PROJECT INFORMATION DOCUMENT (PID)



PROJECT INFORMATION DOCUMENT (PID)

CONCEPT STAGE

Report No.: AB3633

|Project Name |Public-Private Partnership Development Project |

|Region |EUROPE AND CENTRAL ASIA |

|Sector |Central government administration (40%);General transportation sector (20%);General energy sector |

| |(20%);General industry and trade sector (20%) |

|Project ID |P110595 |

|Borrower(s) |RUSSIAN FEDERATION |

|Implementing Agency | |

| |Ministry of Economic Development and Trade |

| |1st Tverskaya-Yamskaya, 1,3 |

| |Moscow |

| |Russian Federation |

| |Tel: 7-495-200-03-47 |

| |presscenter@.ru |

|Environment Category |[ ] A [ ] B [X] C [ ] FI [ ] TBD (to be determined) |

|Date PID Prepared |February 12, 2008 |

|Estimated Date of Appraisal Authorization |April, 2008 |

|Estimated Date of Board Approval |December 16, 2008 |

1. Key development issues and rationale for Bank involvement

In order to boost its competitiveness in the globalized world, Russia will need to improve its business climate, make massive invest into physical infrastructure and promote development of innovation-based industries. Rudimentary innovation and enterprise support infrastructure remains one of the main issues impeding diversification and transformation of a still impressive human and R&D potential of Russia. Infrastructure is in need of modernization, constraining the competitiveness of Russian companies and the growth of its economy. In the 2007 Logistic Performance Index,[1] the Russian Federation ranked only 99 out of 150 countries, well behind China (30), Chile (32), Poland (40) and Ukraine (73).

The Government of the Russian Federation is aware that the required high level of investments cannot be met only with public funds. Sustaining rapid growth has been identified as a strategic priority in the Country Partnership Strategy for FY07-09, and specifically includes supporting Government investment and PPPs for growth and diversification. According to the Russian officials, investment needs for the next decade are above US$ 1 trillion, with the majority being concentrated in the electricity generation, highways, railways, airports and ports. Such level of investment requires improving significantly the efficiency of public sector spending and attracting private sector participation in financing infrastructure development.

Public-Private Partnership (PPP) in Infrastructure Investment

In order to increase private participation in infrastructure, the Government has introduced new regulation and institutional reforms and allocated more financial resources to PPP development. The Federal Law on Concession was developed in 2005 and an Investment Fund was established in 2006 to provide financial support and guarantees to PPP projects in infrastructure. Moreover, a new Law on Toll Roads was adopted in 2007 and the Russian Development Bank was recently established to, among other things, support infrastructure development. The Law on principles of Special Economic Zones (SEZ) establishment was adopted in 2005, followed by substantial budget allocations for building physical infrastructure to pilot SEZs. Finally, the amount of funding for PPP projects to be implemented in 2008 exceeds US$ 3 billion and is expected to reach more than US$ 15 billion by 2012.

At the same time, the success and efficiency of public expenditure will depend on the proper identification and preparation of future PPP projects, and strengthening of PPP framework. International experience shows that a solid PPP framework combined with proper identification, preparation and procurement of PPP projects and detailed value-for-money analysis to determine feasible PPP projects[2] are necessary to prevent similar mistakes and failures that have been observed in the region[3]. Moreover, the complexity of PPP projects and associated risks would require extensive studies covering the economic, financial, environmental, social and legal aspect of PPP prior to deciding to embark on a PPP scheme. Finally, it is expected that the improvement of procurement and financial management processes (including financial reporting and audit) will contribute to increased value-for-money and better management of liabilities (direct and contingent) created by PPP projects.

Public-Private Partnership in Development of Special Economic Zones (SEZ)

In parallel to improving its infrastructure through increasing use of PPP, the Russian Government is modernizing the business climate and increasing support to innovation and manufacturing companies. The Government has embarked on ambitious program to establish SEZs for manufacturing and innovation-oriented companies. The SEZ are expected to become entry points for development of innovation and industrial clusters, enterprise incubators and technology parks rather than isolated domestic tax off-shores. More specifically, the SEZ would provide better business environment and simplified administrative procedures for starting and operating business, access to physical infrastructure and business facilities. The government program for SEZ support was initially focused on investments in creation of adequate physical infrastructure of the designated industrial sites in six competitively selected regions. In parallel, the FASEZ[4] procured software solution for single window provision of administrative services to SEZ tenants.

Additional technical assistance is now required to manage and market the SEZs to foreign and innovation-oriented manufacturing and service companies. As the visible progress with the physical infrastructure is now achieved, the SEZs need interventions to generate demand from firms and promote markets for these specialized business development services. In addition, the management of the SEZs is now an important issue, with FASEZ staff training and implementation of efficient management, monitoring and evaluation system being the most urgent priorities.

