||The government requested technical assistance (TA) during Asian Development Bank (ADB) Management visit to the Kyrgyz Republic in 2013. It stressed the need for continuing assistance for developing key elements of the enabling environment for public-private partnerships (PPPs) in infrastructure. ADB Management proposed additional TA with funding from its own resources and other donors. Reconnaissance and consultations were undertaken in May 2013 during the fact-finding mission for the Investment Climate Improvement Program (ICIP) Subprogram (SP) 3. Discussions were held with government agencies including the Ministry of Economy (MOE), the agency responsible for PPPs, the Ministry of Finance (MOF), key line ministries, City Development Administration (CDA) City of Bishkek, other key stakeholders and development partners. On 1 July 2013, the government expressed its concurrence with the ADB TA concept in the May 2013 mission Memorandum of Understanding, including the expected impact and outcome, implementation, cost, and financing arrangements.
|Project Rationale and Linkage to Country/Regional Strategy
The Kyrgyz Republic (KGZ) inherited substantial infrastructure assets and almost full coverage of the population with basic infrastructure services from the former Soviet Union. The government, directly or through state-owned enterprises, is responsible for financing and managing infrastructure, in addition to its policy and regulatory roles. Economic hardships and resulting budgetary deficits since independence have constrained the government's ability to maintain and rehabilitate existing assets and construct new ones. Inadequate and deteriorating infrastructure has become a binding constraint for private sector development and hence, economic growth. Significant investment and technical capacity to develop economic and social infrastructure, with an increased role for the private sector including through PPPs, is envisaged.
A PPP Law was approved by Parliament in February 2012. A dedicated PPP Unit (in MOE) and a PPP Risk Management Unit (in MOF) has been operationalized, and PPP focal points in key line ministries and the CDA have been appointed. Amendments to priority 10 laws and 3 codes have been enacted to ensure consistency with the PPP Law and further amendments have been suggested based on a review conducted with ADB support in October 2013. In January 2013, the government approved PPP tender procedures and established a tender commission. The government resolution establishing the Project Development Support Facility (PDSF) and ensuring budget support of $2 million in 2014, $1 million in 2015, and $1 million, was signed in March 2014. Draft PPP and Risk Management Policies have been developed but more comprehensive policies are being prepared. A PPP project screening methodology was developed under TA 7819-KGZ. As part of capacity building through learning-by-doing, MOE has been supported in the preparation of 6 position papers on 10 PPP project proposals. The pre-feasibility study (PFS) for 1 project has been completed and PFS' for 3 projects are being tendered.
Progress has been made but KGZ is in the very early stage of developing its PPP market. The PPP Law has been adopted but it has yet to be implemented and its robustness tested. There is no domestic experience with PPP projects and the learning gap remains substantive. Government capacity to prepare and implement PPPs is limited and understanding of PPPs among the domestic private sector is still very low.
The necessary next step is support for assimilating the initiatives so far into an overall cohesive framework for the country's PPP program and pilot demonstration projects. International experience has shown that key characteristics of successful PPP programs include: (i) a strong government agency with over-arching responsibility for the development and implementation of the program; (ii) high-level institutionalized support and a champion; (iii) clear and consistent regulatory frameworks; (iv) government guarantees and other forms of government support; (v) appropriate mechanisms to ensure the good management and corporate governance of the government's fiscal obligations; (vi) adequate and rigorous project preparation, evaluation and selection process; (vii) extensive consultation with the private sector in developing the PPP program; (viii) clear, transparent, efficient and predictable procurement processes; (ix) sufficient internal capacity; and (x) use of experienced international transaction advisers to adequately prepare and structure projects.
Public sector management to improve the investment climate, including for PPPs, is an operational priority under ADB's country partnership strategy. The country's rational Sustainable Development Strategy (NSDS) also envisages an increased role for the private sector in financing and developing the country's economic and social infrastructure. ADB has been the primary supporter of the Kyrgyz Republic's initiatives to create an enabling environment for PPPs. Technical assistance for PPPs has been provided under TA 7819-KGZ whose key components were to enable (i) the emerging PPP Framework, (ii) PPP project development, and (iii) PPP capacity building and under TA 8222-KGZ . Dedicated support for PPPs has also been provided under TA 8333-KGZ, for a high level PPP Forum in Bishkek City on 23 24 May 2013. The PPP Forum: (i) demonstrated the government's commitment to PPPs; (ii) highlighted the current framework in relation to PPPs; (iii) built consensus for additional reforms needed to further improve the enabling framework for PPPs (including establishment or improvement of financial, institutional and regulatory support mechanisms); and (iv) presented the government's priority sectors and preliminary PPP opportunities for private sector participation. ADB support has been for institutional, legal and regulatory reforms, as well as development of pilot projects. KfW is financing feasibility studies for 2 health projects and IFC has offered support for transaction advisory services. JICA is supporting training for PPPs and EBRD is helping develop pilot projects in e-ticketing in Bishkek and in water supply. ADB's interventions are being closely coordinated with the activities of these development partners.
Important lessons have been learned from past interventions that are relevant for further development of the KGZ PPP market. The TA incorporates these lessons to ensure systematic progress in strengthening the PPP enabling environment in the country.
Learning by doing (on-the-job training), through guidelines, toolkits, model documents for formulation, appraisal and approval of pilot projects, including use of the Project Development Support Facility (PDSF), will be the preferred approach to build capacity.