Mouraviev 2017

NIKOLAI MOURAVIEV
NADA K. KAKABADSE
PUBLIC–PRIVATE
PARTNERSHIPS
Policy and Governance
Challenges Facing
Kazakhstan and Russia
Public–Private Partnerships
Nikolai Mouraviev • Nada K. Kakabadse
Public–Private
Partnerships
Policy and Governance Challenges Facing
Kazakhstan and Russia
Nikolai Mouraviev Nada K. Kakabadse
Dundee Business School Henley Business School
Abertay University University of Reading
Dundee, United Kingdom United Kingdom
ISBN 978-1-137-56951-6 ISBN 978-1-137-56952-3 (eBook)

DOI 10.1057/978-1-137-56952-3
Library of Congress Control Number: 2016958208
© The Editor(s) (if applicable) and The Author(s) 2017

The author(s) has/have asserted their right(s) to be identified as the author(s) of this work in accordance
with the Copyright, Design and Patents Act 1988.
This work is subject to copyright. All rights are solely and exclusively licensed by the Publisher, whether
the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of
illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and
transmission or information storage and retrieval, electronic adaptation, computer software, or by similar
or dissimilar methodology now known or hereafter developed.
The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication
does not imply, even in the absence of a specific statement, that such names are exempt from the relevant
protective laws and regulations and therefore free for general use
The publisher, the authors and the editors are safe to assume that the advice and information in this book
are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or
the editors give a warranty, express or implied, with respect to the material contained herein or for any
errors or omissions that may have been made.
Printed on acid-free paper
This Palgrave Macmillan imprint is published by Springer Nature

The registered company is Macmillan Publishers Ltd.
The registered company address is: The Campus, 4 Crinan Street, London, N1 9XW, United Kingdom
Contents
1 PPP Meanings and Forms: A Critical Appraisal 1
2 Internal and External PPP Drivers in Kazakhstan

and Russia 17
3 Why Partnerships? The Approaches in Kazakhstan

and Russia 37
4 PPPs in Kazakhstan and Russia: The Nature and Scope

of Government Involvement 55
5 Concessions: PPP Pathfinder 73
6 Partner Interaction Dynamics and PPP

Organisational Forms 87
7 PPP Risk Management: Management of Financial

and Revenue Risks and an Emergent Guarantee
Culture in PPPs in Kazakhstan and Russia 115
v
vi Contents
8 Legal and Regulatory Barriers to Effective PPP

Governance in Kazakhstan: Findings from the Field 133
9 Case Study: How Experiential Learning Facilitates

the Formation of a Public–Private Partnership in Russia 153
10 The Role of PPPs in Disaster Risk Management

in Infrastructure 171
11 PPP Impact on Market Failures and Externalities 183
12 Critical Issues in PPP Development, an Emerging

Policy Paradigm and the Future of PPPs 203
Conclusion 221
Index 229
List of Figures
Fig. 2.1 Internal and external PPP drivers in Kazakhstan and Russia 26
Fig. 6.1 Partner interaction scheme in a PPP implemented by
a jointly formed project company 100
Fig. 6.2 Partner interaction scheme in a PPP project implemented
by a private operator without an SPV 102
Fig. 6.3 Partner interaction scheme in a PPP project with an
SPV, option one 103
Fig. 6.4 Partner interaction scheme in a PPP project with an
SPV, option two 104
Fig. 7.1 Links between partners’ behaviour in a PPP: fostering
a guarantee culture 128
Fig. 11.1 Revenue structure and risk levels for the private sector
partner in the kindergartens’ PPP, Kazakhstan 193
Fig. 12.1 The PPP policy paradigm in Russia and Kazakhstan:
core elements 209
vii
List of Tables
Table 1.1 PPP fields of study and underpinning theories 6

Table 3.1 Understanding and features of a PPP 50
Table 4.1 Growth of PPPs in Russia, from 2005 to 2015 61
Table 4.2 PPPs in the Russian economy in 2015, by sector 62
Table 4.3 Concessions approved by the Kazakhstani government
in 2007–2011 63
Table 4.4 Ongoing concessions in Kazakhstan as of May 2016 67
Table 6.1 Partner interaction: themes and perceptions 91
Table 6.2 PPP organisational forms: principal features 105
Table 6.3 Tools for dispute resolution in PPPs: perceptions and practice 109
Table 6.4 Partner interaction in a PPP: summary of issues and
improvement opportunities 110
Table 7.1 Summary of risks, perceptions and risk mitigation methods 127
Table 7.2 Sources of risk and risk mitigation tools 129
Table 8.1 The field study’s questions vs. findings 146
Table 9.1 Construction and operation of a toll viaduct in Ryazan,
Russia: key project details 155
Table 9.2 Experiential learning in a PPP: underpinning dynamics 162
Table 11.1 Three PPP projects in Kazakhstan and Russia:
key project details 186
Table 12.1 A policy paradigm: varying meanings and
influential authors 208
Table 12.2 Factors that drive the PPP policy paradigm formation 210
Table 12.3 Forms and methods of government financial support to PPPs 212
ix
Introduction
Public–private partnerships (PPPs) continue to draw considerable atten-

tion from governments in many countries, both industrialised and tran-
sitional. Two ex-Soviet nations—Kazakhstan and Russia—are actively
seeking private investors willing to collaborate with the government on
a long-term basis, by sharing responsibility and risks with public sector
organisations.
This book investigates PPP governance in Kazakhstan and Russia and
discusses questions including:
– What meaning is assigned to a PPP?
– What underpins PPP formation in the two countries?
– What interests does the government pursue by forming
partnerships?
– What are the management practices in newly formed PPPs?
– What are the key issues regarding which partner interaction evolves
and the various PPP organisational structures?
– How do partners manage risk? and
– What is the direction of the government policy on PPPs?
The book also presents two case studies: one, exploring legal and
regulatory barriers to PPP management in Kazakhstan and the second
reviewing a PPP launch in Russia. Furthermore, the book sheds light
on two topics on which the literature has, to date, been limited: the role
xi
xii Introduction
of partnerships in disaster risk management in infrastructure and the

potential for PPPs to correct or exacerbate market failures in selected
industries. The book’s final chapter provides an overall assessment of gov-
ernment policy regarding PPPs in Kazakhstan and Russia and offers the
concept of a PPP policy paradigm that has emerged in the two nations.
Amongst the two economies, Russia leads PPP development as the
country has already launched hundreds of partnerships and is commit-
ted to accelerated PPP deployment in many sectors. Since 1991, when
Russia began its transition to a free market system, many changes in
the nation’s political, economic and social life have occurred, and the
country’s landscape has significantly transformed. Multiple institutional,
organisational, business and social changes have become a part of Russia’s
reality. The PPPs that the country began developing at the beginning of
the twenty-first century are one of these innovative changes. As PPPs
have the potential to revolutionise how public services are financed and
provided, it is no surprise that partnerships instantly drew considerable
attention from policy makers, economists, investors, financial analysts,
infrastructure experts and researchers in many fields. This also explains
the need to monitor and analyse the country’s progress in the PPP area,
so that one can conceptualise Russia’s experience, how and what the gov-
ernment aims to achieve with the use of partnerships, and how successful
the PPP management is. For an international reader, PPP governance in
Russia is a novel theme as there is virtually no literature that highlights
the nation’s PPP experience over first ten years, from around 2005 to
2016, specifically from a management perspective that embraces stake-
holders, elucidates their interests and analyses their competing and/or
overlapping agendas. This book aims to minimise, at least in part, the
knowledge gap in the PPP governance field.
Although Kazakhstan began PPP development at approximately the
same time as Russia, in 2004–2005, its progress has been slow and its
experience much smaller. Lack of progress should not be viewed as a
sign of bureaucratic impediments (although certain barriers exist) or a
lack of interest in partnerships. On the contrary, the Kazakhstani gov-
ernment’s interest towards PPP deployment can be perceived as very
high. However, demonstrating general interest and building legal and
institutional frameworks, backed by political will, appear insufficient for
Introduction xiii
ensuring fast PPP deployment in the nation. More fundamental prob-

lems, such as ambiguity of the government’s own commitment to the
operational aspects of a PPP once it is in motion and the risk of changes
in the regulatory environment, exist and deter investors from engaging in
long-term contracts with the government. Nonetheless, after a number
of unsuccessful PPP launches in transportation, the energy sector and the
social sector, the country is preparing and/or has already prepared a large
number of projects that may begin in near future, which may result in
massive PPP deployment across the nation. The more cautious approach
to PPP development that Kazakhstan shows to date can be explained by
the need to learn from its own experience, both positive and negative.
Subsequently, considerable time is required to incorporate changes into
government proposals to form new partnerships, which is a very slow
process as it involves multiple rounds of adjustment and approval.
In addition, it is likely that Kazakhstan simply lets Russia lead PPP
development. The authors’ field studies suggest that Kazakhstan, in its
PPP policy and practice, aims to learn from the Russian experience, bor-
row Russia’s best solutions and implement them for its own use. This can
be illustrated by the fact that, in 2015, each nation adopted, separately, a
new PPP law, which may be viewed as a largely co-ordinated action when
one country follows in the footsteps of another. It is no surprise that these
two laws possess considerable commonalities.
Despite the limited accumulated experience that reflects the smaller
(compared with Russia) size of the economy, Kazakhstan’s PPP policy
and practice deserve careful investigation. Ongoing PPPs, as well as proj-
ects that have been shut down, provide a wealth of data regarding the cost
structure, scope and extent of government support, partner interaction
dynamics, and the kinds of management and financial problems partner-
ships face. Whilst the nation is looking for effective and efficient solu-
tions to launch and manage collaborative PPP arrangements, the design
and improvement of partnership mechanisms are a priority on the gov-
ernment agenda. In addition, as Kazakhstan positions itself as a leader
in Central Asia, neighbouring countries such as Kyrgyzstan, Tajikistan
and Uzbekistan, as well as other ex-Soviet nations including Armenia,
Azerbaijan, Belarus and Ukraine, may learn from Kazakhstan’s experience
and borrow parts of its legal, institutional and management frameworks
xiv Introduction
related to PPPs. If so, this would enhance Kazakhstan’s political and eco-
nomic influence in the Central Asian region and beyond.
In both nations, the road to extensive PPP deployment has been dif-
ficult. Among the many challenges that Kazakhstan and Russia face in
PPP development, the following issues in particular draw the attention of
policy makers, government officials, investors and researchers:
• What is the meaning assigned to the term ‘PPP’? There is no doubt

that the entire governmental PPP agenda may be quite different
depending on the meaning of the term ‘PPP’ and how this meaning is
manifested in policy documents, laws and regulations. It is critically
important to have a shared meaning that is consistently reflected in the
nation’s legislative framework. Although Kazakhstan and Russia’s PPP
development draws on international experience, both nations are keen
to adapt this experience to their local context in order to serve domes-
tic needs; however, adaptation also becomes a source of problems in
PPP governance. To what extent may or should governments adjust
international PPP tools and practices?
• What are the most effective PPP models and forms that would best
suit each country’s economic, political and social environment? To
date, both nations have exclusively used concessions and the build-
transfer-operate model, which has its limitations. Whilst other options
are currently available, will they be any better for PPP management,
and most importantly, will they make a difference for private firms
considering investment in partnerships?
• What should be the role of the government in forming PPPs and PPP
management? In both nations, governments tend to show their domi-
nance in most, if not all, PPP-related processes. Often, government
dominance replaces organisational structures, clearly established pro-
cedures, dispute resolution mechanisms and citizens’ participation.
Why and how does this happen? What are the areas that require
improvement? What kinds of improvement are necessary?
• What are the tools and methods to attract private investors in PPPs? If
private firms are reluctant to invest, there will be few or no PPPs.
Governments in both nations began PPP development by offering
extensive financial support to partnerships. However, this naturally
Introduction xv
decreases PPP value-for-money and creates distorted risk allocation

when governments inevitably accept a large share of risk. What is the
proper balance between offering government support that attracts
investors and creating incentives for them to invest, innovate and per-
form better in a PPP?
• Finally, can PPPs play a broader role in society? In the context of the
two nations, PPP deployment is difficult to justify with the traditional
value-for-money approach, as PPP costs are very high. This means that
governments may be struggling with (potential) criticism regarding
the use of taxpayers’ money and also with public acceptance of PPP-
delivered public services that will be provided for a fee, such as toll
roads, childcare or healthcare. Can partnerships be justified by their
role in creating jobs, formation of PPP-centred entrepreneurial clus-
ters, their contribution to environmental sustainability (e.g. via effec-
tive water treatment in urban areas) and reliable provision of public
services that are simply unavailable without PPPs?
The book aims to discuss these and other challenges facing Kazakhstan
and Russia. It offers insights into the nature of current PPP development
in the two nations, identifies issues in how PPPs are formed and man-
aged, and contrasts and compares accumulated experience with that in
industrialised economies.
Non-Russian-speaking scholars and practitioners know little about
partnerships in Russia, and virtually no studies are available about PPPs
in Kazakhstan. Practitioners may find the book useful, as it highlights
a vast array of real-life problems that PPP actors experience when they
form partnerships and engage in project implementation. The discussion
of these problems is illuminated by excerpts from interviews conducted
with staff of PPP operators, staff in national and regional PPP centres,
lawyers and government officials. Furthermore, the book offers an assess-
ment of PPP actors’ views from a variety of perspectives. The comprehen-
sive and balanced presentation of opinions and perceptions of those who
work in or with PPPs, followed by critical appraisal, will be of particular
interest to readers who are managers or are involved in operations and
decision-making, as they will have a solid background for developing
their own understanding of PPP issues and their application in different
xvi Introduction
contexts. Although Kazakhstan and Russia’s environment is unique, prac-

titioners in other nations may identify commonalities with PPPs in their
country; this might be helpful for studying best practice or borrowing
from the experience of the two ex-Soviet nations.
Researchers may also benefit from reading this book, as it is the first
systematic coverage of the governance challenges facing PPP actors in
Kazakhstan and Russia, and how organisations and governments have
adapted to these challenges. The book identifies commonalities and dif-
ferences between the two countries in how PPP governance has pro-
gressed and makes a cross-country comparison on a broad range of PPP
management issues. Furthermore, the book investigates the theoretical
foundations of PPP management in OECD countries, compares them
with the concepts put forward by academics in Kazakhstan and Russia,
and offers theoretical insights into the controversy that surrounds cur-
rent PPP development in the two nations. In summary, the discussion of
a broad range of practical issues relating to PPP formation and project
implementation, and investigation of partnerships’ theoretical underpin-
ning, creates a unique blend of practice and theory that may attract a
wide spectrum of readers who are interested in PPP development in tran-
sitional countries.
Dundee, UK Nikolai Mouraviev

