more polluting sources. The project will require installation of new equipment at the existing municipal landfill to combine the current biogas flaring system with a newly-built electrical generation system. P3DP developed a financial model for the project to forecast potential proceeds of electricity sales at a higher “green tariff,” and identifying what maintenance, closure and post-closure measures the city can reasonably request from the private partner. P3DP also conducted legal and environmental assessments, prepared the feasibility study and tendering documents, and defined key provisions of the PPP agreement. P3DP also conducted study

tours to demonstrate best practices of SWM in Hungary and Austria, which significantly improved the city’s understanding of PPPs. A Build-Own-Operate-Transfer (BOOT) PPP agreement structure was recommended for the project. In October 2013, the Vinnytsia City Executive Committee approved the PPP Appraisal Opinion and submitted the PPP package to both the MOEDT’s PPP Unit and the Ministry of Finance. Over a two-month period, P3DP worked with the agencies by providing necessary information about the benefits of the project and relevant legal requirements and procedures. The project was approved by the Ministry of Finance in December 2013. MOEDT’s PPP Unit approved the project feasibility study submitted by P3DP, allowing the Vinnytsia City Council to proceed with developing the project. In February 2014, the Vinnytsia City Council voted in favor of the PPP. The decision initiated the pre-tender stage, during which all necessary documents are to be prepared prior to tender. P3DP assisted the Committee to prepare components of the tender documents package, including the draft PPP agreement, tender instructions for bidders, and qualification criteria for evaluation of bids. These were submitted to the municipality for review. The environmental


Concept Paper

Feasibility Study

Municipal Approval

Tender Award


assessment was drafted and approved by USAID. At the request of the municipality, P3DP updated the financial model to reflect current currency exchange rates, inflation, costs, solid waste collection and utilization tariffs, and projected revenue. The updated financial model demonstrated that the city needed to increase landfill tariffs and control capital expenditures of the private operator. However, as part of the Government of Ukraine’s efforts to reduce costs, green tariff rates were temporarily reduced in March 2015 by approximately 50 percent. This development significantly alters the business model of the project and lowers the incentive for the private sector to participate in the project. This, in addition to worsening economic conditions and a sharp increase in the cost of necessary imported equipment (due to devaluation of the Ukrainian Hryvnia), led the municipal government to conclude that it would be unable to secure a transparent and competitive tender at this time. It therefore put the tender on hold until the long-term status of the green tariff is resolved and economic conditions allow a competitive tender. The city will conduct a short-term agreement with the existing private business on the landfill to produce energy until economic conditions enable a full tender. P3DP plans to capture lessons learned for the benefit of future PPPs in the sector and legislative reform initiatives using the Vinnitsa case. The updated financial model demonstrated that the city needed to increase landfill tariffs and control capital expenditures of the private operator. However, as part of the Government of Ukraine’s efforts to reduce costs, green tariff rates were temporarily

reduced in March 2015 by approximately 50 percent. This development significantly alters the business model of the project and lowers the incentive for the private sector to participate in the project. This, in addition to worsening economic conditions and a sharp increase in the cost of necessary imported equipment (due to devaluation of the Ukrainian Hryvnia), led the municipal government to conclude that it would be unable to secure a transparent and competitive tender at this time. It therefore put the tender on hold until the long-term status of the green tariff is resolved and economic conditions allow a competitive tender. The city will conduct a short-term agreement with the existing private business on the landfill to produce energy until economic conditions enable a full tender. P3DP w capture lessons learned for the benefit of future PPPs in the sector and legislative reform initiatives using the Vinnitsa case. ACTIVITY DURING THE REPORTING PERIOD Although the PPP competitive tender was not conducted, the City benefited from P3DP’s technical, environmental and legal analysis. The financial model created can be adjusted to reflect new tariff rates and projected revenues. Prospects for the project improved with the passage of Draft Law 2010-d On Amendments to Some Laws of Ukraine to Ensure Competitive Conditions for Electricity Production from Alternative Energy Sources on June 4, 2015. RISKS AND MITIGATION The main risks to this PPP include:


A long approval process, creating

exposure to unforeseen force majeure events;

A lower-than-expected supply of biogas at the landfill, which could decrease expected revenue from the PPP.

To mitigate current risks, P3DP is taking the following actions: Working closely with the public partner

to ensure transparent bidding and provide support in gaining approvals at the national and local level on behalf of the winning bidder;

Advocating that the PPP contract include compensation mechanisms that obligate the public partner to cover specific costs should the private operator fail to collect and extract sufficient amount of biogas from the landfill.

