Federal Law No. 224 "On Public-Private Partnerships, Municipal-Private Partnerships" dated July 13, 2015 aims to create conditions for increasing the investment attractiveness of the domestic economy, the quality of services, products and work, the provision of which is under the responsibility of state authorities and local structures. The document identifies key aspects of the legal regulation of relevant relations, the powers of responsible institutions. The Law "On Municipal Private Partnership" establishes guarantees for the realization of the interests of the parties to transactions. Next, we consider the key aspects of the normative act.
Regulation on Municipal Private Partnership
Moscow Region conclude contracts for the supply of products, production of works and the provision of services for their needs. The procedure for their conclusion is determined by regulatory acts of the Russian Federation. Contracts financed exclusively by the local budget are not municipal-private partnership agreements. This is due to the fact that they, in essence, contain only a unilateral obligation to provide a service, perform work or deliver products on a specific date for an agreed price. Municipal private partnerships are relations within the framework of which co-financing of contracts is envisaged by the business and corresponding obligations are established for municipalities. In domestic practice, such transactions are considered as investment.
Rental relationship
What could be a municipal private partnership? This relationship is based on different transactions. For example, an enterprise may use property on a leasehold basis. Meanwhile, not every such transaction will act as a municipal private partnership. An example can be given here. The company leases the building, uses it for production needs. The municipality, passing the building of the company, aims to replenish the local budget by paying for the operation. Such relationships do not act as municipal private partnerships. The definition of the institution in question contains an indication of co-financing the implementation of the needs of the Moscow Region. In other words, the enterprise takes the object on lease on specific conditions to solve socially significant problems. In this case, some benefits for the company may be prescribed in the contract. Municipal private partnership based on rental relations can be used to solve the problems of socio-economic development of the territory. This may be improving the service sector for citizens, expanding medium and small businesses, social support for certain segments of the population, creating new jobs and so on.
Municipal Private Partnership: Position
By signing a contract, the parties stipulate their duties and rights, guided by the Civil Code. One of the advantages of such relations is the availability of regulatory support, maintaining control over the operation of property by the owner. Accordingly, a municipal private partnership allows the owner to monitor the proper implementation of the contract. At the same time, the Ministry of Defense carries relatively low risks, does not spend budgetary funds if existing facilities are transferred for use. The Municipal Private Partnership Regulation provides for the tenant to be able to make investments in the property he uses.
Concessions
This form of cooperation is considered the most popular today. Under the concession contract, various municipal-private partnership projects are being implemented. The most relevant include agreements in the field of public transport, utilities, waste collection and destruction. A separate law is in force in the Russian Federation governing the conclusion of concession contracts.
Equity participation
Municipal private partnership in Russia can be implemented as a result of privatization of enterprises or the formation of a business company . So, a unitary organization can be corporatized, then the share of securities can be sold. Normative regulation is carried out in this case in accordance with the Federal Law "On the Privatization of Municipal and State Property".
Another option is the establishment of a business company. It will have a mixed form of ownership. In it, parts or shares of securities will belong to the Moscow Region, and the rest to investors. Economic activity in this case is carried out at the expense of participants. They, respectively, are private investors and the municipality. They manage the created society together. Such a municipal private partnership involves a proportional distribution of risks in accordance with the size of the share of participants in the capital. The balance of interests will be determined by those who own blocking and controlling packages. Unlike other forms, municipal private partnership of this type involves the constant participation of government representatives in the economic activities of the company. Accordingly, the business has less independence and freedom in making managerial decisions.
Mixed forms
Public-private, municipal partnerships are not differentiated in normative acts. In this regard, in practice, various mixed forms of cooperation can be implemented. In addition, there may be such projects that are difficult to attribute to any of the above partnership options.
Benefits for MO
Municipal private partnerships can only exist if there is mutual benefit for the participants. Its presence acts as a necessary condition for cooperation. At the same time, the benefit for the parties may have different, and in some cases opposite, reasons. In this regard, for the correct formulation of the conditions of cooperation, it is necessary to understand the nature of the benefits for each participant individually. The benefits for MO are as follows:
- Attracting investment in the field of socio-economic development. The receipt of funds helps to improve the efficiency of the MO's own finances.
- Decrease in terms of implementation of development programs.
- Reduce your own costs.
- Improving the quality of services, reducing their cost.
- Engaging technologies that were previously unavailable.
- Cartoon effect.
- Attracting skilled workers.
Meanwhile, it would be wrong to say that these benefits appear on their own and always accompany relationships. These advantages must first be discovered, convinced of their reality by those who make managerial decisions.
Business Benefits
What are the benefits of the agreement? Municipal private partnerships can provide an enterprise with:
- High guarantees in achieving the calculated indicators of profitability, return on investment, extracting the planned income.
- Obtaining a number of benefits to reduce costs and increase the economic efficiency of entrepreneurship.
- The presence of a certain circle of consumers or a guaranteed market for sales.
- Higher credit availability.
- Guaranteed financing, if the terms of the transaction involve the participation of MO funds.
- The possibility of signing agreements with joint liability for certain risks.
