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Country Profile Czech Republic

Country Profile Czech Republic

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Published by: PPPnews on Nov 14, 2012
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Country profile Czech Republic
Adam Zdeněkeconomic advisorgsm: +420 739 062 703email: adam.zdenek.ep@gmail.com
PPPs in the Czech Republic - time to wake up
Introduction
Czech Republic is a beautiful country in the middle of Europe with very turbulent history. The 20thcentury was very dramatic for us, with 7 regime changes and almost 50 years of communist reign.Since 1989 the public matters came back to Czech hands again and Czechs came back to thedemocratic Europe where they belong. We became members of NATO in 1999 and European Unionin 2004 (not the monetary union), started economic reforms and became the healthiest economy inCentral Europe.Czech Republic was significantly affected by economic downturn in 2009, but its economic healthcompared by the public debt (42 % of GDP) criteria is still better than most of the other Eurocountry’s and its growth went back into black numbers recently.
-6,00%-4,00%-2,00%0,00%2,00%4,00%6,00%8,00%10,00%3 5003 5503 6003 6503 7003 7503 8003 8503 9003 95020072008200920102011est. 2012est. 2013
Czech republic -Macroeconomics
GDP CZ (mil CZK)GDP CZ growth (%)GDP EU12 growth (%)
 
PPP in Czech republic
PPP is not very common method to procure public infrastructure and services in Czech Republic. Ithas a short history of project failures and declines in political support. First mayor project wasunsuccessful D47 (highway in Northern Moravia region) DBFO project in 2002, which was awarded toIsraeli company Housing & Construction in unclear tender procedure. This contract was terminatedand Czech state has paid big penalties. The biggest chance for PPPs was in 2005 when socialisticgovernment prepared ambitious set of projects.Project Description Overall project value(nominal)current stagePrison in Rapotice DBFO middle security prisonin Moravia for 500prisoners.Approx. 280 mil Eur Approved OBC, projectis currently terminatedCentral militaryHospital, PragueThe DBFO combined projectof a lodging house formedical staff, a hotel-typelodging house and a parkinglot in Prague.Approx. 220 mil Eur Preferred bidder wasselected but thecontract wasprematurely terminatedby new conservative
 
Country profile Czech Republic
Adam Zdeněkeconomic advisorgsm: +420 739 062 703email: adam.zdenek.ep@gmail.com
Project Description Overall project value(nominal)current stagegovernmentAirCon express DBFO high speed railwayline connecting Prague’sairport with city center.Approx. 1,6 bil Eur OBC is finished but notapproved bygovernment. Value formoney test didn’t dowell. Project is currentlyterminated.Justice Court in Ustinad LabemDBFO project for Justicecourt in City of Usti nadLabem.Approx 200 mil EUR OBC is finished but notapproved bygovernment.D3 highway DBFO highway project insouthern bohemia withlength approx 70 km.Approx 1,20 bil EUR OBC is finished,approved bygovernment. Butrecently it is reanalyzedbut the project got thegreen light from currentgovernment.After the unsuccessful election for socialists in 2006 and change in government, these so-calledprojects were mostly iced. There are several factors, why this has happened. One of them is the lackof political support of PPPs, within the whole political spectrum; the other is lack of intellectualcapacity within public sector employees and the other is the wrong selection of pilot projects. To thismatter the only, almost, implemented project the Central military hospital was unsuccessful becausethe project scope was too diversified (combination of public service and hotel for commercialcustomers) and came in the wrong time. The commercial close was in 2009 in a peak of debt crisis, sothe project was majorly affected by scariness of the banks on Czech market to finance hotel projects.The other factors were problems with Czech legislative framework, still mostly determined by thecommunist regime.But there are some successful examples on municipal level in parking sector, senior living, wastemanagement, water management, sport and leisure, energy generation and municipal lightning.
Legal system
The Czech Republic is a civil law jurisdiction operating with Civil Code and is relative stable. Main lawchanges are driven by EU legislation harmonization changes or following development by relatedministries.Czech Republic has a public procurement act and additional concession law just for concessions. Andconcession is meant as PPP project defined by two main aspects – the project is financially free-standing and there is a risk transfer to private sector. So the big projects with availability basedpayment mechanism are usually procured through public procurement act, which had some links toconcession act, but recently after a „anti-corruption“ novelization of that act are PPPs procured asany other projects.
 
Country profile Czech Republic
Adam Zdeněkeconomic advisorgsm: +420 739 062 703email: adam.zdenek.ep@gmail.com
Procurement of Czech infrastructure recently
Czech public services and infrastructure needs a lot of investments. It suffered a lot during thecommunist reign. Still the level of services is very low and there is a lot of space for improvement.The most used instrument to finance public infrastructure is combination of budget or debt moneywith EU´s Structural funds
1
. However sometimes it is risky, because, as it appeared in Czech Republicthe misused money needs to be handed back to Brussels, so there is a double payment for theinfrastructure in case of random or intentional mistake. There is allocated approx 17 billon Euro forperiod from 2007 till 2013 for infrastructure spending, most of it for transport infrastructure Butthese funds are not to going be available forever, in the nest programming period (2012-2020) wecan expect less funds and there are some serious issues with this type of funding.Necessary funds for the infrastructure needs of the Czech can be counted in the order of hundreds of billions of crowns. Highway, public transport, water supply, affordable housing - finance is missingeverywhere. Several attempts to involve the private, ie bank finance in PPP projects were under wayand, unfortunately, not always, and especially the most visible projects successfully.
Market outlook
Czech is relatively healthy economy with strong need for infrastructure investments in all sectors.Due to rigid attitude to procurement of public infrastructure it is still plenty of space for use of PPPprinciples. Ministry of Transport promised to implement the first PPP project - DBFO highway D3.The main issues are lack of professional capacity within the public sectors and natural anticipation topaying the advisors (which is always a big issue for media). The other is missing project´s pipeline.There is also a pension system reform going on and there is a possibility to use pension funds as areasonable source of finance for projects. The current minister of finance is not a big friend of PPPs,but the fact is, that the country needs a solution for its underinvested assets.On communal level we can see a rose in demand for PPPs usually driven by EU´s environmentaldemands. The most attractive sectors would be transportation, waste management and affordablehousing.
About the author
Adam Zdeněk
PPP and economic advisorgsm:
+420 739 062 703;
email:
adam.zdenek.ep@gmail.comPraha / Prague, Czech Republic
Useful links
Ministry of finance -http://www.mfcr.cz/cps/rde/xchg/mfcr/xsl/en_ppp_czech_republic.html PPP Unithttp://www.pppcentrum.cz/index.php?lang=en&cmd=page&id=1113 
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 http://en.wikipedia.org/wiki/Structural_Funds_and_Cohesion_Fund 

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