Rationale for World Bank involvement

The Bank is an established institution in the development of PPP framework, sector and PPP policy, and preparing specific PPP projects. In advising other countries, the Bank has developed in-depth knowledge of legal, regulatory and institutional practices related to PPP (particularly in UK, Australia, South Africa and Chile). For example, the Bank has been helping Chile improve its planning capacity and management of contingent liabilities. Finally, the Bank can leverage the expertise of its different institutions (IBRD, IFC and MIGA) in providing the best international experience in PPP, combining expertise in PPP framework, advice on transactions and mitigation of risks.

The Bank is also recognized in Russia as an independent source of global knowledge with strong understanding of how to increase partnerships with the private sector in infrastructure and industry. Technical assistance in developing PPP and SEZ through this project was requested from the Ministry of Economic Development and Trade. In Russia, the Bank has provided assistance in developing regulations and operational procedures for the Investment Fund, provided input during the formulation of the concession law, and worked with the Federal Government and other stakeholders in developing policies and mechanisms to support PPP. In addition, the Bank is seen as an independent advisor and has been providing extensive support to the City of St. Petersburg in developing several PPP projects[5] in the transport sector and establishment of a PPP Unit in the city government. Finally, the Bank has been continuously involved in helping Russia to strengthen its investment climate through on-going analytical and advisory program on private sector development issues.

2. Proposed objective(s)

The project’s development objective is to increase private investment in priority sectors of the Russian economy using PPP instruments .

These objectives will be met through (i) developing the capacity of Federal Ministry of Economic Development and Trade to identify, prepare, and implement large infrastructure PPP projects, including strengthening the existing Federal and Sub-National PPP framework; and (ii) strengthening the capacity of FASEZ to attract private sector partners to utilize SEZs to nurture innovation-based industries.

3. Preliminary description

The total project cost, which consists entirely of technical assistance (TA), is currently estimated at US$100 million, and would be supported by a Technical Assistance Loan (TAL) of US$50 million and US$ 50 million government co-financing. . A TAL is being proposed due to the exclusive focus of the project on institutional capacity building and technical assistance. The project is expected to be structured around three components: a PPP component, a SEZ component and a Project Management component.

Component 1 (US$85 million): The PPP component would focus on strengthening the Federal PPP framework and developing PPP projects that will meet the Government development objectives and be attractive to the private investors. This component would support: (i) the development of federal and sub-national PPP legislation and regulations for specific sectors, (ii) development of knowledge and mechanisms to improve access to capital markets for the financing of PPP projects and reducing selected risks (iii) identification, evaluation, preparation and management of potential PPP projects including feasibility studies and transaction advice at federal and sub-national levels, (iv) technical assistance to regions on identifying, developing and management PPP projects at the sub-national level; and (iv) capacity building both at federal and sub-national level on the above topics.

Component 2 (US$10 million): The SEZ component would support FASEZ in development of efficient management system and promotion of SEZ concept and services to innovation-oriented investors. In particular, this component would support (i) strengthening institutional capacity of the Agency to manage the zones and service their clients efficiently through advisory services on policy, strategy and technical issues, training programs for the staff of the FASEZ and its regional branches, and (ii) conducting specific activities to attract investors and market the SEZs to Russian and international business community..

Component 3 (preliminary cost – about US$ 5 million): The Project Management component would provide assistance to the Russian Ministry of Economic Development and Trade and the FASEZ in the following areas (i) procurement and disbursement, (ii) accounting and financial reporting, and (iii) audit.

4. Safeguard policies that might apply

The project will not directly finance any PPP project, and will focus on institutional capacity building and processes. The Ministry of Economic Development and Trade is essentially involved in economic and financial matters and will not implement any of the potential PPP projects identified by the project. Some capacity building on environmental and social safeguards could be considered for the Ministries or agencies involved in the implementation of projects.

5. Tentative financing

|Source: |($m.) |

|Borrower |50 |

|International Bank for Reconstruction and Development |50 |

| Total |100 |

6. Contact point

Contact: Vickram Cuttaree

Title: Infrastructure Economist

Tel: (202) 473-1876

Fax: 1 (202) 614-0900

Email: vcuttaree@

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[1] Global Facilitation Partnership for Transportation and Trade ()

[2] Value-for-money is the measure of savings generated by the PPP option compared to the traditional public financing of infrastructure (adjusted for risk, cost of financing, and over the whole life of the project)

[3] “Private Participation in the Transport Sector: Lessons from recent experience in the CEE and SEE countries”, working paper under preparation

[4] Federal Agency for the Management of Special Economic Zones

[5] (Western High Speed Diameter Road Concession, Orlovski Tunnel Concession, NADEX Light Rail and Terminal Concession and Pulkovo Airport Concession)

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