EXPECTED RESULTS If completed, the project will reduce the

need for power from more polluting sources, resulting in reduced gas emissions equaling 20,000 tons of carbon dioxide annually by utilizing methane, which is many times more hazardous than carbon dioxide;

380,000 citizens will benefit from better landfill maintenance and a healthier environment at and near the landfill;

Investments of up to $2 million are expected, with six new jobs created. The state will benefit from UAH 60 million in taxes during the life of the project;

The private partner will assume responsibility of the existing landfill, freeing the city to build a new one; and

Once implemented, the development of this successful project will serve as a roadmap for replication elsewhere in Ukraine.

Ivano-Frankivsk SWM Landfill Gas Treatment and Electricity Production Project

STATUS: Appraisal approved by City Council BACKGROUND In 2013, a market operator determined that a landfill in Ivano-Frankivsk, a city of 220,000 in western Ukraine, generates sufficient gas for generating electricity. Discussions between P3DP, the Mayor and

Governor led to development of a pilot PPP project. A private operator will be responsible for designing, financing, building and operating an electrical generation facility for a fixed term sufficient for extracting all produced biogas, estimated to be about 15 years after closure of the landfill.


Concept Paper

Feasibility Study

Municipal Approval

Tender Award


P3DP prepared the PPP Concept Paper and began work on the feasibility study. The paper outlines the general structure of the project and provides technical and financial assumptions for the future facilities related to biogas treatment and electricity production. P3DP recommended a Build-Own-Operate-Transfer (BOOT) PPP for the project. In June 2014, the municipality committed 100,000 UAH to contract the engineering firm that will prepare technical documents and terms of construction of the grid. The cost, technical, and environmental requirements for connecting the PPP’s power generation facility to the electricity grid were also determined. Electricity generated by the project will be eligible for application of the higher “green tariff” rates, making alternative energy projects more attractive to private investors. The PPP Pilot Project in Ivano-Frankivsk was delayed by the political crisis, which impacted both the municipality and the Ivano-Frankivsk regional administration. However, on March 20, 2014, the Executive Committee of Ivano-Frankivsk approved a decision to begin preparation of the Pilot PPP Project with P3DP support. P3DP began work on the feasibility study, and a draft was completed in August. The financial and legal options of the facility and landfill re-cultivation were analyzed. The municipality provided comments on the draft feasibility study, which was finalized by P3DP after numerous discussions with Ivano-Frankivsk officials and lawyers. P3DP presented the updated feasibility study and financial model to municipal authorities, highlighting how the project will

harness harmful landfill gas emissions, improve the environment, and generate electricity and funds. A U.S. delegation of environmental experts also visited Ivano-Frankivsk to assess needs, opportunities, and ongoing efforts. The city presented its projects, including the SWM PPP pilot being supported by P3DP. The delegation expressed interest and willingness to seek additional donor financing and assistance needed by the city as its leaders work to improve the environment and provide better services. ACTIVITY DURING THE REPORTING PERIOD In May 2015, the City Executive Committee and City Council approved the project’s Feasibility Study and Appraisal Opinion. This is a key decision necessary for the municipality to tender the SWM/alternative energy project and a public-private partnership. P3DP has been developing the bidding and evaluation guidance materials as the project moves towards tendering. The next step is for the City Council to set up the Tender Committee and announce the tender. However, pressures on the budget have made the timing for the construction of power lines connecting the site to the grid unclear. P3DP is following up on developments. The passage of Draft Law 2010-d On Amendments to Some Laws of Ukraine to Ensure Competitive Conditions for Electricity Production from Alternative Energy Sources on June 4, 2015 gave a boost to this project introducing a uniform formula for calculating the “green” tariff for energy produced by alternative sources.


The law also cancels feed-in tariffs for connecting power facilities generating power from alternative sources to the grid. RISKS AND MITIGATION The risks that this pilot PPP faces include: Political conflicts at both the regional

and municipal level in Ivano-Frankivsk, compounded by national security issues that may delay project implementation; and

Failure by the public partner to construct the electricity grid from the landfill to electric utility on a timely basis.

