Public Private Partnership – An Infrastructure Development Model for the Baltic countries

Co-operation between the public and the private sector can be a successful model for financing capital-intensive infrastructure investments.

The use of Public Private Partnership (PPP) enables countries in great and urgent need of upgrading their infrastructure to advance even major projects by implementing them mostly outside public budgets.

Representatives from the Nordic and Baltic countries gathered on Thursday 15 April 2004 at a seminar in Riga to discuss PPP projects and seek a solution for the rapid development of infrastructure in Estonia, Latvia and Lithuania, which in two weeks will officially become member states of the EU.

The Nordic Investment Bank (NIB) and Nordea bank arranged the seminar, entitled On the Implementation of Public Infrastructure Projects in Partnership between Public and Private Sponsors. The conference at the Riga City Hall was attended by some 50 participants, viz government and municipal officials, leading managers of the transportation and communications sector, and representatives of the finance sector.

PPP projects may be partly financed outside municipal or state budgets, and can thus be carried out without endangering the budget balance. The continuing great needs for infrastructure investments in the Baltic countries will be accentuated by their economic integration with the EU.

The main focus of attention at the conference was on experience gained from the implementation of PPP projects in Norway (Orkdalsvegen road projects and Oslo toll road system), Sweden (Arlanda express train), Finland (Lahti highway) and other countries.

Lauri Johnson, Vice President and Regional Manager of NIB: “Some European countries 20 years ago had similar investment needs to those of the Baltic countries today. They have successfully implemented a large number of PPP projects. In the Nordic countries various PPP projects adapted to countries with small populations have been implemented and lessons learned have been discussed at today’s seminar. The Baltic countries have already had substantial experience of privatisation and there is a political will to engage the private sector in most segments of society. These are positive ingredients and a good basis for implementing infrastructure projects with private sector involvement. Speeding up infrastructure upgrading in the Baltic countries will also create better possibilities to tap into the vast financial resources of the EU. Sectors which may be suitable for PPP structures include, for example, transport, water and sewerage, heat distribution, and education and health. The seminar concluded that PPP is a form of co-operation between public and private sources, whereby the public sources invite private sources to share risks and responsibilities.”

Eriks Plato, Deputy Manager of Nordea Bank Finland Plc Latvia branch: “Presumably, the enhancement of the public and private partnership is a good solution for attracting investments for the implementation of numerous and serious infrastructure projects in the countries of East Europe. The funds proposed by the states and municipalities are insufficient for the many serious projects aimed at bringing infrastructure quality in the Baltic countries closer to the EU level within the next few decades. The conference participants discussed the projects previously accomplished in Finland, Sweden, the UK and other countries. The Baltic countries are also suitable for implementing similar projects, thereby giving more bang for the taxpayers’ buck. We expect both national and local government to be very interested in the possibility of utilising the partnership model, gaining from the experience of the Nordic experts, since our own citizens are still having to make do with bumpy roads and poor-quality public services, etc., not to mention the lack of serious infrastructure projects.”

NIB is a multilateral financial institution owned by the five Nordic countries. Estonia, Latvia and Lithuania are expected to become members of the Bank from 1 January 2005. The membership region will thereafter include most of the countries around the Baltic sea and the Bank will be able to act as an important institution in the region. NIB has been active in the Baltic countries since the beginning of the 1990s, providing long-term financing and institutional building. NIB’s loan engagements in the Baltic countries exceed 600 million euros.

Nordea is the leading financial services group in the Nordic and Baltic Sea region, with 11 million clients from more than 22 countries. In Latvia, Nordea Bank serves private individuals, corporations and municipalities.