PPPs give Greek economy the boost it needs

Thanks to PPPs, waste management in Greece has taken a new direction and there are now 12 projects in the pipeline, giving the hard-hit economy a much-needed boost

Author: Nikos Mantzoufas
March 5, 2014

Despite Greece’s six-year recession, one of the strongest signs yet that the country has been working to repair its ailing sectors in a coherent and structured manner is in municipal solid waste management through PPPs. There are four preferred bidders that have been announced in the Western Macedonia Peloponnese, Central Macedonia (Serres) and Western Greece (Ilia) regions, and eight tender procedures are in progress.

A long history in PPPs
Culminating in the establishment of a sound legal framework (L/ 3389/2005), PPPs in Greece have a longstanding history. With a single law designed for PPPs the legal gap that led each project to parliament for ratification was overcome.

Other hindrances that delayed the implementation of projects have been cleared out as well within the single legal framework, allowing PPP projects to be co-financed by private and public funds. This is something that happened in the past for the implementation of important initiatives, including the Rion-Antirrion Bridge and Athens International Airport.

The Greek PPP Law (L/ 3389/2005) is the result of an extensive consultation between the market and the state. Throughout the years we have seen that its main merit is the all-encompassing character of legal provisions from project inception through to contract signing.

The other attractive feature is the use of project finance practices, such as the establishment of a separate firm – the Special Purpose Vehicle SPV – that pulls off the web of contracts typical in limited recourse infrastructure projects. The comprehensible approval and tendering process given by the public sector for PPP projects adds to the mix.

The awarding actions are clearly drafted and in line with European directives

The awarding actions are clearly drafted and in line with European directives. Detailing the minimum content of a PPP contract specifies the contractual framework. The PPP Law acts in a wide spectrum since it can be used for the implementation of both concession projects based on users’ fees and PPP projects based on availability payments by the state. The strength of the legal framework is highlighted by a series of decisions by the Supreme Court providing a tested legal environment.

Adhering to PPP standards
PPP Inter-Ministerial Committee for PPPs (ICPPP) acts as the collective governmental body that sets the general policy for PPPs and approves projects that should continue the implementation through the PPP framework. This gives wide acceptance of the PPP project throughout the market and the state’s civil service. The PPP Special Secretariat follows the structure and role of equivalent units in other member states of the EU for the implementation of PPPs.

The PPPs Secretariat mission is to support and assist the ICPPP and public entities on identifying, preparing, procuring, implementing and monitoring PPP projects. The endeavour lies on the premise that we are trying to safeguard fair competition among bidders through transparent and intensely competitive tender procedures.

Therefore, the legal umbrella provides a solid decision base and transparency. All public sector procuring authorities follow its guidelines wholeheartedly. In many PPP markets there is a need to ensure the compliance with state budget. So, before approval the Secretariat is making sure that the capacity of the state to repay the availability payments is properly attested.

With this in mind, a 10 percent threshold of the annual Public Investment Program cannot be exceeded for PPP availability payments, making sure not to create liabilities that cannot be repaid and simultaneously giving the comfort to investors and lenders of a visible payment path.

The Hellenic PPP Program is actively supported by the European Investment Bank, which has funded the first PPP project to reach financial closure, for the implementation of seven Fire Stations by 50 percent. It has also approved in principle funding for three school building projects and the first Waste PPP project in Western Macedonia.

Waste not; want not
The implementation of PPPs in Hellenic municipal Solid Waste Management (MSW) follows a European pattern of planning and procurement of projects that secures and promotes competition, legitimacy of procedures and the implementation of operationally sound schemes.

Greece is one of the few EU member states that still uses landfill for most of its waste. The amount of MSW landfilled was 4.2m tons in 2010, equivalent to 81 percent of the total generated MSW. EU legislation urges for environmental protection giving the stimulus – through financial penalties – for the proper separation, re-use, recycle and treatment of waste.

Under this context, priority was given to the proposed waste management projects from local authorities that showed a strong willingness to solve their waste management problem. A key factor to the continued effort to procure the waste management projects was the commitment of the central government and the local authorities to the PPP method. Local authorities have certainly been encouraged to follow the standards given by the Secretariat regarding PPPs.

Certain features enabled the stakeholders to have a sanguine view of waste management through PPPs. The detailed service output specifications are clearly a detachment from subjective input-driven technical specifications that the whole public procurement system was based on.

For decades the choice of technology as per the way waste was to be managed was the apple of discord

Stakeholders have approved and accepted the transfer of the waste treatment risk from the public to the private sector, set upon a prescribed level of service that follows EU directives.

With PPPs, the role of the market regulator is upon the state officials. The local authorities and central government are planning and implementing waste PPP projects in complete coordination with each other.

For decades the choice of technology as per the way waste was to be managed was the apple of discord, delaying any advancement in municipal solid waste management.

In all PPP waste management tender procedures in Greece, all available technologies are allowed, as long as they cover all goals set by EU directives, national and local policy, and they have a proven track record. Waste PPP projects, under the PPP law, involve the design, finance, build, maintenance, technical management and operation of integrated waste management plants for 25 years.

The Western Macedonia PPP
The integrated waste management system of the region of Western Macedonia is the first waste management project via a PPP that follows the laws set out by PPPs, and will have an approximate capacity of receiving 120,000 tons of municipal solid waste serving the needs of 300,000 people in northern Greece.

Project design was carried out with the need for pre-emptive reduction in mind for the generation of municipal waste, and the requirements from the Western Macedonian authorities that followed national and EU regulations.

The partnership will shape the Greek waste management practices and is completely compatible with the core of the EU strategy in the waste management field. It ensures that the reduction of waste volume is being led to landfill and the minimisation of environmental hazards through the diversion of biodegradable waste from landfill. This project is a performance-based agreement in which the private sector will be assessed against the contracting authority requirements in delivering the services.

These were expressed through a set of more than 100 key outcome targets that have been developed, and refer to every aspect of the private sector services. The PPP Secretariat’s involvement was in project preparation, implementation and monitoring, and approved the consistency of the tender documents and the overall project structuring according to international standards and the PPP law.

It is worth noting that the whole contractual framework, including output specification, key performance indicators (KPIs), and the payment mechanism, has followed the UK model and the project has been approved in principle by the European Investment Bank.

The private bidders competed mostly in pricing terms, the lowest ‘gate fee’ that will burden the inhabitants of Western Macedonia. The bidders had to prove that they could achieve certain standards, such as a minimum percentage of biodegradable waste diversion at 75 percent, and the percentage of residual waste after treatment to be kept under 40 percent, and the shortest estimated time of service commencement.

For the first time in Greece we have introduced the process of ‘competitive dialogue’ which aims to introducing the thoughts and views of the market early in the tender process in order to shape the best environmental output, which can also be bankable.

An example of this course of action is the announcement of the preferred bidder in the integrated waste management system of the Peloponnese region that will serve approximately 600,000 people and assuage the region’s heavy waste management problem. In July 2013 and only after 13 days of an evaluation period a preferred bidder was announced, giving a solid proof of the market’s appetite to enter the waste management arena.

Looking forward, 12 waste management projects including the Western Macedonia are under procurement with a total value of €2bn, co-financed by EU funds, creating more than 2,500 new jobs during the facilities’ operation and 3,000 new jobs during construction works throughout Greece.

For further information visit www.espa.gr