To mitigate these risks, P3DP is taking the following actions: P3DP maintains close contact with two

key stakeholders: the Ivano-Frankivsk municipality and the Ivano-Frankivsk Regional State Administration to facilitate progress on the project; and

P3DP is closely monitoring the political situation in Ivano-Frankivsk and provision of relevant technical and legal information to stakeholders.

EXPECTED RESULTS 220,000 citizens will benefit from greater

environmental safety;

Investments of up to $2 million are expected, with six new jobs created; and

Generation of electricity using landfill gas will reduce the need for coal-powered electricity, reducing carbon emissions by over 450,000 metric tons of CO2 equivalent.

Parks & Recreation Municipal governments in Ukraine typically do not have funds or management capacity to effectively maintain and operate sports and recreation facilities, including public parks with green areas. As a result, facilities in many public recreation areas are falling into disrepair. By engaging the private sector through PPPs, local governments can obtain both financing and operational expertise necessary so that the public can enjoy parks, sports facilities, and other recreational areas. P3DP has supported two pilot PPP projects to demonstrate how this can be done. Unfortunately, the Simferopol Urban Park Renewal PPP could not be completed because of the Russian occupation of Crimea. The second pilot, the Kyiv Summer Sports & Recreation Facility, was successfully implemented.

Kyiv Summer Sports and Recreation Facility

STATUS: Operational BACKGROUND In 2013, the Kyiv City State Administration (KCSA) requested P3DP’s assistance with a PPP project to create a sports and recreation zone at Dolobetsky Island, located in Kyiv in the Dnipro River. An area of 10.5 hectares was made available to a private investor to construct several playgrounds and mobile stadiums – light construction without fixed foundations – while maintaining existing facilities, such as a first aid medical facility, trading pavilion, and several administrative buildings. Although Kyiv has a mechanism for working with private companies on municipal-owned facilities, it needed a structure suitable for a more complex, long-term transaction that allocates risks and requires capital investments for new facilities. Furthermore, the island is an environmentally sensitive territory and public opinion against its improper development is passionate. Following P3DP’s review of the project feasibility study conducted by the KCSA, the Economics and Investments Department requested P3DP to assist with stakeholder communications, the PPP contract preparation, and the tendering. P3DP commented on the draft contract and provided recommendations on the tender package. P3DP recommended a Build-Own-Operate PPP contract. The project went to tender in July 2013 and publicized in accordance with all required procedures.

Although only one bid was received; the city selection committee determined the company was technically qualified and that their proposed approach would bring value and be in the best interests of the public. The contract was signed with a Kyiv-based firm, Misto Sportu Ltd. P3DP submitted data for the Environmental Review for the project. The project meets national environmental impact guidelines, as well as improves facilities and protects green areas in and around the park. P3DP reviewed the site of the Kyiv Recreational Facility PPP in May 2014. The selected private partner constructed temporary sports facilities and is maintaining green areas. General improvements, including walkways, were co-financed by the operator and the city. P3DP will continue to monitor implementation and observance of contract obligations. ACTIVITY DURING THE REPORTING PERIOD The project has successfully completed tender and award and is in the operational phase. The project has drawn some interest by other municipalities seeking private sector participation in the sports and recreation sector. In April 2015, P3DP met with the Vyshgorod City Council (Kyiv Region), representatives from the Rowing Federation of Ukraine, and two potentially interested


Concept Paper

Feasibility Study

PPP Contract Perparation

Tender Award


investors to evaluate the potential of their planned PPP in the sector. P3DP shared experience, materials, guidance tools, and detailed the steps required for the Vyshgorod City Council to advance the project. P3DP continues to monitor the project. RISKS AND MITIGATION During development, the project carried the following risks: Low public opinion of the project, which

is located in a popular summer leisure area. The public was also opposed to existing kiosks, which were selling alcoholic beverages without necessary permits and contributing to an unsafe environment;

Low occupancy of facilities due to overall slow economy and unrest; and

Unexpected requirements from the new mayor’s administration.

P3DP successfully mitigated these risks as follows:

P3DP successfully demonstrated that

the project required long-term operations of the facilities rather than installation alone, and that this could be achieved by including PPP components into tender and contract;

With P3DP support and guidance, the Kyiv municipality was able to develop the project in a timely manner and take it to tender. P3DP’s efforts increase the interest of the Head of Kyiv’s municipal administration in successfully implementing this type of project; and

P3DP provided strategic stakeholder communications support to the Kyiv’s municipal administration to increase awareness of PPPs and highlight project benefits for the public’s health and leisure. This effort was well-received by the public.