Henley-on-Thames, UK Nada K. Kakabadse
1
PPP Meanings and Forms: A Critical
Appraisal
Introduction
This chapter reviews various meanings attached to the term ‘public–
private partnership’ (PPP) in Western literature, contrasts and com-
pares them, and identifies commonalities and differences between
them. The chapter highlights the concepts underpinning different
meanings and surveys the understanding of what are called PPP forms,
as well as models. This is followed by a discussion of yet another PPP
categorisation, namely, the initiator of the partnership. The chapter
also elucidates some disparities in the use of PPP terminology and con-
cepts in Western literature when compared to Russian-language lit-
erature. The latter captures PPP development not only in Russia, but
also in Kazakhstan, in which Russian is widely used. The chapter con-
cludes that researchers and practitioners in the PPP field in transitional
Parts of this chapter are reproduced from the paper Mouraviev, N., and N.K. Kakabadse. 2012.
“Conceptualising Public-Private Partnerships: A Critical Appraisal of Approaches to Meanings and
Forms” published in Society and Business Review 7(3): 260–276, with the journal’s permission.
© The Editor(s) (if applicable) and The Author(s) 2017 1

N. Mouraviev, N.K. Kakabadse, Public–Private Partnerships,
DOI 10.1057/978-1-137-56952-3_1
2 N. Mouraviev and N.K. Kakabadse
nations may explain new terms and concepts that are broadly used in
these nations, for example, what risk management denotes in the coun-
try’s contextual environment.
PPP Meanings
What is a public–private partnership? Many definitions are available,
ranging from focused (i.e. those that capture select PPP features) to those
that are very broad. The broad perspective argues that a PPP is any form
of collaboration between a government and private sector companies.
Those who take this stance emphasise that a PPP is a ‘language game’
implying that a PPP is anything and everything that involves a large vari-
ety of forms, models and methods that highlight how the government
works with private firms. Naturally, this broad view of partnerships is
conceptually vague and unhelpful for practitioners or researchers who are
interested in learning the specifics and best practice of PPP implementa-
tion and management.
Most academics and business people view a PPP as a contractual agree-
ment. This means that a partnership is a legally binding contract between
a public sector organisation (or a few of them) and one or more private
firms. In addition, banks and other financial companies that provide finan-
cial resources to the project also may be involved in the PPP contract.
Often, a PPP may include a set of many contracts in which a large number
of government organisations, private companies, lenders and other insti-
tutions are involved. However, thinking of a PPP as a contract or a set of
contracts is somewhat misleading as this approach emphasises the legal
side of a partnership, and disregards essential PPP features and the process
of project implementation. Naturally, one should not underestimate the
contract’s importance, as it specifies the principal terms and parties’ obliga-
tions at the PPP launch. However, PPP projects are long—typically 15 to
30 years or longer—and ensuring a contract is fully comprehensive can be
simply impossible. PPP contracts are often incomplete; they are also sub-
ject to frequent re-negotiation, when parties attempt to amend many criti-
cal elements, such as tariffs and how often they can be adjusted, financial
obligations, the scope of what has to be achieved and the completion dates.
A better, more coherent and useful way of looking at a PPP is to iden-

tify the principal features that a partnership possesses and that distin-
guishes it from other forms of collaboration between the government and
the private sector, keeping in mind that a PPP is a contractual arrange-
ment. This book focuses exclusively on contractual PPPs and does not
consider broad forms of public–private collaboration, such as special eco-
nomic zones or innovation parks.
Often, instead of giving a complete definition, scholars pay attention
to a selected PPP feature. A few PPP characteristics that are typically
emphasised include:
• Solidarity between the public and private partners (Sedjari 2004).

Hence, a PPP can be called a new phenomenon that presents ‘a culture
of engagement’, which is understood as a ‘capacity for the collective
mobilisation of participants which now forms the substance and
strength of public programmes’ (Sedjari 2004, 303).
• Mutuality as a partnership’s key conceptual feature (Brinkerhoff and
Brinkerhoff 2004).
• Commitment above and beyond contracts (Bovaird 2004).
• Organisational identity that is described as maintenance (rather than
surrender) of each partner’s own identity, beliefs and values (Haque
2004).
• Shared (by the government and private partners) responsibility for a
product and shared resources, risk, costs and benefits (Klijn and
Teisman 2003). This feature is unique to PPPs, although in reality
responsibility for the provision of public services may be fully shifted
to the private sector.
In sub-contracting, the parties involved normally do not expect fea-

tures such as solidarity, mutuality or commitment above the level that
is contractually required. In fact, these features are usually non-existent.
Therefore, the characteristics listed above highlight partnership proper-
ties that make PPPs different from traditional forms of collaboration
between the public and private sectors, such as public procurement
contracts or when the government sub-contracts a specific task to a
private company. Nevertheless, these characteristics are insufficient to
explain how, exactly, collaboration in a partnership happens and for

what purposes.
More comprehensive definitions are, however, available. A PPP may
be viewed as a long-term contractual agreement between the government
and the private sector for the construction or management of public sec-
tor infrastructure facilities by the private sector entity or for the provision
of services by the private sector entity to the community on behalf of the
government (Grimsey and Lewis 2002). This perspective captures the
following key properties of a PPP:
(a) An agreement between a public agency and a private partner must

take a form of a legally binding contract;
(b) A contract should be long term;
(c) PPPs normally provide services in infrastructure, or partnerships may
provide other services that one views as a public sector
responsibility;
(d) A PPP provides services on behalf of a public agency;
(e) In the PPP framework, a physical asset is normally constructed or
renovated;
(f ) In some cases, the government may transfer an asset to a private part-
ner, and the latter accepts responsibility for its maintenance;
(g) PPPs provide services to customers with the use of the asset(s) con-
structed by a private partner or transferred to a private partner by the
public entity; and
(h) The private sector partner may be compensated for the service provi-
sion by government payments, through user charges and fees or a
combination of both.
Tangible PPP elements—legal long-term contracts, asset construction

and provision of services with the use of constructed assets—form the
core of the framework for public–private collaboration. However, the
framework may be incomplete, as it does not take into account the PPP
project implementation process and interaction between partners.
Many authors emphasise the greater importance of partner interaction
over the legal framework. Some argue that a PPP is a continuous process
of interaction and negotiation (Andersen 2004). Others claim that the
involved parties mutually add value to the project (Klijn and Teisman
2003). Further, output specification is often noted as a PPP feature.
Whilst input specifications determine how much a private partner has
to spend on asset construction or maintenance or how many staff should
be hired, output management focuses on parameters of the service provi-
sion. To summarise, those who emphasise partner interaction tend to pay
less attention to the legal frameworks underpinning PPP arrangements.
In their opinion, the creation of added value in a partnership depends
first and foremost on the relationship between the partners.
Additionally, a distinctive PPP property is a long-term character of
interaction (Klijn and Teisman 2003). Long-term projects, as a rule,
require mutual contribution of resources, and this is why the parties
implement them jointly, as each is unable or unwilling to undertake a
project on its own due to high risk and/or high costs associated with
long-run activity. In contrast, short-term projects are easier to finance
and carry a smaller risk. For a short-term project, one can simply hire
a private company to implement a public task, or a government agency
can accomplish a task on its own, and there may be no need to form a
PPP. Thus, a long-term nature of collaboration also becomes an essential
feature accompanying the partnership’s shared elements.
The Underpinning Theories

Conceptual frameworks that may be useful for studying PPPs vary.
Although analysis of partnerships may take many different perspectives,
the vast majority of studies fall into three domains: partnerships as a
policy tool; a PPP as an organisational and financial arrangement; and
issues related to PPP performance, risk allocation and critical success
factors. As these fields and underpinning theories overlap, researchers
may use more than one theory in each field. Table 1.1 shows these
relationships.
Studies of PPPs as a popular public policy option often consider part-
nerships as a tool for development and an effective alternative to pri-
vatisation (Osborne 2000; Grimsey and Lewis 2004; Hodge and Greve
2005). Whilst PPP assets remain, ultimately, in the public sector, private
Table 1.1 PPP fields of study and underpinning theories

PPP fields Underpinning Influential
of study theory Principal ideas authors
PPP as a policy Theory of Private markets are Osborne (2000),
tool market superior to the public Wettenhall
efficiency; sector in efficient (2003), Grimsey
value for resource allocation. and Lewis
money PPP brings more (2004), Hodge
benefits than and Greve
drawbacks. (2005)
PPP as Value for PPP should ensure lower Klijn and
organisational money; TCE; costs and greater Teisman (2000),
and financial governance benefits compared to Asenova and
arrangement theory government in-house Beck (2003),
service provision. Vining and
Effective governance is Boardman
the key to success. (2008)
PPP Effective risk Risk should be Hall (2008a, b),
performance, allocation transferred to the Sadka (2007),
risk allocation, theory; party best able to Morallos and
critical success governance manage it with the Amekudzi
factors theory lowest cost. Effective (2008)
governance is the key
to success.
PPP’s social PPP delivers a PPP’s social value van der
value range of outweighs monetary Wal et al.
benefits that cost of a project; (2011),
create high hence, high costs may Reynaers and
value to be acceptable. PPP de Graaf
society contributes to (2014), de
sustainable Graaf and
development, Paanakker
innovation, (2015)
entrepreneurship and
social cohesion.
Source: Compiled by the authors
partners build and manage them to seek profit. The underpinning theory
here is that resource allocation by private PPP operators should deliver
greater efficiency as opposed to government service provision. The intro-
duction of market-based incentives into traditional government sectors
ensured the development of ‘the theory of private finance for public proj-
ects’ (Pollitt 2005, 209).
Other studies focus on a PPP as an organisational and financial

arrangement (e.g. Klijn and Teisman 2000; Asenova and Beck 2003;
Vining and Boardman 2008). The value-for-money perspective often
guides this research, as these arrangements are supposed to deliver greater
added value than government provision alone could achieve (Kakabadse
et al. 2007). Governance theory also informs studies in this field, arguing
that, as partnerships are often formed on incomplete contracts, partner
interaction requires effective management. An overlapping field of stud-
ies includes risk allocation in a PPP and related aspects such as discussion
of performance issues and success factors. The underpinning theory here
employs a principle of effective risk allocation, that is, risk should be allo-
cated to the party best able to manage it with the least cost (Sadka 2007;
Morallos and Amekudzi 2008).
Further, an emerging PPP field of study focuses on how partnerships
create social value. This value includes a number of benefits to society,
such as a boost to the development of entrepreneurship, a positive con-
tribution to environmental sustainability (e.g. effective waste utilisation),
enhancement of societal sustainability (e.g. by creation of long-term
employment opportunities), and fostering innovation in technology,
management and service delivery. The underpinning theory emphasises
the broader PPP value to society, rather than value-for-money related to
a narrow task that a PPP carries out (Reynaers and de Graaf 2014).
Contractual Versus Institutional PPPs: Principal

Differences
A PPP is generally understood to be a specific project implemented in a
public–private collaboration, to which the features discussed above apply.
Normally this kind of PPP is called ‘contractual’. However, there is yet
another type of partnership, called an institutional PPP (IPPP), which
may be described as a company that is partly owned by the government
and partly by a private firm. In some countries, such as Italy and Hungary,
this joint venture may have a contract with the municipality to provide a
service (e.g. water supply). A joint venture’s special status is characterised
by its ability to provide public services without having been required to
compete for a formally tendered contract; in other words, where a service

was delegated without tendering (Hall 2008b).
This description demonstrates that there are at least two types of insti-
tutional PPP. The first is when a company is owned jointly by the govern-
ment and private investors (either institutional investors or individuals)
and is involved in the provision of a public service on an ongoing basis,
without a time limit and without a specific contract with the government
agency. The other is when a jointly owned company has a delegated service
and may have a contract that includes regulation of the service provision.
Apart from the contribution of capital or other assets, a critical feature of
an institutional PPP is that a private partner must play an active role in PPP
management. This is confirmed by the 2008 European Commission com-
munication that describes the private input to the IPPP as the ‘active partici-
pation in the operation of the contracts awarded to the public–private entity
and/or the management of the public–private entity’ (Hall 2008b, 11).
Some key features discussed in reference to project-based PPPs do not
apply to institutional PPPs. In particular, an institutional PPP may con-
struct an asset that may be used for the purpose of service provision, or may
be used for other purposes. A joint venture company does not provide a ser-
vice on behalf of a public agency in the case when the government directly
owns part of this business; it becomes a semi-governmental company.
Depending on the government’s share of property ownership, customers
may view a joint venture company as mostly private or, on the contrary,
mostly government-owned. In addition, an institutional PPP may have an
unlimited timeframe, which differs to project-based PPPs that, as a rule,
have a time limit. To summarise, an institutional PPP has substantial dif-
ferences with a project-based PPP, and the meaning of an institutional PPP
often may not match the key characteristics of a project-based partnership.
A Summary of Approaches to the Meaning

of a PPP
First, in academic literature a PPP refers to a contractual partnership,
meaning a legal long-term contractual arrangement that involves asset
construction by a private party and service provision on behalf of a public
agency with the use of a constructed asset (Grimsey and Lewis 2002;
Bult-Spiering and Dewulf 2006; Hall 2008a).
Second, researchers understand a PPP as a project in which partner
interaction and the parties’ relationship is the most important feature
(Andersen 2004; Brinkerhoff and Brinkerhoff 2004; Sedjari 2004).
Third, researchers can view a PPP as a project that requires a shared
responsibility from both the public sector partner(s) and the private sec-
tor partner(s) for product, risk, costs and benefits (Nijkamp et al. 2002;
Klijn and Teisman 2003; Bult-Spiering and Dewulf 2006).
Fourth, a PPP may be an institutional partnership, that is, a com-
pany jointly owned by the government and private investors (Hodge and
Greve 2005; Hall 2008b).
The first, second and third meanings of a PPP do not contradict each
other. On the contrary, they can be viewed as complementary. The fourth
presents a special meaning that is not aligned with the other three, as it
represents a predominantly structural form of PPP.
PPP Forms
PPPs may take many different forms. PPPs vary infinitely from one sector
to another and from one locality to another (Sadran 2004). The scope of
this variation can be viewed from an industry perspective (i.e. sectors in
which PPPs operate) and an organisational perspective (i.e. how exactly
one arranges a partnership).
Sectors of PPP operations in many countries vary widely and include
transportation services and transport infrastructure (e.g. the construction and
operation of roads, railroads, metro, airports, tunnels and bridges), energy
sector (e.g. the construction and operation of power generation facilities and
power lines), education (e.g. schools and dormitories), healthcare, criminal
justice (e.g. courts and prisons), telecommunications, water treatment and
water supply, disaster management, micro-credit provision, skill develop-
ment, poverty eradication, sewage treatment, waste disposal and environ-
mental management. This list is not exhaustive, as a PPP can be formed in
any field where it may provide a public service in place of the government,
and where the government and society at large deem it appropriate.
From an organisational perspective, PPPs may take specific forms such