- Obtaining a number of competitive, including reputational, advantages due to the presence of stable and long-term revenues due to participation in projects of great public importance.
Risks to the authorities
Municipal private partnerships are always accompanied by the likelihood of losses. For authorities, potential risks may include the following:
- The need to provide additional financing if it is provided for by the terms of the contract or there is a delay in the implementation of the program until it is completely abandoned. The latter is likely in case of mistakes in the economic feasibility of the project or when changing market conditions.
- Delaying the implementation period by the contractor.
- Increase in own expenses.
- Reducing the quality of services or increasing their cost with low preparedness or dishonesty of the partner.
- Reputational losses in case of failure of the project or failure to achieve goals.
Potential losses for the enterprise
Business risks may include:
- Correcting the conditions of activity under the terms of the agreement as a result of changes in certain political factors (regulatory regulation, priorities of power structures, and so on).
- The inability to achieve the estimated profitability indicators or reduce its level. Such a situation may arise due to market, economic, and political factors.
- Changing consumer preferences.
- Decrease in estimated income during the execution of the terms of the agreement.
- Failure to fulfill a joint liability agreement.
- Reputational losses due to failure of the project or failure to achieve goals.
Investments
Despite the fact that municipalities receive stable non-tax and tax revenues, the item of expenses is quite voluminous. As practice shows, only in rare cases can costs be fully covered by MO's own profit. Usually, most of the expenses are paid off from the revenues from budgets of higher levels. At the same time, municipalities are significantly limited in their ability to cover the deficit through borrowing. A way out of the situation may be municipal private partnership. The law allows partial or full financing of the implementation of tasks by the business, the transfer of part of the property of municipal enterprises to enterprises. At the same time, funds invested by third-party companies can be paid off at the expense of consumers, or this process will be extended in time if the local authority purchases the services.
In practice, the Ministry of Defense is forced to attract additional resources to solve the urgent tasks of the socio-economic development of the territory. As for business, the law "On Municipal Private Partnership" provides for a number of guarantees for enterprises. First of all, they relate to the procedure for the return of invested funds, as well as the extraction of estimated income. However, it should be borne in mind that there are always potential risks. The larger the project, the higher they will be.
Use of property
Municipal-private partnership projects based on rental and concession relations involve the transfer to commercial enterprises of certain objects owned by local authorities. In this case, the MO is exempted from the obligation to maintain property, and the business, in turn, saves money on its creation. Despite the obvious benefits, when implementing specific projects, the benefits may not be as obvious. Objects, especially those related to housing and communal services, are often in disrepair. In this regard, it is difficult to assess the risk associated with the need for reconstruction or overhaul. After the end of the concession or lease period, the user must return the property to the municipality. In this case, there is also a risk of wear and tear and the need to carry out restoration of fixed assets.
Management efficiency
In the theory of market economics, there is a thesis that private enterprise is more effective than state management. Meanwhile, this opinion is true for competitive business conditions, developed civil law institutions and regulatory relations, as well as a high management culture. Only when these factors are combined, the interest of commercial companies in reducing costs and generating profit is transformed into increased responsibility to customers. Accordingly, enterprises strive to improve the quality of services and products, apply new technologies, and constantly improve production. For this, in the framework of municipal-private partnerships, such conditions should be established under which the management of activities will be carried out by competent persons. Moreover, they can be representatives of both the authorities and the enterprises themselves.
conclusions
Municipal-private partnership in its essence and legal content is practically no different from the state. The difference is only in the scale of transactions and the volume of tasks. Usually, the state takes part in the implementation of large projects for the development of individual regions or sectors of the national economic complex. MoDs are interested in smaller programs.
Meanwhile, these differences do not change the principles of preparation and subsequent implementation of projects. Only the choice of model or implementation form will depend on the scale of the programs. The state, being an interested party in major transactions, in their implementation in some cases cannot do without the participation of municipalities in them. This is due to the fact that in some situations it is necessary to coordinate documents on territorial planning with the local authorities, land allotment, the provision of permits for the construction of facilities, and other issues related to the competence of self-government bodies. In this regard, almost all major public-private partnership programs are implemented in close cooperation with representatives of municipalities.
It should also be noted that in many cases the local authorities are very interested in attracting investments to their territory. However, at the same time, municipalities are significantly limited in their capabilities in comparison with the state. Accordingly, they can use only some instruments of motivation of commercial companies. This, in turn, indicates the need to formulate a specific policy to attract financial resources in relation not only to business representatives, but also to state authorities in the region.
Conclusion
Municipal private, as well as public-private, partnerships are aimed at improving the attractiveness of the economy for representatives of the business community. The current regulatory framework allows for the implementation of both large and small development programs. At the same time, public-private partnerships, attracting investors, seeks to solve larger problems related to the region or industry. At the same time, state bodies authorized to conclude contracts often cannot do without the participation of local authorities. Municipalities, in turn, enter into agreements with private partners to address the most pressing issues of territorial importance. As a rule, cooperation is carried out in the field of consumer services, housing and communal services. Of particular importance is the participation of private investors in the field of transport services and social support for needy categories of citizens.