RESULTS Citizens of Kyiv have access to an

improved, clean public beach, safe access to the Dnipro river, quality facilities for beach soccer, football and other sports on Dolobetsky island;

Total investments are expected to reach $4.5 million. The city spent UAH 20 million; the private operator invested about $16 million UAH.

Five new jobs have been created, with up to 10 more expected.

Illegal bars and construction that can harm the environment have been dismantled; and

Most facilities are available free of charge to the public.

Urban Transportation With steady increases in the number of cars per capita and poor urban planning, driving in Ukrainian cities has become increasingly difficult, contributing to congestion, increased pollution, and reduced quality of life for Ukrainian citizens. The negative impact caused by inadequacy of public transportation infrastructure is magnified by the lack of parking facilities. P3DP is addressing the parking challenge by assisting the city of Lviv with a pilot PPP to build a parking facility to reduce


congestion in the city center. Many municipal leaders from other cities have expressed interest in the project to serve as

a “roadmap” as they look for ways to address traffic and parking issues in their respective cities

Lviv Parking Management

STATUS: PPP project documents drafted and awaiting comment by municipal authorities BACKGROUND The lack of parking spaces in central Lviv has led to serious traffic problems that are difficult for drivers and pedestrians alike, as well as negatively impacting the environment and business. P3DP is supporting the Lviv city government in developing Ukraine’s first parking management PPP for a multi-level underground garage. This requires revisions to parking legislation, better enforcement of parking regulations, and identifying a private sector partner to finance, build and operate the facility. P3DP worked with the transportation department and the city’s Investment Department to implement the project through a PPP mechanism. P3DP recommended a Design-Build-Finance-Operate (DBFO) PPP structure for this project, and is considering a concession. P3DP completed a cost and engineering design report and provided a tentative design for the facility in June 2014. P3DP updated the financial model to learn which financial scenarios can be applied, which

expected tariffs level would be feasible, and the recommended project duration. P3DP provided assistance in determining an acceptable level of tariffs and how they should be regulated. P3DP also prepared a market sounding note that can be used in communications with possible bidders in order to evaluate market potential of the PPP. The city will assess bidder interest using this and other P3DP materials in the coming months. A positive development that will impact the project was the passage of new laws that impose fines for nonpayment of parking fees and allow towing of improperly parked cars. These will encourage use of parking facilities and makes the project more economically viable. P3DP met city representatives in Y5Q1 and discussed further steps related to market sounding meetings and public outreach. The market sounding note package was distributed among potential investors/operators. P3DP prepared a draft strategic communications plan and submitted it to city officials. P3DP has shared all PPP Project documents among local City Council deputies.


Concept Paper

Feasibility Study

Municipal Approval

Tender Award


ACTIVITY DURING THE REPORTING PERIOD P3DP met with Olha Syvak, Lviv’s new Investment Officer, to review the status of the pilot PPP parking project. Syvak indicated that the City plans to move forward with the project contingent upon the findings of their archaeological and geological studies, which are expected in August. RISKS AND MITIGATION Lviv parking PPP possesses a number of risks: The city of Lviv has complex geological

and historical underground structures with numerous historical items located underneath the city center;

The city may be unable to implement parking policies. Drivers may therefore seek free parking spaces on the street, leaving the underground garage without revenue;

Required changes to legislation may be delayed or not take place, such as modifications to the Administrative Code and other laws;

The private operator may fail to collect enough revenue to cover its costs; and

The project may encounter opposition from the general public or specific NGOs.

P3DP mitigated these risks as follows: Engineering consultants were hired to

assess project technical viability. While P3DP was preparing the initial Concept Paper, city architects were consulted to minimize chances that shortlisted

locations would contain historical objects or underground water flows;

P3DP monitored the results of the Lviv Municipality’s adoption of local resolutions implementing first steps in parking policies, such as collecting fees from users and disabling illegal parking sites. These were successful, suggesting that it will be possible to enforce parking regulations in the future;

P3DP has monitored legislative changes in urban parking by certain municipalities and ministries. These suggest that required changes are feasible;

P3DP recommended that the PPP agreement include compensation mechanisms that obligate the public partner to provide payments should the private partner not collect enough revenue as a result of poor parking law enforcement practices or inability to prohibit parking in the surrounding area. It should also include subsidy and profit sharing mechanisms; and

Limited assistance to develop this project is currently planned. P3DP will provide guidance and support in future stakeholder communication efforts to identify concerns of groups and highlight potential benefits of the project; and a preliminary environmental review will be completed to highlight issues that need to be addressed by the city prior to moving ahead with the project.