as a concession, or private finance initiative (PFI), or asset life-cycle con-
tract (Bovaird 2004; Sadran 2004; Sedjari 2004; Kakabadse et al. 2007).
A concession implies that an asset, such as a road, is constructed or
renovated by a private party with the use of private funding, or in some
cases, an asset may be transferred from a public agency to a private sector
partner. A private company assumes responsibility for the service provi-
sion for a specified period with the use of this asset and at the same time
accepts responsibility for asset maintenance and upgrade. To recover its
investment and operating expenses in return for its services (i.e. how a
private company receives money), customers pay user fees.
With regard to a concession, there are varying opinions regarding
the source of payments made to a private partner. Some experts argue
that a concession contract is where users pay fees to a company, mean-
ing that government funds are not involved, whilst another form of
a partnership—PFI—receives payments from a public agency (Hall
2008b). Alternatively, in a concession, a private company can receive
some form of compensation from final users or through regular pay-
ments by the public authority (Renda and Schrefler 2006). The lat-
ter point of view acknowledges the possibility of the use of public
funds for making payments to a concessionaire. At the same time, it is
unclear whether one still can categorise this form of PPP as a conces-
sion, in the case of payments to a private company by both the govern-
ment and final users.
In addition, in some concessions, so-called shadow tolls exist. A gov-
ernment uses these when it guarantees specific revenue to a private party
for a prespecified volume of service, and the government pays these tolls
instead of final users (Williams 2003; Sadka 2007). This is particularly
relevant to Kazakhstan and Russia as in these nations government pay-
ments to a PPP are common.
PFI is another form of PPP, although the difference between them is
not clear-cut. In contrast to other PPP forms, in which service provi-
sion requirements may change and evolve over time, in a PFI the ser-
vices specification is defined for the entire term at the point of contract.
Additionally, in a PFI a private company is a direct service provider,
rather than a consortium or a company formed solely by a private partner
or jointly with a public agency, which private firms frequently use for
the PPP project implementation (Asenova and Beck 2003; Grimsey and
Lewis 2004). However, the difference between PFI and PPP is indistinct,
and the literature often uses both terms synonymously.
Yet another form of PPP is the asset life-cycle contract. It is similar in
nature to a concession, although the difference may be that it is the pub-
lic agency, not final users, that pays for the asset construction and service
provision (Bovaird 2004; Sadran 2004; Sedjari 2004). The length of a
contract is determined by the asset’s usable life. However, the problem
lies in exactly defining the length of an asset’s usable life, particularly
when innovative technology is involved. The reason is that new technol-
ogy often becomes obsolete faster than simply due to physical wear and
tear, and difficulties in forecasting technological progress may impede
accurate determination of the asset’s life-cycle (Westerman et al. 2006).
Partnership Models
Specific partnership arrangements, also sometimes called PPP forms or
PPP models, depend on the underlying concept that a public authority
wants to apply to a PPP. Available arrangements include build-operate-
transfer (BOT), or design-build-finance-operate-transfer (DBFOT), or
DBFOOMT (design-build-finance-own-operate-maintain-transfer), or
other combinations of some or all of these elements that assign responsi-
bility for provision of public services to a private partner (Williams 2003;
Sadka 2007; Morallos and Amekudzi 2008).
For example, in the DBFOT scheme, a private company designs and
constructs an asset using private funding and then provides a service
with an ongoing responsibility to operate a newly constructed facility.
Immediately after construction is completed, a public agency assumes
the asset ownership. At the end of a PPP contract, a private company
transfers an asset back to the government.
In the DBFOOMT scheme, all elements are the same, with the excep-
tion of the asset ownership: after construction is completed, property
ownership is assumed by a private company, although it has an obligation
to transfer an asset to the government at the end of the PPP contract.
The asset’s private ownership appears to be temporary (although long

term). After the whole PPP project is complete, the government will fully
own the asset.
Who Initiates PPP Formation?

From the perspective of who initiates partnership formation, there is yet
another approach to PPP forms: PPP initiated by the public sector, PPP
initiated by the private sector and appointed PPP (Sedjari 2004).
Appointed PPP is a mixed (public and private) company that a city
or a region may create, for example, for provision of city services. Public
authorities must own most of the capital, with some private ownership.
These companies pursue public interest objectives and simultaneously
have flexibility in operational forms. Thus, the description of appointed
PPP resembles that of an institutional PPP. However, those who discuss
IPPPs do not emphasise that a public agency should own most of the
company capital.
An understanding of how one can initiate a PPP is useful in identify-
ing project types that countries are likely to approve and launch, with
varying degrees of political, administrative and fiscal centralisation. For
example, in a centralised federation such as Russia, PPPs may focus on
regional or national projects, at least at the outset. Partnership prolifera-
tion at the municipal level in Russia depends on how liberal and friendly
(to private investors) local rules and regulations have been designed and
on how easily project financing can be arranged.
However, it is possible to draw an additional example from Kazakhstan
in which, with a unitarian political and administrative system in place,
PPPs are even less likely to exist at the local level. Although from 2004
the national government encouraged PPP formation at all levels includ-
ing municipal, until November 2011 there were no approved PPP proj-
ects at the local (city or village) level and regional level in Kazakhstan.
The only current PPP projects that Kazakhstan is implementing are those
of interregional and national scope, such as the construction of an inter-
regional electrical power grid and construction of an international airport
(Kazakhstan Today 2009; Kazakhstan Public–Private Partnership Centre
2012). The existing partnerships in Russia and Kazakhstan clearly illus-

trate that societal governance structure can also influence corporate gov-
ernance models including those of PPP projects.
Conclusion
Transitional countries develop PPPs in their own way. This develop-
ment also involves application of the PPP-related terminology in its own,
country-specific form, and design of its own concepts and terms. For
example in Russia, governmental understanding of partnerships includes
production-sharing agreements, such as those with the oil companies,
and special economic zones. However, in reality, these partnership types
include a mix of contractual and institutional PPPs, and this may cause
confusion. From the Organisation for Economic Co-operation and
Development’s (OECD) perspective, many arrangements (such as special
economic zones) are not a PPP due to their nature and purpose (e.g.
a special economic zone is intended to create favourable conditions for
private business development in a region; however, a zone is not a con-
tractual PPP).
Although it is likely that adjustments to concepts and terminology
will persist, the most effective means of developing PPP terminology is to
explain the meaning of commonly used terms in the context of a certain
country. For example, a term that calls for explanation in the context of
Kazakhstan and Russia is risk management. The most common under-
standing in these two countries is that this term includes only the initial
risk allocation between partners as specified in the original PPP contract
(Alpatov et al. 2010). This view sets strong constraints on the under-
standing of risk management because essential elements are missing. Risk
management must also include risk re-allocation, risk mitigation and
related tools. From this broader perspective, it is no surprise that, in both
countries, the discussion regarding important elements of risk manage-
ment is lacking.
This chapter has presented critical elements associated with PPPs
and which are necessary for theoretical building, theory testing and fur-
ther research. The value of this chapter is in providing clarification of a
position adopted by some authors and governments regarding a specific

PPP aspect, rather than just presenting another author’s view. Certainly,
it is up to a researcher to decide what stance she or he wants to take
in reference to the meaning of a PPP or a specific PPP issue. However,
familiarising oneself with available approaches may help a researcher to
make an informed choice. This particularly applies to those who conduct
research in the PPP field within transitional countries, where partner-
ships are relatively new.
As partnerships are formed based on certain concepts, governments
are inevitably influenced by the direction in which concepts, terminology
and meanings are developing. Whilst PPP terminology may have particu-
lar contextual meaning in a transitional country, terms and concepts have
to be thoroughly explained. This will permit comparisons with similar
PPP aspects discussed by Western literature and is likely to contribute
to the growing body of knowledge regarding partnerships in transitional
economies.
References
Alpatov, A., A. Pushkin, and R. Japaridse. 2010. Gosudarstvenno-Chastnoye
Partnerstvo: Mekhanizmy Realizatsii (in Russian). (Public-private partnership:
Implementation mechanisms). Moscow: Alpina Publishers.
Andersen, O.J. 2004. Public-private partnerships: Organisational hybrids as
channels for local mobilisation and participation. Scandinavian Political
Studies 27(1): 1–21.
Asenova, D., and M. Beck. 2003. The U.K. financial sector and risk manage-
ment in PFI projects: A survey. Public Money and Management 23: 195–203.
Bovaird, T. 2004. Public-private partnerships: From contested concepts to
prevalent practice. International Review of Administrative Sciences 70(2):
199–216.
Brinkerhoff, D., and J. Brinkerhoff. 2004. Partnerships between international
donors and non-governmental development organizations: Opportunities and
constraints. International Review of Administrative Sciences 70(2): 253–270.
Bult-Spiering, M., and G. Dewulf. 2006. Strategic issues in public-private part-
nerships. An international perspective. Oxford: Blackwell Publishing.
de Graaf, G., and H.L. Paanakker. 2015. Good governance: Performance values
and procedural values in conflict. American Review of Public Administration
45(6): 635–652.
Grimsey, D., and M.K. Lewis. 2002. Evaluating the risks of public private part-
nerships for infrastructure projects. International Journal of Project
Management 20: 107–118.
Grimsey, D., and M.K. Lewis. 2004. Public private partnerships: The worldwide
revolution in infrastructure provision and project finance. Cheltenham: Edward
Elgar Publishing.
Hall, D. 2008a. Public-Private Partnerships (PPPs). Summary paper, 1–26.
http://www.psiru.org/publicationsindex.asp. Accessed 2 February 2011.
Hall, D. 2008b. PPPs in the EU – a critical appraisal, 1–32. http://www.psiru.
org/publicationsindex.asp. Accessed 10 November 2011.
Haque, S.M. 2004. Governance based on partnership with NGOs: Implications
for development and empowerment in rural Bangladesh. International Review
of Administrative Sciences 70(2): 271–290.
Hodge, G., and C. Greve. 2005. Introduction. In The challenge of public-private
partnerships: Learning from international experience, ed. G. Hodge and
C. Greve. Cheltenham: Edward Elgar Publishing.
Kakabadse, N., A. Kakabadse, and N. Summers. 2007. Effectiveness of private
finance initiatives (PFI): Study of private financing for the provision of capi-
tal assets for schools. Public Administration and Development 27: 49–61.
Kazakhstan Public-Private Partnership Centre. 2012. Concessions. http://www.
ppp-center.kz/rus/activity/projekt/. Accessed 14 March 2012.
Kazakhstan Today. 2009. Presidents of Kazakhstan, Russia, Azerbaijan and
Turkmenistan participated in the opening of the new passenger terminal of
the international airport in Aktau. http://www.kt.kz/index.php?lang=rus&ui
n=1133168904&chapter=1153496927. Accessed 8 June 2011.
Klijn, E.-H., and G.R. Teisman. 2000. Governing public-private partnerships;
analyzing and managing the processes and institutional characteristics of
public-private partnerships. In Public-private partnerships: Theory and practice
in international perspective, ed. S.P. Osborne. London: Routledge.
Klijn, E.-H., and G. Teisman. 2003. Institutional and strategic barriers to
public-private partnerships: An analysis of Dutch cases. Public Money and
Morallos, D., and A. Amekudzi. 2008. The state of the practice of value for
money analysis in comparing public private partnerships to traditional pro-
curements. Public Works Management and Policy 13(2): 114–125.
Nijkamp, P., M. van der Burch, and G. Vindigni. 2002. A comparative institu-
tional evaluation of public-private partnerships in Dutch urban land-use and
revitalization projects. Urban Studies 39(10): 1865–1880.
Osborne, S.P. (ed.). 2000. Public-private partnerships: Theory and practice in
international perspective. London: Routledge.
Pollitt, M. 2005. Learning from UK Private Finance Initiative experience. In
The challenge of public-private partnerships: Learning from international experi-
ence, ed. G. Hodge and C. Greve. Cheltenham: Edward Elgar Publishing.
Renda, A., and L. Schrefler. 2006. Public-private partnerships. Models and
trends in the European Union. A study requested by the European Parliament’s
committee on internal market and consumer protection. PE 369.859: 1–15.
Reynaers, A.-M., and G. de Graaf. 2014. Public values in public-private part-
nerships. International Journal of Public Administration 37(2): 120–128.
Sadka, E. 2007. Public-private partnerships – A public economics perspective.
CESifo Economic Studies 53(3): 466–490.
Sadran, P. 2004. Public-private partnership in France: A polymorphous and
unacknowledged category of public policy. International Review of
Administrative Sciences 70(2): 233–251.
Sedjari, A. 2004. Public-private partnerships as a tool for modernising public
administration. International Review of Administrative Sciences 70(2):
291–306.
van der Wal, Z., G. de Graaf, and A. Lawton. 2011. Competing values in public
management. Public Management Review 13(3): 331–341.
Vining, A., and A. Boardman. 2008. Public-private partnerships. Eight rules for
Governments. Public Works Management and Policy 13(2): 149–161.
Westerman, G., W. McFarlan, and M. Iansiti. 2006. Organization design and
effectiveness over the innovation life cycle. Organization Science 17(2):
230–238.
Wettenhall, R.A. 2003. The rhetoric and reality of public-private partnerships.
Public Organization Review: A Global Journal 3(1): 77–107.
Williams, T. 2003. Moving to public-private partnerships: Learning from experi-
ence around the world. IBM Endowment for the Business of Government,
1–40. www.businessofgovernment.org. Accessed 4 May 2011.
2
Internal and External PPP Drivers
in Kazakhstan and Russia
Introduction
Many governments are increasingly turning to PPPs as an alternative
method of delivering public services, as opposed to traditional public
procurement contracts or in-house government provision. Partnership
projects can be implemented in many sectors, including transport infra-
structure (such as the construction and management of roads, railroads,
seaports and airports), utilities infrastructure (such as water treatment
and provision), healthcare (such as hospital management), energy (con-
struction of power-generating facilities and power transmission) and
many others.
Whilst the UK, France, Spain, the USA, Australia, New Zealand
and other countries have already accumulated extensive experience
in PPPs (Reeves 2003; Vining et al. 2006), other countries such as
Parts of this chapter are reproduced from the paper Mouraviev, N. 2012. “What Drives the
Employment of Public-Private Partnerships in Kazakhstan and Russia: Value for Money?”
Organizations and Markets in Emerging Economies 3: 32–57, with the journal’s permission.

