2013-10-07
National Audit Office: economic and social benefits of concessions are not always clear to the public
36 public-private partnership projects were run under concession contracts in Lithuania in 2012. Such projects make it possible for the public sector practically not to use its own funds for investments at the beginning of project implementation and to incur expenses required for the development and operation of a facility in parts of similar size throughout the contractual period. The National Audit Office has performed an audit to assess whether the preparation for the concession projects as well as their implementation and control facilitates achievement of better results for the public sector.
Auditor General Giedrė Švedienė summarised the audit results as follows: “Concession projects have not always been organised in a way to ensure their social and economic benefits for the public, and contracts have not always been carried out and supervised in a proper and effective manner, which increases a risk of failure to achieve the objectives of the concession.”
Auditors found that concession contracts for some projects had been awarded without having carried out feasibility studies and proven that participation of a private partner is based on actual benefits for the public sector. Legal regulation of concessions does not encourage concessionaires to operate efficiently either: remunerations of concessions have not been properly justified and linked to the risk taken, no possibility has been provided for to change remuneration on the basis of the concessionaire’s performance.
In some cases, the contractual conditions of the concession have become less useful for the concession-granting authority than it had been provided for in the invitation to tender or in the concessionaire’s binding tender. Such differences between the tender conditions and the binding tender with a signed concession contract distort transparency of tenders, discriminate other companies, and show that concession-granting authorities are not always able to negotiate better concession conditions for the public sector.
An analysis of the implementation of selected concession contracts revealed failure to always meet contractual obligation in a proper manner, however, no liability, or no sufficiently deterrent liability, for the failure to fulfil the obligations had been provided for in the contracts. Also, there are concession contracts with no proper minimum performance objectives set, which makes it practically impossible to impose sanctions on the concessionaire.
Supervision of contract implementation was not always started on time, so there is a risk of failure to address potential problems in due time, or in general to detect such problems. Although in most cases concessionaires are obliged to submit annual audited financial statements and performance reports, provision of other indicators which can help assess attainability of the concession objectives and performance of the contracts is not required.
After the audit, the National Audit Office made recommendations to the Government and the Ministry of Finance intended to improve the assessment of the appropriateness of concession and its potential benefits for the public, the quality of project preparation, implementation and supervision, and control of the execution and supervision of concession contracts.