EXPECTED RESULTS The project may attract up to $20 million

in private sector investment with ten new jobs created, depending on the size of the garage;


Illegal parking will be eliminated in a radius of 200 meters from the facility;

Traffic congestion will improve in the city center business environment while adding to pedestrian areas;

On-ground parking for 200 bicycles will be created; and

Lviv’s pilot method for controlling off-street parking while providing for-pay parking may be adopted by other Ukrainian cities. Many cities have expressed interest in learning from Lviv’s efforts to develop the pilot, even if it does not complete tendering.

Education Educational institutions in Ukraine have suffered from a rapid decline in population, a lack of funds, and low disposable incomes. Private sector participation in the education sector has the potential to help government better allocate existing and find new resources to improve the educational system. Education PPPs can help governments obtain the resources necessary for modernizing, operating, maintaining and managing educational facilities in partnership with the private sector, which enables school leadership to focus on the content and quality of education.

Kyiv Maintenance of Educational Facilities PPP

STATUS: Financial model updated BACKGROUND The Kyiv Education PPP demonstrates how thorough due diligence during the design stage of a PPP can identify issues in a timely manner, thereby enabling government to restructure the transaction in a more viable manner. City officials initially sought a PPP in which a private operator would build or renovate a kindergarten that charges fees and manages it. Working with city authorities, P3DP completed business and financial models, market testing meetings, and legal reviews. P3DP’s findings identified a financial “viability gap” and that a government subsidy would be

necessary for the project to be attractive to private investors. They also revealed that under existing legislation, the transaction process would be lengthy and cumbersome. P3DP and the City concluded that a new concept would be necessary. During Year 4, P3DP and the Kyiv City State Administration (KCSA) revised the PPP concept to contract out maintenance and operations of educational facilities in Kyiv’s Podil district of Kyiv to a private sector operator. The operator is to provide utility, maintenance and related services to all education facilities on a long-term basis. P3DP and the KCSA agreed on a number of key points related to the project, including the general approach, implementation


Concept Paper

Feasibility Study

Municpal Approval

Tender Award


schedule, and approval authority of various municipal departments. The Kyiv Department of Education will be the contracting authority. P3DP’s legal expert completed the analysis and initial draft of the legal concept for the project. The optimal type of contract and other legal arrangements between the private operator and municipal partner were determined. The legal concept was submitted to the city for review. Significant work on the draft financial model was prepared drawing from financial data from 78 education facilities. The data included payments for utilities, maintenance services and all adjacent services with breakdowns for different education facilities. Political changes had an impact on the process. In 2014, Kyiv elected a new mayor following the ouster of the Yanukovich government and the work of city department staff was occupied with administrative change issues. The priority of the PPP pilot diminished and progress at the municipal level was delayed. Regardless, P3DP submitted financial and business model to the newly-appointed head of KCSA, Mr. Bondarenko. For the pilot to succeed, it needs political support from the new mayor and newly-appointed officials in the Economic and Education Departments. The City has acknowledged that budgets are severely constrained and, as a result of P3DP efforts, private sector resources are now being viewed as an essential tool in many public service areas, including education. The Education Department of the KCSA officially applied to the Podil District

Administration and the Finance Department for funding to be committed in the budget to support the PPP project in the long-term, which is critical for ensuring that the operator can be paid. P3DP is working with these bodies to complete the process and proceed with the drafting of PPP documentation. P3DP carefully reviewed the expenditures for education facilities in the new Kyiv City budget for 2015. These were provided by the KCSA. P3DP determined that the PPP project for the maintenance of the existing 74 educational facilities in Podil district is financially unfeasible, covering only 30-40 percent of actual needs. However, in March 2015 Kyiv city council, seeing a significant shortage of kindergarten places in Kyiv, issued a decision that old kindergartens could be rented for 1UAH. P3DP approached KCSA and proposed updating the financial model that reflects the impact of this decision. ACTIVITY DURING THE REPORTING PERIOD

P3DP is awaiting decisions from KCSA on how they wish to proceed with the project. One scenario is P3DP taking the original concept of the Education PPP (developed in 2012) to market by the end of Y5Q4, since the new lease rates make that model feasible. P3DP can design the project so that up to 30 percent of children can attend newly-reconstructed facilities free of charge as a social contribution from the private partner to demonstrate the viability of such structures to the Kyiv authorities. RISKS AND MITIGATION


Several factors create risks that could delay the project: KCSA staff changes and appointment of

the newly-elected mayor may continue to delay the project.