DOI 10.1057/978-1-137-56952-3_2
Bulgaria, Croatia, Kazakhstan and Russia are only just beginning

to use partnerships as a method of delivering public services. What
drives PPP development in transitional countries compared with
industrialised nations? This chapter critically examines PPP drivers
in Kazakhstan and Russia and compares the approaches by these two
nations with traditional approaches to PPP formation used in OECD
countries.
It is useful to compare and contrast the rationales for partnerships in
Kazakhstan and Russia because the two nations possess a large number
of commonalities in their economies and public policies. Both countries
are transitional economies and share many economic, political, business,
social, educational and cultural realities that stem from a common Soviet
legacy. Although the two economies are different in size, the ways in
which the governments have shaped their PPP policies, created a legal
and regulatory framework, and selected sectors for partnership projects
show considerable similarities that allow for meaningful comparisons
between the two countries. An empirical examination of the PPP drivers
in Kazakhstan and Russia may thus contribute to a deeper understand-
ing of the actual reasons for the broader employment of partnerships
and how they differ from the justification commonly applied in OECD
countries.
Reasons for Partnering

As PPPs are often associated with a number of advantages, it is worth
discussing the benefits that partnerships may offer. This will allow an
elucidation of the differences between the approach described in Western
literature, and employed in OECD countries, with the approach taken in
Kazakhstan and Russia. PPPs also have shortfalls, and these are discussed
in the next section of this chapter.
There are three major options for infrastructure delivery (although
each has many variations): direct public provision, contracting-out or
PPPs (Vining and Boardman 2008). Whilst reviewing the options, the
government should carefully assess what is involved, by comparing ben-
efits and advantages, on the one hand, to shortfalls and costs, on the
other.
2 Internal and External PPP Drivers in Kazakhstan and Russia 19
The literature thoroughly explores numerous reasons for partnering.

In most cases, economic efficiency and effectiveness are the only crite-
ria (Hofmeister and Borchert 2004). Although the discussion of some
specific benefits related to PPP takes place in the literature, the major-
ity of scholars commonly embrace the value-for-money (Vfm) perspective
when they delineate the advantages and disadvantages of partnerships
(Kakabadse et al. 2007).
VfM, when applied to a PPP, means that a PPP should offer greater
value for the money that the public sector spends, compared to when ser-
vices are provided ‘in-house’ (by public agencies) or when services are con-
tracted-out to a private company. The underlying logic is that using PPP
will make sense, in the opinion of many, only if a PPP can deliver public
sector services cheaper and more efficiently, meaning with smaller costs as
opposed to other options, and with improved quality (and other enhanced
output features) as opposed to other options. If VfM does not exist, for
example, if the government incurs greater costs from the PPP project than
in direct public service provision, a PPP should not be deployed.
The same notion is supported in a different way: whilst a government
considers whether to deploy a PPP, the overarching aim should be to
obtain a good deal for the taxpayer. If it is not, two serious risks to VfM
can arise: that government attention will be focused on executing the
process rather than achieving a good outcome; and that government
attention will focus on reaching agreement on a deal and not on getting
a good deal (Colman 2000).
The comprehensive definition of VfM is available in the UK’s Her
Majesty’s Treasury Value for Money Assessment Guide:
‘Value for money is defined as the optimum combination of whole-of-life

costs and quality (or fitness for purpose) of the good or service to meet the
user’s requirement. The term whole-of-life is used to refer to the life cycle
of the good or service. VfM is not the choice of goods and services based
on the lowest cost bid’ (Her Majesty’s Treasury 2006, 7).
The VfM concept allows public agencies to compare the costs of a planned
PPP project with the cost of the same project, were it accomplished
through traditional procurement. The definition provided above places
emphasis on the need to take into account the lifetime project costs, and
also the quality of goods or a service, rendering the output specification

an important partnership feature. A trade-off between lifetime PPP proj-
ect costs and service quality lies at the core of the VfM concept.
Assessment of VfM is useful but insufficient by itself to decide whether
to launch a PPP; the government should examine the broader picture
and consider the complexities of the overall PPP process and the limita-
tions of the VfM methodology. ‘It is important for agencies to realise
that VfM cannot be the only factor in the decision to pursue a project
as a PPP; they must evaluate their own capacity to manage such large,
complex, and long-term projects aside from what the final value might
say’ (Morallos and Amekudzi 2008, 125). VfM is not the only basis for
making a decision to deploy a PPP, although it remains the most impor-
tant factor. Even if VfM is identified in a prospective PPP, a public agency
may opt not to pursue the project in the PPP form and may look for
other ways to accomplish a public sector task.
In addition to VfM, there are other reasons for partnership deploy-
ment. The literature notes the synergy that PPPs create as a result of the
mobilisation of public and private resources (Brinkerhoff and Brinkerhoff
2004; Sedjari 2004). Other reasons for PPPs include the use of com-
parative advantages and rational division of labour; multi-actor, inte-
grated solutions (meaning that a few public agencies, private firms and
financial institutions can join forces for the implementation of a specific
task); and engagement in open decision-making processes to promote a
broader operationalisation of a public good (Brinkerhoff and Brinkerhoff
2004). The latter can be described as follows: as the partnership’s ability
to deliver a specified output (goods or a service) becomes a strong factor
in assessing the PPP’s VfM, involving final users in the discussion, regard-
ing what public goods they need and what service requirements should
be set, will be useful for enhancing transparency and a greater efficiency
of the public sector.
Other advantages of PPPs include:
– The use of private funds and know-how for the implementation of
public tasks;
– Insourcing private expertise from various fields including advance-
ments in business as well as technology; and
– Improvement of management capabilities of the public sector

(Hofmeister and Borchert 2004).
Regarding the latter feature, the government, whilst deploying PPPs,
can learn from its own experience and use the knowledge and skills of
the private sector partner for better service provision in the future and/
or in other regions and/or in other sectors, thus improving public sector
management. Partnerships, via the involvement of the private sector, may
accelerate the implementation of projects and innovation in service deliv-
ery and technology used (Morallos and Amekudzi 2008).
Amongst other driving factors for partnerships, there is an argument
that PPPs enable public agencies to transfer a substantial amount of costs
to the private sector. PPP advocates endorse the persuasive argument that
people will either obtain public services with the use of private partners
and private funds, or not: ‘the ability to shift the government’s financial
burden of providing and maintaining facilities and services is a major
driving force especially for nations and states facing funding strains on
their infrastructure budgets’ (Morallos and Amekudzi 2008, 114). This
particularly applies to Kazakhstan and Russia, as their infrastructure is in
great need of upgrade and development.
Another concept that focuses on the benefits of public service provi-
sion through PPPs is derived from transaction cost economics (TCE).
TCE uses total social costs and their minimisation as a criterion for which
option for the public service provision to choose (Vining and Boardman
2008).
Total social costs are defined as production costs incurred in service
provision (including construction costs and payments to third parties),
plus transaction costs (such as bidding costs and interest payments on
loans), plus net negative externalities (such as the cost of pollution less
the value of positive externalities, e.g. reduced waiting time), holding
quality constant (Vining and Boardman 2008).
The TCE perspective argues that, if the employment of a PPP as
opposed to the traditional public service delivery (via direct government
provision or contracting-out) minimises the sum of total social costs, a
PPP should be preferred. It is necessary to include all government trans-
action costs over the whole period of project time that derive from the
project, even if they do not appear in the project’s budget. In addition,

one should include all externalities and account for quality differences
although these costs rarely show up in any budget (Vining and Boardman
2008).
The concept of using a PPP, if and when it minimises total social cost,
has some similarities with looking at a PPP from the VfM concept: both
perspectives compare the cost (or value) of a PPP project with some
benchmark, which is usually the cost of the traditional method of public
service provision. Also, in both perspectives, not only may the use of
quantitative methods be required, but also the application of qualitative
methods, for example, in order to assess the value of externalities in TCE
or the PPP’s impact on providing access to public services in the VfM
concept.
Some PPP advantages and benefits may or may not be realised in a
specific PPP project. For example, the PPP’s ability to innovate for the
purpose of larger profit may not be used, or may be used unsuccessfully,
in a way that will, in fact, raise costs. Many advantages are potential; they
may or may not be achieved. Whether some advantages and benefits will
be received depends on how a specific PPP project was designed, and
under what terms a partnership has been formed. It also depends on
how effective partner interaction is over the course of the PPP project.
Therefore, claiming that a government should employ PPPs because they
possess a number of advantages seems unjustified, as advantages are in no
way guaranteed.
PPP Shortfalls
A balanced approach to PPPs requires a discussion not only of their ben-
efits, but also of their disadvantages. As Russia and Kazakhstan have lim-
ited experience with partnerships, some PPP disadvantages may not yet
be observed. These nations would benefit from learning, not only from
success stories in other economies, but also from PPP failures, in order to
avoid mistakes in the future.
Although PPPs may have strong advantages, they may also have serious
shortcomings. In the literature, there is a tendency to stress the positive
effects of PPPs (Haque 2004). This section focuses on the identification

of the principal disadvantages associated with partnerships.
One significant disadvantage is that a PPP often costs a government
more than the direct provision of services by a public agency. One of the
reasons for this is that private firms normally face higher (compared with
the government) interest rates on the loans that they need to finance
the PPP project. Therefore, a PPP may be an expensive way of resolv-
ing public sector problems because private sector borrowing is normally
more expensive, and in the case of a PPP failure, the government should
bear the full cost of the project (Bovaird 2004; Kakabadse et al. 2007).
As for the borrowing costs, ‘in almost every country in the world, govern-
ments can borrow money more cheaply, at lower rates of interest, than
the private sector’ (Hall 2008, 7). Financial institutions are willing to
lend money to the government at a lower rate (i.e. a ‘risk-free’ rate) than
they are willing to offer the private sector, because banks perceive that the
government will not default on its loan, whereas the private sector may
do this (Sadka 2007).
This means that, although it seems that PPP project financing is man-
aged by a private company and should not be a concern for the govern-
ment, eventually all partnership costs will be paid by the government
and/or user charges. Thus, attracting a private sector party in a PPP nor-
mally costs the government more than when it opts to provide a service
itself. In cases where a private company is paid by final users, the outcome
is the same: end users will have to pay more than they would have been
required to pay had the service been provided by the government. Higher
costs associated with PPPs are a significant shortcoming as they may out-
weigh VfM, the major argument in favour of PPPs.
Additionally, PPPs may lead to the erosion of a government’s own obli-
gations for the provision of public services (Haque 2004). This may hap-
pen, for example, if the quality of service deteriorates over time, and the
government fails to correct a problem in a timely fashion. In time, the
government may discipline the private sector partner, but it is difficult to
monitor and control the partner on a daily basis. In addition, customers,
when they do not see government involvement in the service provision,
may form a perception that the government has distanced itself from its
traditional responsibilities.
Other PPP shortfalls can include personal and organisational differ-

ences between the public and private partners that reduce overall PPP
efficiency and effectiveness, lack of commitment, absence of methods to
analyse risks and opportunities, a lack of clearly defined objectives, inad-
equate control and evaluation mechanisms, contract alterations and dif-
ficulties in working relationships (Acar and Robertson 2004; Hofmeister
and Borchert 2004; Kakabadse et al. 2007).
For example, a public agency assigns a high priority to the quality of
customer service and the reduction of waiting times for a service, whilst
a private partner may be more focused on purchasing the equipment that
simplifies the collection of fees. A public sector partner may be interested
in keeping a user fee stable, whilst a private company may be pushing to
raise fees and tariffs for a variety of reasons. A private partner’s commit-
ment to a project may fade as a project approaches completion, and this
may result in an unwillingness to properly maintain or upgrade equip-
ment and other physical assets that soon be transferred to the public
agency.
PPP drawbacks, including those discussed above, deserve further elab-
oration in the Kazakhstani and Russian context, given relatively new and
limited experience that both nations have with partnerships. This will
ensure that policy makers in the two countries can draw useful insights
and avoid mistakes.
Internal and External PPP Drivers

The discussion of why PPPs are used, or should be deployed, in
Kazakhstan and Russia is normally lacking in the Russian-language lit-
erature available in the two nations. Instead, three points are usually
emphasised as the rationale for PPPs. First, partnerships are broadly used
in many Western as well as transitional countries and, therefore, must
be deployed in Kazakhstan and Russia. Second, PPPs are associated with
perceived benefits, such as innovation. Third, governments in Russia and
Kazakhstan have already approved PPPs as a policy tool for the long run.
However, other insights into the background for PPPs are available:
certain authors argue that effective cooperation between the government,
business and civic groups in Russia is lagging behind that of industri-
alised nations, and only in its infancy (Alpatov et al. 2010). The same
notion—that PPPs are a means to bridge the gap between the public sec-
tor, private business and citizen participation—applies to Kazakhstan, in
which civil society is also underdeveloped.
Many authors claim that there is a general lack of trust between the
business community and government (Kabashkin 2010; Pankratov 2010;
Varnavskiy et al. 2010), which means that private companies are often
unenthusiastic about long-term cooperation with the public sector. Thus,
a lack of trust between businesses and government can be considered the
context for PPPs. To reverse this situation, partnerships are viewed by the
governments and academics as a policy tool that would ensure closer col-
laboration between the public sector and the private sector.
However, it is insufficient to explain PPP development in Russia and
Kazakhstan simply using the governments’ approval of partnerships as
a policy tool. In order to understand the factors contributing to the
enhanced deployment of partnerships, it is useful to identify principal
internal and external PPP drivers that are contextual (rather than general)
to the environment of Kazakhstan and Russia.
Figure 2.1 summarises PPP drivers and divides them into two groups:
internal and external. There are five internal and three external drivers.
PPPs as a priority tool in the government developmental policy are pic-
tured in Fig. 2.1 as a background force that supports and enhances other
drivers, both internal and external.
Figure 2.1 shows interrelations between all the factors that drive PPP
development. For example, there is a certain pressure on governments
in Russia and Kazakhstan from foreign investors, supported by interna-
tional organisations. In turn, this enhances the influence of globalisation
processes on public policy towards the broader employment of partner-
ships. At the same time, some public policy actions (such as the selection
of a concession as a preferred PPP form) are intended to align Russia and
Kazakhstan with perceived globalisation processes. All drivers captured in
Fig. 2.1 are discussed in detail below.
Internal PPP Drivers External PPP Drivers
Lack of Lack of
innovation public funds
International
Need to get private financing organisations
for the housing and utilities
infrastructure
PPPs Foreign investors
Need to increase the
attractiveness of some
industries for private investors Globalisation
Need to give a stronger
impetus to regional
economic development
PPP as a direction and priority of the public policy
Fig. 2.1 Internal and external PPP drivers in Kazakhstan and Russia.
Internal PPP Drivers

In the Russian-language literature, the discussion of internal factors that
act as stimuli to the enhanced deployment of partnerships is brief and
does not involve any extensive justification of any factor. In other words,
PPP drivers are considered to be a given, obvious and not worthy of
debate. This can be explained by the fact that, perhaps, the strongest
internal PPP driver in both Russia and Kazakhstan is government policy
that includes statements that, in order to enhance collaboration between
the public and private sectors in the long run, PPP deployment is the
government priority.
In particular, in the Conception for the Long-Term Social and
Economic Development of the Russian Federation until 2020, which was
approved by the Russian government in 2008, the development of insti-
tutions and tools of PPPs has been determined as a key strategic direction
(Alpatov et al. 2010). In 2008, the Kazakhstani government approved
the Conception for Development of Public–Private Partnerships for

