PPP criteria "1 to 1" postponed for a year

On April 1, 2021 the Methodology for Selecting State Investment Projects (Order of the Minister of National Economy of the Republic of Kazakhstan No. 129 of December 5, 2014) was amended by adding a new compulsory prerequisite (criteria) for the implementation of PPP projects (including concession projects) under which the state obligations under the PPP projects, including state concession obligations (if necessary) should not exceed the amount of money spent or involved by the private partner (concessionaire) in the PPP (concession) project, including the private partner's own funds. At the same time, the private partner shall involve its own funds into the project in the amount not less than 10% of the value of the PPP object.

This innovation could potentially lead to that private partners under the PPP projects would only be able to receive the reimbursement of real costs incurred during the implementation of the project, i.e. the state would not provide additional funding to ensure the profit of the private partner under the project.

Given that in the vast majority of large PPP projects private partners gain their profit at the expense of the state budget, all PPP projects that were currently planned for implementation, but have not yet been approved, were at risk of failure, taking into account that now the state does not intend to ensure the profitability of the private partner at the expense of the budget funds. In this regard, the financial models of the planned PPP projects shall have to be reconsidered taking into account this new criterion, or completely cancelled, since many PPP projects became less attractive to the private sector.

However, on April 28, 2021, by the Order of the Minister of National Economy of the Republic of Kazakhstan No. 48 "On Amendments and Additions to certain Orders", the above criterion was suspended until April 1, 2022. This postponement provides private sector and the state with an additional time to revisit planned PPP projects and adjust to a new model of implementation of the PPP projects and concessions.

Автор: Раушана Чалтабаева Нурлан Кубенов