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Public-private projects lose luster

State cancels two plans, seven more under financial review

By Riva Froymovich
Staff Writer, The Prague Post
April 18th, 2007 issue

An initiative to use private money for public projects that began before the new coalition government took charge is hitting some road bumps.
Two developments have already been halted by their sponsors: a new building for the Na Homolce Hospital in Prague and a campus for Jan Evangelista Purkyně University in Ústí nad Labem, north Bohemia.
“The project [in Ústí nad Labem] was not being financed the right way,” said Michaela Taschnerová, spokeswoman for the Education Ministry.
“The government has changed,” she said, and the project requires more research. “We realized the first decision wasn’t the best one.”
In addition, seven other projects initiated by the Social Democrats three years ago are currently being evaluated by the Finance Ministry.
“Obviously, the discussion over the projects is going to be long and tough,” said Jaroslav Růžek, spokesman for the Finance Ministry. “The government, when deciding about these projects, must be cautious.”
The planned public works include an estimated 11 billion Kč ($528 million) reconstruction of the Tábor-Bošilec section of the D3 motorway, a 923 million Kč upgrade of the Pardubice Regional Hospital and a new sports and leisure center in Brno, south Moravia, expected to cost 2 billion Kč.
Other projects approved by the state included a lodging house and parking area for the Central Military Hospital in Prague, valued at 440 million Kč; a 1.1 billion Kč prison; and a 18 billion Kč renovation of the Prague-Kladno railway, including a new connection to Ruzyně Airport, according to applications made public on the PPP Centrum Web site.
The government approved plans for the public works — called public-private partnerships — in January 2004, when the Social Democrats held the majority. Last December, the new Finance Ministry asked the institutions in charge of the projects to submit budgetary evaluations of their respective projects.
“The current government decided to think these projects over again and obviously wants to decrease the number of projects,” said Bohuslav Sobotka, a Social Democrat who previously served as finance minister and oversaw the pilot projects.
“I don’t think they will stop all of them. The projects that involved the construction of new highways are going to survive,” he said. In addition, the Justice Ministry’s preparation for projects went well, he said.
“I think it would be a huge mistake to stall all the projects, but the government should be more cautious,” Sobotka said.
Pilot lights
The pilot projects were launched in tandem with a World Bank initiative to help the Czech Republic use public-private partnerships to finance infrastructure development. Private money would be used at the outset of construction, and government funds would pay back the financier afterward, allowing investment to continue even if public funds are limited. Such methods are widely used in Western Europe and North America, but are new to the Czech Republic.
Because government money slated for public-private partnerships is typically paid out after construction, each project can be a long-term drain on future state budgets, said Kateřina Helikarová, head of public-private partnerships methodology and regulation at the Finance Ministry.
“We have to compare the public service we are going to ask the concessionaire to provide with the costs of the service of similar projects across Europe,” she said. “It was not a surprise that there were two projects that were canceled. This is why these projects are pilot projects.”
The deals are complex and have high transactional costs in the beginning. There are many participants and a web of contracts that can entangle the government for the long term, she said.
“It means that we as a public sector are obliged to prepare very correct, professional information to prevent the waste of taxpayer money,” she said. “We have to be prepared very well for negotiations with the private sector, [because] they are usually very well prepared.”
— Hela Balínová contributed to this report.

Riva Froymovich can be reached at rfroymovich@praguepost.com


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