2009–2015. This policy document has assigned a priority to the expan-
sion of sectors for PPP deployment, as well as to the expanded use of vari-
ous partnership tools and mechanisms (Conception for Development of
Public-Private Partnerships in the Republic of Kazakhstan for 2009–2015
2008). In addition to railroads and the energy sector, the document calls
for the use of PPPs in such sectors as water supply, education, health-
care, penitentiary system, utilities and housing infrastructure, and urban
transport infrastructure.
Three drivers have distinct relevance to the Russian and Kazakhstani
context. They include the need to obtain private financing specifically
for housing and utilities infrastructure; the need to increase investment
attractiveness of selected industries; and the need to give stronger impe-
tus to regional economic development.
A Need to Obtain Private Financing for Utilities

and Housing Infrastructure
As Fig. 2.1 shows, one internal factor is a commonly shared assumption

that PPPs may improve conditions in the housing sector which includes
housing itself, but also housing and utilities infrastructure, such as water
and energy supply, sewerage, supply of natural gas and heating systems
(Kabashkin 2010). This requires additional exploration as follows.
As most people in both countries live in apartments, rather than indi-
vidual homes, during the Soviet period all these systems were designed to
be centralised, meaning the delivery of services is managed from a cen-
tral source that was historically owned and managed by a government-
owned enterprise. A typical illustration of the centralised service delivery
is apartment heating. Aside from water for household needs, a family in
its apartment receives, from the centralised water heating service, hot
water in heating units in each room; for this service, a family normally
pays a public agency a flat fee per month. As these facilities were built
in Russia and Kazakhstan 50–60 or more years ago, they have become
outdated and require extensive renovation and upgrading. As a result, the
need to obtain private investment in housing and utilities infrastructure
is often named as a major driving factor in favour of PPPs.
A Need to Increase Attractiveness of Selected

Industries for Private Investors
Another internal PPP driver of a country-specific nature, and which applied

to both nations, is that governments, with the help of PPPs, aim to increase
the attractiveness of some industries for private investors. Naturally, this
driver is closely connected with the previous one, as housing and utilities
infrastructure is the sector that would most benefit from private investment.
However, in Kazakhstan and Russia, the range of industries that would
significantly benefit from private investment is broader than just housing
and utilities infrastructure: it also includes railroads, roads, regional and
local airports, healthcare, childcare, sports and recreation, and education.
In order to increase the financial attractiveness of a project in a selected
industry, according to Russian-language literature, the government should
pay part of the project cost (Pankratov 2010, 88). In some authors’ view,
governmental support of a PPP project should be, as a rule, extensive
and may take many forms such as a subsidy to a private partner’s capital
expenditure; periodic payments to an operator; tariff subsidisation (i.e.
part of the tariff is paid by citizens, whilst another part is paid by govern-
ment); and government guarantees for private partner loans and bonds.
Some authors suggest that government should play a role of a guarantor
in a PPP (see e.g. Pankratov 2010, 80).
Similarly, others argue that extensive government financial involve-
ment in a partnership is one of the principles of PPP formation and
operation (Varnavskiy et al. 2010). Although terming government finan-
cial support to a private partner ‘a principle’ seems to be lacking justifica-
tion, as this significantly increases public sector risks and costs and may
undermine partnership’s VfM, this approach is indicative of the typical
understanding of the role that the government has to assume in a PPP,
specifically from the financial point of view.
A Need to Give a Stronger Impetus to Regional

Economic Development
Another country-specific PPP driver is the need to give—with the use

of partnerships—a greater impetus to regional development (as opposed
to projects aimed at improvements in major cities, which include the
renovation of airports or construction of bridges and tunnels). This task

is common for both Russia and Kazakhstan in the opinion of many (see
e.g. Alpatov et al. 2010, 26; Pankratov 2010, 96; Varnavskiy et al. 2010,
180–194).
In both nations, the policy response to this need was the formation of
government-owned regional PPP centres intended to provide institutional
structure for project preparation, selection and monitoring of implemen-
tation at a regional level. In 2011, PPP centres had been formed in 15 out
of 83 regions in Russia, and by 2016, most of Russia’s regions had estab-
lished PPP centres or similar units within regional governments. In 2011,
only one unit had been formed in Kazakhstan: the Regional PPP Centre
of Karagandinskaya oblast. This was subsequently shut down, perhaps due
to a lack of progress with PPP implementation, although other regional
centres were formed later on in Vostochno-Kazakhstanskaya oblast
(Eastern Kazakhstan) and Yuzhno-Kazakhstanskaya oblast (Southern
Kazakhstan). Regional PPP centres are expected to engage with regional
governments in order to ensure more effective and faster project selec-
tion. Overall, PPP centres have been assigned a facilitator role in regional
partnerships, and they aim to guide participants through the preparation
and project approval process and help them to arrange proper financing.
External PPP Drivers

Three external drivers spur PPP deployment in Kazakhstan and Russia.
They are the influence of international organisations, pressure from for-
eign investors and, more generally, globalisation impulses.
Impact of International Organisations
In Russia, the impact of international organisations has concentrated on

the joint project of the United Nations Development Programme (UNDP)
together with the Russian government-owned Vnesheconombank. One
of the departments of the latter is the National PPP Centre, responsi-
ble for serving as a government financing and coordination vehicle for
partnership development. The joint UNDP–Vnesheconombank proj-
ect was implemented over five years from 2010 to 2014. Its major aim
was development of Russia’s potential for PPP projects, and its activities
included staff training; consulting services and assistance to regional PPP
centres; and preparation of model projects in water supply, refuse man-
agement, energy supply, transport infrastructure and social infrastruc-
ture. In addition, the project provided recommendations for drafting
regional laws and regulations that would allow the extensive deployment
of PPPs (United Nations Development Program 2009). The project effec-
tively addressed core impediments to the development of partnerships in
Russia, that is, a virtual absence of, or ambiguity regarding, regional leg-
islation governing PPPs, lack of qualified staff and lack of pilot projects
through which experience could be gained to develop typical financing
and management solutions, relevant to a particular sector, such as water
supply.
The same core impediments also exist in Kazakhstan, although no
international organisation has yet engaged with a similar PPP develop-
ment project. It is worth noting that the UNDP project in Russia had
an additional goal of contributing to the formation of the regional PPP
centre for the countries of the Commonwealth of Independent States
(CIS). Although, as of early 2016, the regional PPP entity for the CIS has
not begun its operations, the project has acknowledged Russia’s growing
role in the CIS and emphasised the intent to use the Russian experience
for the promotion of PPPs in other CIS countries including Kazakhstan
(United Nations Development Program 2009).
Kazakhstan was included in a technical assistance project (2010–2012)
of the Asian Development Bank (ADB) that aimed to prepare road maps
for Central and West Asia in three sectors including energy, transport
and urban services (Asian Development Bank 2010). A road map was
defined as a strategic plan for both the ADB and the government, which
would enable better decision-making to provide innovative solutions to
sector challenges. Describing these challenges and the need for technical
assistance, the ADB report states: ‘reforms are needed to improve the
efficiency of service provision and to allow the private sector to partici-
pate’ (Asian Development Bank 2010, 1). Amongst its goals, the ADB
emphasised the improvement in ‘delivery of infrastructure services that
will create an enabling environment for public–private partnerships and
private sector engagement’ (Asian Development Bank 2010, 3). As the
ADB works in close collaboration with national governments, whilst the

Kazakhstani government co-financed this project, it is fair to argue that,
for the technical assistance project, the ADB goals were synchronised
with those of Kazakhstani public policy. Thus, it is likely that the impact
of this international financial institution served as an additional exter-
nal impulse in the direction of enhanced deployment of partnerships in
Kazakhstan.
Pressure from Foreign Investors
Among other external PPP drivers, there exists pressure from foreign
investors who are interested in using new business opportunities in tran-
sitional countries. The use of foreign investors in Russia and Kazakhstan
possesses a number of advantages: foreign firms may offer the expertise
that domestic companies lack, and financing can be arranged more easily
through foreign banks and via access to foreign capital markets.
An example of foreign investment in PPPs in Russia is Northern
Capital Gateway, an international consortium, that includes Fraport
AG Company (Germany), a leading worldwide operator of airports;
Greek investment group Copelouzos; and the Russian bank VTB
Capital (Northern Capital Gateway 2010). The consortium won a
contract for the reconstruction and operation of the Pulkovo airport
in St Petersburg, Russia, and the project commenced in April 2010. In
2007, a Turkish company—ATM Grup Uluslararasi Havalimani Yapim
Yatirim ve İşletme Ltd Şti—won a contract for one of the first PPP
projects in Kazakhstan, a concession for 28 years that includes the con-
struction and operation of a passenger terminal of an international air-
port in the city of Aktau (Kazakhstan Today 2009). Also, in November
2012 a Turkish company called The 7 Piramit Company won the PPP
contract for the construction and operation of 11 kindergartens in the
city of Karaganda in Northern Kazakhstan, in the form of a conces-
sion for 14 years (Regional Centre for Public-Private Partnerships of
Karagandinskaya Oblast’ 2012). These examples show the interest of
foreign investors in capitalising upon the newly created opportunities in
Kazakhstan and Russia.
Integration with Globalisation Processes
Finally, a major factor sending external motivators to PPP develop-

ment in Russia and Kazakhstan is the globalisation processes. This can
be described as a general intent of the two nations to align their poli-
cies, processes and tools in both the public and private sectors with
international trends. The growing deployment of PPPs in many coun-
tries around the world is deemed as one of those trends. Prior to the
Western nations’ sanctions imposed on Russia in 2014, due to Russian
involvement in Ukrainian affairs, Russia’s integration with the world
economy was one of the main objectives of PPPs (see e.g. Alpatov et al.
2010, 26).
The connections between PPPs and globalisation are developing in
two directions. First, globalisation calls for the enhanced deployment of
partnerships in Russia and Kazakhstan because PPPs are viewed as an
internationally recognised tool. Second, partnerships serve as an impetus
for the further development of the globalisation processes, although in
modern Russia any significant enhancement of globalisation is highly
unlikely (as since 2014, due to Western sanctions, Russia’s economic iso-
lation has been rapidly growing).
Whilst investors from industrialised nations may not be interested
in Russian PPPs in the immediate future due to political reasons and
the increased instability of the Russian currency, companies from
China, Middle East, Brazil and other countries may be keen on invest-
ing in Russia, which the cash-strapped nation is likely to welcome. An
increased use of foreign investment in domestic PPP projects is consid-
ered a sign of openness and internationalisation, whilst depreciation of
the Russian ruble (as well as Kazakhstan’s currency) has lowered prices
in both nations and, hence, made possible investments more attractive.
This becomes more evident in reference to the use of concessions: not
only are PPPs deemed a global trend; moreover, a prevailing use of con-
cessions, as opposed to other PPP forms, is deemed also to be an inter-
national trend.
In summary, in Russia and Kazakhstan, there are both external and
powerful internal PPP drivers. They possess similar characteristics without
any major discrepancies between the two nations, and many drivers are
intertwined with, and supported by, government policy. In each country,
this policy has set PPPs as a long-term priority tool for the development
of collaboration between government and business.
Conclusion
This chapter critically evaluated the drivers that ensure PPP expansion in
Kazakhstan and Russia. Among the internal drivers, two are of a general
nature—lack of innovation and lack of budget financing—and can be
identified in almost any country. In addition, Russia puts an unjustifiably
high importance on the technological innovation that partnerships may
offer, which will be discussed in Chap. 3.
Three other PPP drivers in the same category of internal factors are
contextual and apply specifically to Kazakhstan and Russia, as both coun-
tries are heavily influenced by their Soviet legacy. These drivers include
the need to use private funds to enable the upgrade of utilities and hous-
ing infrastructure; the need to increase the attractiveness of selected
industries for private investors; and the need to give a stronger impe-
tus to regional economic development. The most influential driver is the
need to obtain private financing for the massive overhaul of housing and
utilities infrastructure, as this is an enormous task for which the govern-
ments in Kazakhstan and Russia are unable to raise sufficient funds in the
foreseeable future.
The major driving force for partnership expansion is the policy that
the governments of the two countries tend to develop in a similar way
and that evolves as a policy paradigm. In this emerging paradigm, the
instruments and solutions for PPP financing, governance and risk
mitigation are intended to be readily available, and if so, they may
replace any policy debate regarding why and how partnerships may be
deployed. However, typical solutions and tools for partnership financ-
ing and implementation in both Kazakhstan and Russia are lacking at
this time, and this is the principal contributing factor to the slow prog-
ress of PPP development.
References
Acar, M., and P. Robertson. 2004. Accountability challenges in networks and
partnerships: Evidence from educational partnership in the United States.
International Review of Administrative Sciences 70(2): 331–344.
Partnerstvo: Mekhanizmy Realizatsii (in Russian). (Public-private partnership:
Asian Development Bank. 2010. Preparation of sector road maps for Central
and West Asia. Technical Assistance Report 1–14.
Bovaird, T. 2004. Public-private partnerships: From contested concepts to prev-
alent practice. International Review of Administrative Sciences 70(2): 199–216.
donors and non-governmental development organizations: Opportunities
and constraints. International Review of Administrative Sciences 70(2):
253–270.
Colman, J. 2000. Examining the value for money of deals under the private
finance initiative/public private partnership. Public Policy and Administration
15: 71–81.
Conception for Development of Public-Private Partnerships in the Republic of
Kazakhstan for 2009–2015. 2008. Astana: 1–20. http://www.ppp-center.kz.
Accessed 5 June 2011.
Hall, D. 2008. Public-Private Partnerships (PPPs). Summary paper, 1–26.
http://www.psiru.org/publicationsindex.asp. Accessed 10 January 2012.
Haque, S.M. 2004. Governance based on partnership with NGOs: Implications
for development and empowerment in rural Bangladesh. International Review
of Administrative Sciences 70(2): 271–290.
Her Majesty’s Treasury. 2006. Value for money assessment guidance. London:
Author.
Hofmeister, A., and H. Borchert. 2004. Public-private partnership in
Switzerland: Crossing the bridge with the aid of a new governance approach.
Kabashkin, V. 2010. Gosudarstvenno-Chastnoye Partnerstvo v Regionakh Rossiyskoy
Federazii (in Russian). (Public-private partnership in regions of the Russian
Federation). Moscow: Delo.
Kakabadse, N., A. Kakabadse, and N. Summers. 2007. Effectiveness of private
finance initiatives (PFI): Study of private financing for the provision of capi-
tal assets for schools. Public Administration and Development 27: 49–61.
Kazakhstan Today. 2009. Presidents of Kazakhstan, Russia, Azerbaijan and