Ukrainian legislation contains numerous provisions that are not optimal for the project, for example, budget legislation that limits long-term contracts with private sector operators.

P3DP is mitigating these risks by: Maintaining regular contact with key

decision makers in the City government to educate them on PPPs and the project;

Ensuring that the recommended legal structure for the PPP conforms to state procurement and communal services legislation. The legal model recommends creation of a KCSA budgetary program to ensure long-term financing of facility maintenance; and

Proposing services under the PPP that are fully covered in the city budget. At the same time, P3DP, under Objective 1, is continuing efforts to modify the budget code to enable long-term contracts with private operators.

EXPECTED RESULTS

The project will have powerful

demonstration effects for the use of

PPPs in the educational sector and other areas where the municipality manages assets, with good prospects for replication elsewhere in Ukraine;

Legislative issues affecting education PPPs will be identified as a result of this pilot; and

Educational facilities will be more effectively managed, with maintenance and operations conducted by private operators with the necessary skills and expertise.

Healthcare The state-run healthcare system in Ukraine, which guarantees free healthcare to all citizens, faces serious constraints at every level. Funding, facilities, equipment and supplies are inadequate. Doctors are poorly paid and do not have access to modern equipment. Healthcare management is inefficient and encourages corrupt practices. The Ukrainian healthcare system provides poor service and creates a heavy financial burden to the state. Patients also suffer because they have to pay doctors unofficially and buy their own medicine. Private sector funding, expertise and technology mobilized through public-private partnerships can help address these issues and improve the overall quality of medical services.

Zaporizhia Healthcare PPP

STATUS: On hold BACKGROUND P3DP is working with the municipal government of Zaporizhia to create Ukraine’s first healthcare PPP. The project envisages sharing hospital space with a private partner that will renovate facilities, procure modern equipment, and introduce new surgical techniques. The project is expected to attract $2 million over the 25-year life of the project. If successful, the project has the potential to be replicated elsewhere in Ukraine. The hospital’s legal status will remain unchanged and will not affect the free services it provides. P3DP is playing a central role in this project. In close collaboration with the city, P3DP designed and structured a PPP project that will deliver significant benefits to citizens without imposing additional costs to the city. Sections of the hospital will be rehabilitated and will obtain new equipment. The amount and quality of medical services in the hospital will increase, taxes and other financial benefits will accrue to local and state budgets, and most importantly, patients will benefit from a wider variety of treatments. P3DP recommended a Lease-Rent-Operate-Transfer (LROT) structure for this project. It prepared the feasibility study, including the legal review, business model and financial plan. It also increased the capacity of municipal representatives on PPP issues through conferences and training.

P3DP prepared and submitted the Appraisal Opinion and full PPP package to the Zaporizhya City Executive Committee, including the feasibility study, legal review, business model, and financial model. The project experienced some delays because of the political crisis, which led to protests and a partial work stoppage of the City Council and Zaporizhya Regional Administration. Changes in regional and municipal leadership, as well as local political struggles, further slowed down the process. Reforms to the healthcare administrative system, which shifted responsibility for the hospital, including its budget, to the Zaporizhya Regional Administration, also caused some delay. These changes introduced new decision makers and broadened and increased the need for effective stakeholder communication. In response to administrative changes in Zaporizhia’s healthcare administration, P3DP conducted a review of the benefits of the envisioned PPP with both the City Council and Regional State Administration to highlight the benefits the project will bring to the community, recommended a legal structure that defends the public interest, clarify project accomplishments, and identified actions necessary for its successful development. Unfortunately, the champion of this project, Deputy Mayor Kaptyukh, passed away unexpectedly. This, as well as local political issues, has delayed


