2013-09-26
National Audit Office: public-private partnership is still in a nascent stage
In many countries, the public and private sectors closely cooperate in tackling infrastructure challenges: upgrading roads, transport systems, entertainment and recreation facilities, schools, hospitals, and creating necessary infrastructure. One of the ways of such cooperation is public- private partnership (PPP), which has been governed in Lithuania since 2010 by the Law on Investments. The National Audit Office (NAO) has conducted an audit to assess effectiveness of the development of PPP in Lithuania.
“Having assessed the experience of the implementation of the first public-private partnership projects, auditors identified aspects for improvement in partnership project initiation and development, contract conclusion and management. Since the practice of public-private partnership projects in Lithuania is still in a nascent stage, our audit aimed at identifying problems encountered in the implementation of the first projects and, upon evaluation of practices in other European countries and expert opinions about the development of partnerships between state authorities and private entities, making recommendations to avoid recurrence of such problems in the future”, said Auditor General Giedrė Švedienė presenting the audit findings.
So far, 22 PPP projects have been submitted to the Ministry of Finance for evaluation. Seven projects have been approved, two of them have already been launched. In the NAO opinion, the areas to be improved include initiation and development of partnership projects. Prior to the preparation of feasibility studies, none of the analysed projects had been subject to detailed assessment in order to find out whether it is appropriate to carry out these projects in the form of PPP. Also, none of the feasibility studies evaluated the financial capacity of the institutions, although this is a very important criterion.
Project management in the stages of preparation and agreement of feasibility studies is not sufficiently good – no project managers were appointed and no project management working groups were formed in the project implementing authorities. This may be one of the reasons of the failure to ensure validity of the data of the feasibility studies and partnership projects.
Authorities responsible for the implementation of PPP projects lack necessary skills and experience to develop partnership project documentation and carry out such projects. Therefore, methodological documents are very important for the development of public-private partnerships. Auditors noted that items to be included in the estimation of the project value and public-private partnership fee should be clearly defined, and partnership contracts should specify in detail transfer and state of assets in the event of contract termination. Also, a Partnership Contract Management Manual should be developed because otherwise the project implementing authority finds it difficult to make sure whether the public sector is really receiving the services which it is paying for, especially considering the fact that such contracts may be awarded for a long period – up to 25 years.
After the audit, the National Audit Office put forward recommendations to the Ministry of Finance, which are expected to improve initiation of PPP projects, quality of the preparation of feasibility studies and partnership projects, project implementation, and contract management.