Turkmenistan participated in the opening of the new passenger terminal of
the international airport in Aktau. http://www.kt.kz/index.php?lang=rus&ui
n=1133168904&chapter=1153496927. Accessed 8 June 2011.
Mouraviev, N. 2012. What drives the employment of public-private partner-
ships in Kazakhstan and Russia: value for money? Organizations and Markets
in Emerging Economies 3(1)(5): 31–56.
Northern Capital Gateway. 2010. The project. http://www.newpulkovo.ru/
eng/. Accessed 18 May 2010.
Pankratov, A. 2010. Gosudarstvenno-Chastnoye Partnerstvo v Sovremennoy
Praktike: Osnovnye Teoreticheskiye I Prakticheskiye Problemy (in Russian).
(Public-private partnership in modern practice: Main theoretical and practical
problems). Moscow: Ankil.
Reeves, E. 2003. Public-private partnerships in Ireland: Policy and practice.
Public Money and Management 23: 163–170.
Regional Center for Public-Private Partnerships of Karagandinskaya Oblast’.
2012. Information about projects. http://www.karaganda-ppp.kz. Accessed
11 January 2012.
291–306.
United Nations Development Program. 2009. Project document. Development
of public-private partnerships in Russia, 1–6. http://www.pppinrussia.ru/
main/publications/. Accessed 1 June 2011.
Varnavskiy, V., A. Klimenko, and V. Korolev. 2010. Gosudarstvenno-Chastnoye
Partnerstvo: Teoriya i Praktika (in Russian). (Public-private partnerships: Theory
and practice). Moscow: Publishing House of the State University – Higher
School of Economics.
Vining, A., and A. Boardman. 2008. Public-private partnerships. Eight rules for
Governments. Public Works Management and Policy 13(2): 149–161.
Vining, A., A. Boardman, and F. Poschmann. 2006. Public-private partnerships
in the U.S. and Canada: There are no free lunches. Journal of Comparative
Policy Analysis 7(3): 199–220.
3
Why Partnerships? The Approaches
Introduction
When scholars and practitioners in Kazakhstan and Russia consider
PPPs, the discussion often becomes unbalanced. In addition to noting
traditional justifications for PPP deployment, such as a lack of budget for
the provision of much-needed public services, a long list of advantages is
assigned to partnerships. These advantages are discussed in a manner that
diminishes the value of the context in which a PPP is formed, launched
and managed. In these cases, the legal and institutional frameworks of
a country are not incorporated into the discussion, whilst the contex-
tual environment of the specific industry and the nation’s management
practices and financial arrangements underpinning PPPs are simply
disregarded. This means that advantages and benefits that PPPs dem-
onstrated in other nations’ contexts are often automatically applied—in
the discussion, rather than in reality—to the Kazakhstani or Russian con-
text, with an anticipation that similar advantages will be received in these
two countries. In addition, scholars also assign another feature to PPPs

DOI 10.1057/978-1-137-56952-3_3
in Kazakhstan and Russia: that a PPP implements a socially significant

project. This chapter aims to investigate what advantages are associated
with partnerships in the two nations, and the accuracy of these percep-
tions and opinions.
This chapter1 includes two sections. The first provides a critical assess-
ment of what the Russian-language literature claims to be PPP drivers in
Kazakhstan and Russia, allowing for comparison with OECD approaches.
As the previous chapter identified both internal and external PPP drivers
in the two nations, it is now possible to evaluate which drivers have greater
significance, and which are of lesser importance, in order to prioritise them.
The chapter’s second section discusses approaches—at the public pol-
icy level—that governments in Russia and Kazakhstan employ when they
consider partnerships. It elucidates how those governments understand
partnerships, and the PPP forms that the governments in the two nations
deem legitimate.
Why Partnerships? A Critical Assessment

of Russian Literature Claims
In contrast to the set of internal and external PPP drivers discussed in the
previous chapter, in Kazakhstan and Russia academics and practitioners
often emphasise drivers of a different nature, namely:
• The intrinsic, in their view, advantages of a partnership; and

• The social significance of a certain PPP project as a single criterion for
whether or not to form a partnership.
PPP advantages include, in the opinion of Russian scholars and prac-

titioners, that partnerships generate innovation and produce a synergistic
effect. Furthermore, a decision to launch a PPP may be based, as Russian
literature suggests, solely on the project’s perceived value labelled ‘social
1
Parts of this chapter are reproduced from the paper Mouraviev, N. 2012. “What Drives the
Employment of Public-Private Partnerships in Kazakhstan and Russia: Value for Money?”
Organizations and Markets in Emerging Economies 3: 32–57, with the journal’s permission.
3 Why Partnerships? The Approaches in Kazakhstan and Russia 39
significance’. The following sections discuss each of these two views and
assess whether these arguments in favour of PPPs are convincing.
PPPs and Innovation
Management literature in Kazakhstan and Russia includes claims that a PPP

is instantly associated with at least two advantages that are considered intrin-
sic to partnerships. One is that partnerships are viewed as a tool that gener-
ates innovation in technology, management and service delivery. The second
is that a PPP inherently carries greater efficiency due to the synergy effect.
In Russia, the link between PPPs and innovation is explored in claims
that PPPs should be employed because they bring about technological
innovation (Pankratov 2010; Varnavskiy et al. 2010; Firsova 2011). The
background for this claim is that the private sector partner is driven by
the profit motivation, and innovation may permit a private operator to
increase profit. However, this claim remains unjustified as innovations
are in no way guaranteed, and there may be many other ways to increase
profit, such as by raising the service fees that users pay. Furthermore,
one should demonstrate that a certain partnership will produce innova-
tion and that the PPP technology will be truly innovative, rather than
an incremental upgrade. In addition, one should identify the criteria of
what constitutes technological innovation. For example, if in the begin-
ning of the project a PPP employs highly efficient technology, which 20
years later becomes obsolete, although it remains in a usable condition
for another 10 years, is this sufficient argument to claim that a PPP has
brought about innovation? Furthermore, the literature does not explore
the fact that technological innovation may be costly, which leads to an
increase in total PPP costs and, consequently, rising risks for both the
government and the private partner.
PPPs’ Synergy and Efficiency
PPPs are associated with yet another advantage, namely greater effi-
ciency due to the synergistic effect that stems from partner collabora-
tion (Grimsey and Lewis 2004). The notion regarding a positive PPP
effect due to the blend of government input with the private partner’s
resources, management expertise and initiative is broadly shared in Russia
and Kazakhstan (Zusman 2008; Pankratov 2010; Varnavskiy et al. 2010;
Firsova 2011). However, the explanation of why a certain PPP project
may have greater efficiency (compared to the government’s in-house
delivery or contracting-out) is typically lacking.
At the same time, the literature is silent about overall PPP costs, that
is, the aggregate costs of both the public sector and the private sector. As
scholars and practitioners in the two nations do not normally view the
overall PPP costs as a concern, this presents an issue, namely that par-
ticipation in a partnership is likely to cost all parties more. Reasons for
this are as follows: the private sector partner normally obtains a loan at a
higher interest rate than the government because banks associate a private
firm with greater risk; the government extends a subsidy that pays part
of the project cost; and customers may face higher tariffs because they
may be raised to ensure that revenue covers the private partner expenses.
In any case, overall PPP costs increase. Greater PPP efficiency due to the
synergy effect, therefore, becomes debatable.
Considering PPPs from the perspective of public policy and public
management, it is worth noting that in Kazakhstan and Russia, academ-
ics, policy makers and citizens are not raising concerns that the govern-
ment, by launching a partnership, is likely to pay more as opposed to the
cost of direct government provision or contracting-out. This creates an
environment in which PPPs are silently accepted by society without suf-
ficient questioning of whether PPPs as a policy tool are efficient, effective
and appropriate.
The lack of concerns in Kazakhstan and Russia regarding overall PPP
costs and efficiency is linked to yet another issue, namely the criteria that
the two nations use for launching PPPs to judge whether formation of a
partnership is sufficiently justified.
The Russian-language literature is silent about TCE, and this theory
is not used as a basis for making a decision on whether or not to form
a PPP. Although overall PPP costs may be higher due to extensive gov-
ernment financial support to a partnership, expensive technology and
the higher cost of private partner borrowing, nevertheless policy mak-
ers, academics and practitioners claim that a PPP is a preferred form for
collaboration between the public sector and the private sector in both
Kazakhstan and Russia (Tilebaldinov 2008; Kabashkin 2010; Pankratov
2010; Varnavskiy et al. 2010). This means that in the two nations there
is general acceptance of the notion that PPPs are associated with higher,
rather than lower, total costs of a project, although the Western literature
argues the opposite.
Project’s Social Significance: A Valid Criterion?
The reasons for PPP deployment in the two nations significantly differ
from those in OECD countries. In other words, the traditional reasons
that the Western nations normally use for launching partnerships have
been replaced in Kazakhstan and Russia with other considerations. In
addition to perceived partnership advantages, the project’s social signifi-
cance has become a principal criterion for PPP formation, and the litera-
ture of both nations places a clear emphasis on this.
Labelling a potential PPP project as socially significant is directly linked
to how much administrative and financial support government intends
to offer a partnership. In Kazakhstan and Russia, there are numerous
claims that the nature of government involvement in PPPs is determined
exactly by the project’s social significance (Zusman 2008; Azizov 2009;
Varnavskiy et al. 2010). This means that the government should not be
involved in any PPP project; in order to justify government participation
in a partnership, a project has to be deemed socially significant. The lat-
ter implies that a project should be implemented in a field or industry
that is significant for the general population, such as healthcare or water
provision, and the project results should have a positive influence on the
standard of living by delivering tangible improvements for that popula-
tion. However, the literature is silent on how, exactly, this significance can
be assessed, why one PPP project may be more significant than another
and how improvements for the population can be measured.
In addition, a project’s social significance is not tied specifically to pub-
lic services. In other words, improvements that a PPP project is to create
are understood only in a broad sense. The following example can be used
to highlight this controversy. In the city of Karaganda, Kazakhstan, one
approved PPP project targeted construction of 11 kindergartens, whilst

another proposed project aimed to reconstruct water purification facili-
ties (Regional Centre for Public-Private Partnerships of Karagandinskaya
Oblast’ 2012). At the same time, the purpose of yet another, ongoing,
PPP project in Northern Kazakhstan is the construction of power lines
and transmission of electrical power across the region (Kazakhstan Public-
Private Partnership Centre 2012). It remains unexplained whether any of
the three above-mentioned projects has social significance equal or sim-
ilar to that of another project, and how their social significance differs
from that of a PPP project that includes, for example, operation of a toll
road.
The principal questions in this theme are as follows:
– What are the criteria for PPP project selection in Russia and
Kazakhstan?
– Are these criteria used consistently across different sectors and
regions?
– Should a PPP’s social importance be employed as a major criterion?
If so, how to measure it?
– Should technological innovation be used as one of the criteria?
– Should various criteria be assigned different weights or ranks
depending on a project?
– Should greater importance be assigned to certain criteria, such as
larger volume and better delivery of public services, for all proposed
projects?
– In a broader sense, what are the implications of including some
criteria and excluding others?
So far, these questions remain unanswered by public policy as well as
by academics in both countries.
PPP Drivers: A Critical Assessment
This section provides a critical assessment of PPP drivers from the per-
spective of their influence on the progress with partnership development
in the two economies, which enable the prioritisation of those drivers. It
sheds light on the nature of government policy regarding partnerships,

and the role this policy plays in PPP proliferation.
Amongst three internal PPP drivers, the need to obtain private financ-
ing to upgrade housing and utilities infrastructure is by far the most press-
ing. This need is grounded in deeply outdated housing, the vast majority
of which results from the Soviet legacy, and in the utilities infrastructure
that was also built in the large part prior to World War II and requires
extensive replacement. The contextual factor that explains the pressing
need for obtaining private financing in this field is the colossal size of
the utilities infrastructure overhaul. The enormity of the task, in terms
of the monetary amount required for the overhaul, forces governments
in Kazakhstan and Russia to argue that engaging investors with extensive
private financing for PPP deployment is the only feasible solution in this
field. It is likely that delays in upgrades will result in more frequent break-
ages of power lines, as well as the pipeline systems that supply water and
natural gas. This leads to high repair costs and the disruption of public
service delivery to customers. Therefore, PPPs become a feasible solu-
tion that meets the interests of all stakeholders: citizens who need better
housing and utilities infrastructure, governments that look for ways to
finance the infrastructure renovation and private firms that seek profit-
able investments.
The need to increase the financial attractiveness of selected sectors to
private investors also carries a significant value that can be described as
complementary to the need to finance the housing and utilities infra-
structure overhaul. This is because governments need private investment
exactly in this field. Private funds are also needed for other infrastructure
projects, such as construction and operation of railroads, roads, airports,
seaports and in the energy sector. The commonality is the high cost of
capital assets that governments in Kazakhstan and Russia hope to con-
struct or renovate with the help of private investors. As one PPP driver
reinforces the other, their enhanced combined influence pushes govern-
ments to seek solutions in the formation and implementation of partner-
ship projects for the purpose of massive infrastructure upgrade.
As opposed to the two internal PPP drivers discussed above, another
internal PPP driver, namely the need to create an additional stimulus for
regional economic development, is associated with much lower influence

on partnership proliferation. This is because, by its nature, the respon-
sibility for regional economic development is shared between national
government and regional governments; this applies to both Kazakhstan
and Russia.
Although Kazakhstan is a unitary state, regional governments have
their budgets (approved by national government) and are responsible
fully, or in part, for the provision of services, such as school education,
healthcare, regional transportation services, water supply, road construc-
tion and many others. In reality, the national government has devolved
the bulk of its responsibilities to regional governments through budg-
etary allocations and intergovernmental transfers. In Russia, which is a
highly centralised federation, shared responsibilities between the federal
government and regional governments also exist, and regional govern-
ments are funded in a similar way. This means that, whilst the national
governments in Kazakhstan and Russia may push for pilot projects in
selected regions, the principal responsibility for economic development
in a region remains with a regional government, because of its close prox-
imity to citizens and its greater ability to understand local needs.
In summary, PPPs as an impetus to regional economic development
may come into play only after the national government has exhausted its
possibilities to form partnerships according to its own national agenda.
However, when a region can form a PPP without asking for funds and
other resources (such as land) from the national government, the latter
is likely to welcome this kind of partnership. This can be illuminated
by an example from the city of Karaganda, Kazakhstan, in which a
PPP project that involved construction and operation of 11 kindergar-
tens in the city was approved in November 2011 much more promptly
than other partnership projects, in which national public sector agen-
cies were involved (Regional Centre for Public–Private Partnerships of
Karagandinskaya Oblast’ 2012). Additionally, the large number of con-
cessions in Russia at the local level (200 in 2011 compared with 23 in
2009, and the total of more than 500 in 2015) also suggests that local
governments are able to form partnerships faster and more easily when
bureaucracy related to national regulations and agencies is reduced or
eliminated entirely.
Moving on to the assessment of external PPP drivers, Kazakhstan and