Concept Paper

Feasibility Study

Municipal Approval

Tender Award


final approval by the City Executive Committee. Upon approval, the project package will be submitted to the PPP Unit of the MOEDT and the Ministry of Finance. Zaporizhia region possesses high potential for economic growth but is currently experiencing sporadic incidents of unrest and conflict. After months of political instability, P3DP discussed the project with the newly-appointed Deputy Mayor Kuzmin in August 2014, who stated that he will champion the city’s healthcare PPP project. Later that month, the City Executive Council began evaluating the Feasibility Study. Once it reaches consensus, it plans to submit the Appraisal Opinion to the MOEDT’s PPP unit for review. The project was temporarily delayed because of social and political disturbances in Zaporizhia. Internally displaced persons (IDPs) from the war in Donbas required assistance and security issues needed to be addressed. The Mayor was accused of corruption and links with organized crime, which led to protesters picketing City Hall demanding his resignation. P3DP visited Zaporizhya in March 2015 after a long break caused by increased security alert in the region and inability of the city to dedicate efforts to project development because of significant activities with IDPs in the region. ACTIVITY DURING THE REPORTING PERIOD P3DP had been told by the Deputy Mayor, Mr. Kuzmin, that the city will work to approve the PPP appraisal opinion at the city executive committee. However, in May

2015 the city informed P3DP that it was not ready to move forward with the project. The feasibility study and financial model may be used by the city for further development of the sector. RISKS AND MITIGATION The Zaporizhya healthcare PPP Project bears the following risks: Local political conflicts, civil unrest, as

well as frequent change in local leadership may continue longer than expected, which may result in further delays to the project;

State medical reform is moving extremely slowly due to shifting priorities, which may jeopardize the project. Funding of hospitals may be transferred from municipality to regional budget and responsibility; and

The public may not understand the introduced fee-based services.

P3DP is mitigating these risks as follows: P3DP met with both the Mayor and

representatives of the Governor of Zaporizhya to provide reassurance that the project is well-structured and employs a model that conforms to Ukrainian law, verified by P3DP’s legal consultants;

P3DP continues to monitor progress on state medical reform; and

P3DP has conducted numerous meetings with project stakeholders, hospital staff and future patients and is ready to organize additional stakeholder events and communication programs to address their concerns.


EXPECTED RESULTS This will be the first healthcare PPP in

Ukraine, opening the door for greater private sector participation in the sector;

Up to $2 million in private investment may be mobilized, creating 50 new jobs;

Citizens of Zaporizhya will benefit from new and higher quality existing healthcare services; and

Tax revenues could bring UAH 100 million to the city and national government over the life of the project.

4.4 Objective 4 Plans for Y5Q4 During Y5Q4, P3DP will wrap up its work on pilot projects and focus on capturing lessons learned. In the final quarter of the project, P3DP will: Monitor performance of the Kyiv and

Malyn pilots; Conduct studies and make

recommendations on the role of the private sector in healthcare and housing for IDPs;

Prepare sectoral briefs on key sectors, including solid waste management, biofuel, healthcare and education; and

Develop case studies and videos for PPP pilots, including those that are in progress or could not be completed (for example, the parks & recreation PPP in Simferopol).


PROGRAM ADMINISTRATION P3DP recognizes the importance of a well-functioning administrative support system that effectively supports technical staff and experts. Effective hiring and staff development is a priority for P3DP to ensure that its finance, compliance, procurement, logistics, human resources and other administrative functions contribute to the program meeting its objectives. Program administration also ensures that P3DP complies with both USAID and Ukrainian regulations. As P3DP approaches completion, multiple administrative and programming staff members have left the Program for new positions within recently launched projects. P3DP will use part-time employees on an as needed basis to ensure smooth and effective operations continue until Program closure.

Staff Changes Two administrative staff left the P3DP during the previous period. Three P3DP programming staff left during this most recent reporting period:

Tetyana Korotka, Director of Professional Services, left P3DP to join the Business Ombudsman team, funded by the EBRD.

Ruslan Kundryk, Manager of Legal Reform Activities, left to join a five-year economic development program financed by Canada.

He was joined by Valeriy Dobrovoskiy, Project Manager for Pilot PPP Projects.

P3DP’s Olena Maslyukivska and Olexandra Chala have assumed greater responsibilities to accommodate these staff departures. Several short-term facilitators/translators have also been hired to ensure smooth operations to project close-out.

Close-out Plan P3DP developed and submitted draft a close-out plan designed to guide the final three months of the Program.


ANNEXES Annex 1: P3DP Y5Q3 Performance Monitoring Report Annex 2: Legislation and Policies Developed with P3DP Input Annex 3: Article in Business Ukraine: Public-Private Partnerships and the Turkish Experience

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