Russia’s intention to align themselves with perceived globalisation trends
and international best practices is the most influential factor facilitating
partnership development. Both countries have become highly receptive,
in a positive way, to impulses from the rest of the world, particularly to
those that would allow Kazakhstan and Russia to claim that they are
fully fledged members of the international community. These positive
responses to multiple external challenges have become a reality—and an
essential part—of government policies.
In turn, the principal reason for these policies is governmental inten-
tion to share values with industrialised countries in as many fields as
possible because shared values, ultimately, would influence judgement
on whether a certain country is part of the international community.
Whilst in politics or human rights, shared values between Kazakhstan
and Russia, on the one hand, and industrialised nations, on the other
hand, are just emerging, in other fields such as the economy or education,
formation of shared values is quite possible, and the two nations are eager
to seize every available opportunity, including PPP development.
The intention of Kazakhstan and Russia to be aligned with PPPs as an
international trend also explains why these countries are receptive to the
pressure that comes from foreign investors and international organisa-
tions. The two economies are keen to gain experience and expertise from
foreign firms. In addition, the international involvement in PPP proj-
ects is, by itself, an influential factor that legitimises and facilitates PPP
deployment in both nations.
The economic downturn that began in Russia in 2014 due to falling oil
prices and Western restrictions on trade has resulted in the nation’s grow-
ing isolation and an acute need for investment. As Kazakhstan is also an
oil-exporting country, it has been negatively influenced by a significant
decrease in oil price between 2014 and 2016. In these difficult economic
and political conditions, both nations have become less concerned about
their alignment with international values and best practices and keener
on attracting private funding for PPP projects. Nonetheless, the need to
legitimise PPP expansion—including the justification of gaining inter-
national experience—still exists. This need has transformed into a long-
term perspective, rather than an immediate concern. When economic
and political conditions improve, which applies more so to Russia than

Kazakhstan, it is likely that both nations may actively seek foreign inves-
tors and their expertise as a tool that justifies PPPs and draws on interna-
tional best practice.
Lessons Learned
The criteria for PPP formation in the two countries are largely vague and
inconsistent, whilst PPP advantages are often inflated. It remains unclear
what role the value-for-money concept and TCE play in decisions regard-
ing whether or not to form a partnership. In practice, the major driv-
ing force for partnership expansion is government policy that serves as a
comprehensive force aimed to strengthen and push all other drivers in the
direction of PPP development.
Among external drivers, the governments’ intention to align them-
selves with perceived international best practices is most influential, as it
allows the two countries to claim their fully fledged membership in the
world community, displaying values that are (presumably) shared with
industrialised nations. This intention drives many policy actions in the
two nations, and PPP proliferation is just one of the relevant examples.
In summary, PPPs are viewed as a strategic tool of collaboration
between the public and private sectors for the long run. Although over-
all PPP costs may be higher due to extensive government financial sup-
port and a higher cost of private borrowing, nevertheless academics and
practitioners routinely claim that PPPs are a preferred form of collabo-
ration between the public and private sectors in Kazakhstan and Russia
(Kabashkin 2010). Thus, the value-for-money concept appears to be
neglected and gives place to an emerging PPP policy paradigm.
The PPP drivers identified in Chap. 2 have been contrasted with what
the policy documents and the scholarly Russian-language literature claim
to be factors of PPP expansion. These claims include often an unjustified
association of partnerships with selected advantages deemed intrinsic to
PPPs, such as technological superiority and greater efficiency. Neither the
value-for-money concept, nor TCE, plays any significant role as theo-
retical underpinnings for PPP formation in Kazakhstan and Russia as
opposed to OECD countries.
Government Approaches to PPPs in Russia

and Kazakhstan
This section investigates the approaches that the governments of the
two nations have adopted with regard to PPPs. It discusses the govern-
ments’ understanding of the nature of a PPP, what PPP forms Russia and
Kazakhstan deem legitimate and appropriate and, hence, which forms
governments aim to deploy. The section compares the meaning and key
features of a PPP in Western literature with that in Kazakhstan and Russia
and highlights the commonalities and differences.
When Russian government agencies and officials discuss PPPs, these
can be broadly categorised as follows:
(a) Concessions (the nature of a concession in Russia and Kazakhstan is

discussed in greater detail in Chap. 5);
(b) Projects funded by the Investment Fund of the Russian Federation
(the Russian federal government’s financing channel); and
(c) Special economic zones (areas that enjoy more liberal taxation provi-
sions and other privileges for businesses according to Russian
legislation).
These three broad categories are indicative of the Russian government’s

approach to partnerships, which has two dimensions. One is that a part-
nership is understood as a generic term for enhanced public–private col-
laboration; the other, that a partnership is understood as a specific project.
These dimensions overlap in various government policy documents and
classifications and can result in confusion and misunderstanding.
The term partnership, particularly in Russia, is used as a generic term for
closer collaboration between government and business. It is a notion that
emphasises the importance of public–private cooperation in many differ-
ent forms as a tool for social and economic development at the national,
regional and municipal levels (Varnavskiy et al. 2010). This explains why
the Russian government considers, for example, special economic zones
as a form of partnership. A special economic zone is a powerful way to
boost the economy in a particular area by providing preferential treat-
ment and tax incentives for private firms in order to facilitate investment.
However, the creation of such a zone implies the design of special

rules and regulations for businesses that will be operating in the zone,
rather than a specific partnership project with one or several companies.
Nevertheless, based on the idea of the need for intensified collaboration
with the private sector, the Russian government’s understanding of the
term ‘partnership’ includes special economic zones. Similarly, projects of
the Russian Investment Fund are large-scale projects that are selected and
funded by the federal government. For regional projects, this funding
may be extended only in the form of a federal subsidy to the regional gov-
ernment. Nevertheless, as these projects mean greater cooperation with
private firms, from the government perspective, these projects fall into
the PPP category (see e.g. Varnavskiy et al. 2010, 37–39).
An alternative view of PPPs suggests that a partnership is a specific
project. However, when it comes down to the discussion of PPP forms,
the use of a term ‘PPP’ again becomes confusing. Within a classifica-
tion of PPP forms, a partnership is understood in different ways, again
embracing the use of ‘a PPP’ as a term for enhanced collaboration and a
PPP as contract. Officially, PPP forms in Russia include:
– All kinds of short-term contract (service contracts, management
contracts, technical assistance contracts and procurement
contracts);
– Rental (or leasing) contracts when government rents out an asset—
a building, an office, a production facility or equipment—to a pri-
vate company and receives a rental fee;
– Production-sharing agreements. Based on the Federal Law of 1995
and designed mostly for the oil and gas sector, these contracts
specify that the government gives a private company a permit for
the use of the certain territory for a fixed period of time, a private
firm makes all the investment related to exploration and extraction
of a natural resource, and part of the output belongs to the
government;
– Public–private corporations in which private participation takes the
form of stock ownership. These range from major companies such
as Gazprom (the largest Russian oil and gas company) and Sberbank
(the largest Russian bank) to smaller regional and municipal
companies. Both private companies and individuals may own

stocks; however, the controlling interest is in the hands of the gov-
ernment; and
– Concessions.
Table 3.1 summarises the meaning and key features of a PPP in
Western literature as opposed to in Russia and Kazakhstan.
In Russia, the broader interpretation of a partnership to include almost
any kind of public–private cooperation allows the government to claim
that the country is implementing a large number of PPPs. Other forms
of PPP, according to the official approach, such as the creation of special
economic zones with tax and other privileges for private firms, and invest-
ment contracts with the participation of the Federal Investment Fund
and private companies, are even further from the understanding of PPPs
presented in Western literature. Key partnership elements—mutuality,
the joint contribution of resources for the common goal, use of private
companies for the delivery of public services, and shared risk allocation
between parties—often appear to be missing and/or downplayed in the
Russian approach. For example, in public–private corporations, private
investors normally have no influence on the corporation’s business policy,
and many of those companies (such as Sberbank and Gazprom) are not
involved in the provision of public services. A production-sharing agree-
ment shifts all business risk to the private sector partner, and the govern-
ment role is limited to issuing a permit for the use of a piece of land that
may have some natural resources or may not. The government does not
bear any risk. Short-term contracts, such as renovation of a water purifi-
cation facility, or procurement contracts, often do not involve the use of
government resources and are a simple way of hiring a private party for
a specific purpose.
In Russia, the new Federal Law on Public–Private Partnerships and
Municipal–Private Partnerships, adopted on 1 July 2015, has provided a
definition of a PPP, which had been lacking since the Law on Concessions
came into effect in 2005. The new law defines a PPP as a cooperation
between partners in the public and private sectors, which has a certain
legal form, set for a period of no less than three years, and which is based
on resource pooling and risk allocation between partners. Whilst the law
Table 3.1 Understanding and features of a PPP

PPP or concession in PPP or concession in
PPP in Western literature Russia Kazakhstan
• Mutuality • PPP is broad form of • PPP is a project
• The joint contribution of public–private • Only one form of
resources for the collaboration PPP—a concession—is
common goal • Special economic used
• Asset construction or zones with tax and • Extensive government
renovation by a private other privileges for financial support to a
party which then uses private firms PPP is allowed and
this asset in order to • Investment contracts expected
provide services with participation of • Only one PPP model is
• Use of private companies the Federal Investment used:
for the delivery of public Fund and private build-transfer-
services companies maintain
• Shared risk allocation • Many public–private
between parties corporations are not
• Shared responsibility of involved in the
partners provision of public
• Multiple PPP forms (a services
concession, private • Private investors
finance initiative and normally have no
asset life-cycle contract) influence on the
• Multiple PPP models public–private
(including all or some of corporation’s business
the elements such as policy
DBFOOMT) • A production-sharing
agreement shifts all
the business risk to a
private partner
• Short-term contracts
are a simple way of
hiring a private party
for a specific purpose
• Also, PPP can be a
project such as a
concession
• Only one PPP model is
used:
build-transfer-maintain
• Extensive government
financial support to a
PPP is allowed and
expected
provides greater flexibility in selecting a legal form for a partnership, it is

yet to be seen whether it will resolve the general ambiguity regarding the
understanding of what a PPP is. The reason for this is that it is unclear
whether the law recognises exclusively contractual partnerships, or it also
embraces other types of partnerships. The new PPP law, that came into
effect in 2016, undoubtedly creates a more structured way of preparing,
procuring and implementing contractual partnerships. However, as the
understanding of a PPP in the Russia’s regions varied widely prior to
the 2015 law and included a broad range of forms as discussed in this
chapter, it may take many years for regional and municipal governments
to reconcile their existing practices and approaches to PPPs with the con-
cept of a PPP as a contractual agreement.
In Kazakhstan, the understanding of a PPP over the recent years has
narrowed down to a concession. All current PPP projects in Kazakhstan
are implemented in the form of a concession, and those that are pre-
pared and are waiting for government approval and private investors are
also concessions. Much like in Russia, the new Law on Public–Private
Partnerships in Kazakhstan passed in October 2015. The law specifies
two forms for a PPP: contractual and institutional. The latter is under-
stood as a firm that is formed jointly by the public and private sector
partners as a joint stock company (i.e. a corporation) or a limited liability
partnership. In addition to a concession, the law provides for the possi-
bility of other PPP forms. However, as of mid-2016, no new forms have
been employed for a PPP launch.
Conclusion
The effects of internal and external PPP drivers would have been sub-
stantially smaller if there were no policy in place. The governmental
PPP policy is a powerful tool that furthers partnership development in
Kazakhstan and Russia. The two countries have started to form their
policies at approximately the same time, in 2004–2005, and have shaped
them in a similar way. The principal commonality is the nature of PPP
policy in Kazakhstan and Russia, focusing on reversing the historical
trend of the governmental political and economic dominance that stems
from the Soviet legacy. Overcoming a lack of trust in government, and a

corresponding lack of willingness among private businesses to cooperate
with public agencies, is crucial for both nations. Whilst Kazakhstan and
Russia continue to develop a market-oriented economy, these goals are
deemed useful as they may result in expansion of the sectors in which
private firms can successfully operate and use their own, rather than gov-
ernment, funding.
Prior to 2015, analysts and practitioners in both nations argued that
lack of flexibility in choosing a most appropriate form for a partnership
was a major impediment to extensive PPP deployment in Kazakhstan
and Russia. However, it appeared that other reasons, over and above a
lack of PPP forms, serve as more important and stronger impediments
to PPP deployment. These include lack of investment; political insta-
bility; a rapidly fluctuating (in 2015–2016) exchange rate between the
national currency (Russian ruble and Kazakhstan’s tenge) and the US
dollar, euro or sterling; and a general lack of interest from private com-
panies in engaging with the government on a long-term project. It is use-
ful that the legal framework gives investors flexibility in choosing a PPP
form, be it a concession, a service contract or an asset life-cycle contract.
Nonetheless, there is a lot more to a PPP implementation, than simply an
encouraging legal and organisational form. It is impossible to point to the
single most important element to convince investors and the government
that a PPP should be launched. The long-term nature of a partnership
inevitably involves multiple risks, including political changes, uncertain
revenue streams and borrowing opportunities, the risk of changes in gov-
ernment regulations, exchange rate risk and many others, which shape or
undermine investors’ confidence in a project.
References
Azizov, A. 2009. Vozmozhnosti ispolzovaniya kontsessionnykh soglasheniy v
usloviyakh krizisa (in Russian) (Opportunities for concessions in the time of
crisis). Korporativniy Yurist 5: 1–3.
Firsova, A. 2011. Vozmozhnosti ispolzovaniya mekhanizmov GChP v
prozessakh investirovaniya investizionnoy deyatelnosti (in Russian)
(The possibility of using public-private partnerships in the investment

process of innovation activity). Resursy, Informaziya, Snabzhenie,
Konkurentsiya 2: 563–566.
Elgar Publishing.
Federazii (in Russian). (Public-private partnership in regions of the Russian
Kazakhstan Public-Private Partnership Centre. 2012. Concessions. http://www.
ppp-center.kz/rus/activity/projekt/. Accessed 17 January 2012.
ships in Kazakhstan and Russia: value for money? Organizations and Markets
Praktike: Osnovnye Teoreticheskiye i Prakticheskiye Problemy (in Russian).
Regional Center for Public-Private Partnerships of Karagandinskaya Oblast’.
2012. Information about projects. http://www.karaganda-ppp.kz. Accessed
11 January 2012.
Tilebaldinov, K. 2008. Development of institutional system of PPP in
Kazakhstan (in Russian). Proceedings of international conference: Taking
public-private partnerships forward: New opportunities for infrastructure devel-
opment in transitional economies. Moscow, 2008. http://www.unece.org/ceci/
ppt_presentations/2008/ppp/Moscow/tilebaldinov.pdf. Accessed 1 March
2011.
Zusman, E. 2008. Kontsessii – perspektivnaya forma privatizatsii (in Russian)
(Concessions as a form of privatization). Sliyaniya i Pogloscheniya 7–8: 19–25.
4
PPPs in Kazakhstan and Russia:
The Nature and Scope of Government
Involvement
Introduction
PPP development in Russia and Kazakhstan is still in its infancy. The
two nations are eager to learn how to form and govern PPPs efficiently.
Although the implementation of a number of PPP projects has been ini-
tiated, none of these has yet been completed. It is, nevertheless, possible
to discern certain trends and patterns of activity. This chapter elucidates
how the Russian and Kazakhstani governments have approached PPPs
within the context of transitional economies and evaluates those govern-
ments’ efforts to build legislative, institutional and financing frameworks
for launching partnerships in different sectors. Whilst it may be prema-
ture to view PPPs as a tool of economic reform, there is no doubt that the
governments in Russia and Kazakhstan associate PPPs with an opportu-
nity to achieve faster economic growth, provide a larger volume of public
services and replace the government in carrying out its traditional (for
the ex-Soviet nations) responsibilities, such as water supply or childcare.
This chapter’s objective is to provide context and set the founda-
tion for further discussion of partnership issues, such as PPPs’ role in

DOI 10.1057/978-1-137-56952-3_4
overcoming market failures and PPPs’ impact on economic and soci-

etal sustainability. To this end, the chapter provides factual data on how
and when governments began PPP development in the two nations.
As Russia and Kazakhstan became independent nations in 1991, after
the disintegration of the Soviet Union, the context and motivation
for PPPs are different when compared with countries in the European
Union (EU) or the USA. Therefore, this chapter begins by highlight-
ing how partnerships evolved in Western Europe as opposed to Eastern
Europe. It moves on to outline PPP development in Russia, explore
progress with partnership deployment to date and review PPP devel-
opment in Kazakhstan. The conclusion offers insights into the nature
of government involvement in partnership deployment in both nations
and identifies controversies surrounding the adoption of PPPs as a tool
of economic development.
PPP Emergence in Europe: The Historical

Context
This section highlights the historical context in which partnerships
emerged in Western Europe and, subsequently, in Eastern Europe. As
partnerships provide public services privately (i.e. instead of the govern-
ment), one may view PPPs as the manifestation of a policy aimed at
contracting-out government activities (Urio 2010). From a historical
perspective, the emergence of PPPs in Western Europe is often associ-
ated with New Public Management (NPM) (Grimsey and Lewis 2004;
Wettenhall 2005; Yescombe 2007). Urio (2010, 32) notes that ‘contract-
ing out has become, since the beginning of the 1980s, part of the vast
NPM programme and of its major explicit goal, i.e. the reform of the
State and the improvement of its efficiency’. Whilst the PPP definition
is much broader than merely hiring a private company in order to pro-
vide a public service, this PPP proliferation marks the shift of govern-
ment policy in many Western European nations towards the greater use
of the private sector for the provision of traditional public services, such
as water treatment, healthcare, tunnels, bridges and roads.
4 PPPs in Kazakhstan and Russia: The Nature... 57
Historically until the 1980s and 1990s, amongst the three forms
of interaction between the government and the private sector—com-
mercial exchange, coercion and gift—the latter two forms prevailed
(Wettenhall 2005). However, in line with the NPM movement, since
the 1980s governments in Western Europe increasingly sought mech-
anisms of co-production involving commercial exchange, rather than
coercion (Wettenhall 2005). For example, in the UK from 1992, PPPs
have become ‘a key element in the Government’s strategy for delivering
modern, high quality services and promoting the UK’s competitiveness’
(Akintoye et al. 2003, 14). Whilst the government in the UK and other
Western European nations aimed at marketisation of the public sector
(Broadbent and Laughlin 2003), the NPM agenda included greater use
of the private sector’s management practices within the public sector.
In addition, NPM emphasised the use of more explicit and measur-
able performance standards in terms of the range, level and content of
services to be provided (Hood 1995). ‘PPPs are one exemplification of
these trends, and of changing markets for public services, in that they
allow for public services to be provided by public and private sector bod-
ies working in a partnership’ (Grimsey and Lewis 2004, 52). In addition
to the UK, many countries in Western Europe, including France, the
Netherlands, Portugal and Spain, have been actively employing PPPs
(Akintoye et al. 2003).
In contrast to Western Europe, governments in Eastern European
nations, such as Bulgaria, the Czech Republic, Hungary and Poland,
began PPP formation later, at the end of the 1990s. Triggered by the
disintegration of the Soviet Union in 1991, the economic transition of
these nations to a market system naturally incorporated PPP deploy-
ment as part of a pro-market agenda aimed at free enterprise develop-
ment, wide use of market tools and reversing historical government
dominance. Additionally, as in the 1990s these nations faced severe
economic difficulties on the path to more balanced growth, their per-
sistent budget shortages became the principal driver for PPP develop-
ment (Urio 2010). Hence, the historical context of PPP emergence in
Western Europe (i.e. the adoption of the neo-liberal agenda) varies from
that in Eastern Europe, where the transition to a market system and its
accompanying drastic economic and social reforms led to a shortage of

budget funds for service delivery and, therefore, a considerable lack of
public services.
PPP Development in Russia

PPP development in Russia began in 2005, after the federal govern-
ment passed the law ‘On Concessional Agreements’ (Federalnyi Zakon
Rossiyskoy Federatsii #115–FZ 2005). From the outset until the present
time, the priority sectors for PPP deployment in Russia have included
housing and utilities infrastructure (e.g. facilities that supply hot water
from a central source to urban districts), transport infrastructure (roads,
tunnels, bridges and airports) and social infrastructure (kindergartens,
schools and hospitals).
Whilst the initial stage of PPP development was slow, more active
formation of contractual PPPs in Russia began in 2007–2008, after the
federal government in 2008 approved amendments to the 2005 law on
concessions. It is worth noting the significant departure in the Russian
government’s understanding of a concession compared with that in
OECD nations, as neither the 2005 law, nor subsequent amendments,
nor the 2015 PPP law resolved ambiguity regarding the concession’s
definition (Federalnyi Zakon Rossiyskoy Federatsii #224–FZ 2015).
The payments to a private party (in what Russia calls a ‘concession’)
are likely to come from both government and citizens, as this is the
government’s way of providing revenue guarantees to an operator, and
also keeping the price for public services affordable. In some cases, pay-
ments to a concessionaire may come exclusively from the government.
For example, in a concession aimed at the construction and manage-
ment of Pulkovo airport in St Petersburg (Northern Capital Gateway
2010), it is unclear how citizens can be charged, and the government
will have to make all payments to the private party. Chapter 5 pro-
vides a detailed discussion of concessions in Russia and Kazakhstan.
The differences in terminology with OECD nations did not preclude
Russia from undertaking comprehensive measures aimed at enhanced
PPP deployment.
Alongside improving the legal basis for launching PPPs and their
operations, the government began forming an institutional framework.
The latter includes the National PPP Centre established in 2008 and
placed within Vnesheconombank, the federal government investment
channel and PPP centres that regional governments began forming in
2010. As the National PPP Centre was charged with the responsibility to
finance only very large projects requiring at least 2 billion Russian rubles,
it focused on high-cost federal and interregional projects. In contrast to
mega-projects, such as the construction or renovation of federal roads,
regional PPP centres aim to foster partnership development at a smaller
scale. However, the financing channels for regional projects have never
been clearly identified, meaning that investors typically look for loans
from commercial banks, whilst seeking loan guarantees from the regional
governments.
In 2012, yet another unit—the Federal Centre for Project Finance—
began working within Vnesheconombank, with a focus on providing assis-
tance to regional and urban projects. Subsequently, the two units—the
National PPP Centre and Centre for Project Finance—merged in 2013.
In 2014, the unified Federal Centre for Project Finance launched its oper-
ations as a daughter company of Vnesheconombank (Federal Centre for
Project Finance 2016), with a focus on regional and urban, rather than
federal, projects. By 2020, the Federal Centre for Project Finance aims to
invest 13.3 billion Russian rubles in over 100 projects (Federal Centre for
Project Finance 2016). Whilst there is no doubt that the Centre’s work
may positively contribute to PPP development, the options for Russian
investors to secure financing for prospective PPP projects are severely lim-
ited. This is largely due to the current economic downturn which began
in 2014 as a result of Western nations’ sanctions against Russia (owing its
annexation of Crimea, that was Ukrainian territory at the time). Western
nations’ sanctions significantly cut off trade with Russia and stopped
lending to the Russian banks since 2014. This has resulted in an acute
shortage of funds for lending, high interest rates for loans (17–25 %) and
has increased banks’ reluctance to extend loans for the long term.
PPP deployment as a government priority was included in the
Conception for the Long-Term Social and Economic Development of
the Russian Federation until 2020, which was approved by the Russian
government in 2008. In this document, the government determined

a broad development of the institutions and tools of PPPs as a strate-
gic direction (Alpatov et al. 2010). Implementation of the Conception
for the Long-Term Social and Economic Development, which is work
in progress, ensured that, compared with Kazakhstan, PPP operations
in Russia are broader and embrace a variety of facilities in urban and
regional infrastructure. Some examples include:
– Reconstruction of a water supply system in the city of Perm (in the
Permskaya oblast’);
– Construction of water purification facilities in the city of
Petrozavodsk and the Republic of Karelia in the Northwestern part
of Russia;
– Construction of a refuse recycling plant in the town of Yanino in
the Leningradskaya oblast’; and
– A housing construction project entitled Simbirskoe Koltso in the
Ulyanovskaya oblast’ and a similar project in the Krasnoyarskaya
oblast’.
In addition, as the government often adopts a broader view of col-
laboration between the public and private sectors, it also attaches the PPP
label to non-contractual and non-time-specific projects involving mul-
tiple organisations, such as the creation of a special economic zone for
recreation and tourism in the Stavropolskaya oblast’ and a similar project
in the Republic of Altai.
From 2008, the number of partnerships in Russia has been rapidly grow-
ing. As of January 2009, there were 23 concessions in Russia, with terms
between 5 and 49 years, all at the municipal level (Varnavskiy et al. 2010,
47). They included facilities for power and heat generation, water supply and
sewerage systems, waste utilisation facilities and sporting facilities. By 2011,
the total number of concessions grew to 204, and although the progress at the
federal and regional levels remained small, the increase at the municipal level
was remarkably large, from 23 concessions to 200 (Mouraviev et al. 2012).
After 2011, the Russian government has continued PPP deployment.
For example, 112 new concessions were launched in the utilities infra-
structure sector in 2014 alone (www.pppinrussia.ru 2015). In April
2015, the total number of PPPs in the nation reached 595 (www.pppi.ru
2015). Table 4.1 summarises the growth in PPPs over the course of ten
years from 2005 to 2015.
The dramatic increase in the number of concessions between 2008 and
2015 vividly shows the direction of public policy aimed at the enhanced
deployment of partnerships, particularly at the municipal and regional
levels, although the latter is clearly lagging behind the former. One rea-
son is that regional projects tend to be larger and more expensive than
municipal projects. Difficulties with finding investors and obtaining
financing explain, in part, the slower growth in the number of regional
partnerships in Russia. Nevertheless, the Russian government aims for
accelerated PPP development.
In Russia, the government deploys partnerships in four sectors, as
summarised in Table 4.2.
Table 4.2 shows that one-third of all partnerships (194 out of 595, as of
April 2015) have been formed in the utilities and housing infrastructure,
which clearly demonstrates the government’s focus on attracting private
investment in this sector. This also raises the question of why, and how,
the housing and utilities infrastructure has become a priority for PPP
deployment, which Chaps. 2 and 3 discussed in detail. The highlights
of PPP development in Russia, and the identification of reasons why
the government is particularly keen on PPP deployment, demonstrate
the contextual need that exerts significant pressure on the government
and forces it to resort to partnerships. The need to overhaul the outdated
utilities and housing infrastructure is driven by concerns regarding how
to reduce disaster risk in this sector. These include economic concerns
(i.e. the high cost of maintenance) and social concerns (i.e. that public
services, such as water supply and power supply, must be uninterruptible
and safe for use by citizens and firms).
Table 4.1 Growth of PPPs Year Number of PPPs

in Russia, from 2005 to
2015 2005 0
2009 23
2011 204
2015 595
Source: Compiled by the
authors
Table 4.2 PPPs in the Russian economy in 2015, by sector

Sector Number of PPPs % of total
Housing and utilities infrastructure 194 33 %
Social sector 166 28 %
Energy sector 163 27 %
Transport 72 12 %
Total 595 100 %
Source: Compiled by the authors from www.pppi.ru
As of 2015, the total public and private investment in Russian PPPs

was estimated at 1.5 trillion Russian rubles (about USD 23.1 billion
at the 2015 exchange rate), although government funding constituted
more than 53 % of this amount (http://sroportal.ru 2015). This shows
a very high degree of government financial support to partnerships in
Russia, although theory argues that one of the PPP principal advantages
is the use of private, rather than governmental, financing for the con-
struction or renovation of public infrastructure (Osborne 2000; Hodge
and Greve 2005).
PPP Development in Kazakhstan

PPP development in Kazakhstan began in 2005–2006, when in 2006
the government approved the law on concessions (Zakon Respubliki
Kazakhstan 2006). Prior to the adoption of this law, the government
launched two concessions, perhaps on an experimental basis: a railroad
in Eastern Kazakhstan and an energy generation project in Northern
Kazakhstan. These two projects are ongoing and will be highlighted later
in this section.
From 2007, the government attempted to accelerate PPP deployment
in the nation by establishing the National PPP Centre, followed by the
formation of PPP centres in selected regions in Kazakhstan. In addition,
the government prepared a large number of projects for which it sought
investors. Although the government was successful in finding, and sign-
ing contracts with, private investors, a range of administrative, financial
and legal barriers did not allow these projects to materialise. Table 4.3
Table 4.3 Concessions approved by the Kazakhstani government in 2007–2011

Project cost
(USD in Concession Date of the Public sector
No. Project million) term contract partner
1 Construction and $63.06 23 years Concession Kazakhstan
operation of a contract Temir Zholy
railroad segment signed on (100 %
between 14 government-
Yeraliyevo station December owned
and Kuryk station 2007 national
railroad
company)
2 Construction and $350 23 years Concession Kazakhstan
operation of the contract Ministry of
power system for signed on Energy and
the railroad 14 Mineral
segment between December Resources
Makat and 2007
Kandyagash
stations in Aktobe
region
operation of contract Ministry of
natural gas signed on Energy and
power-generating 7 April Mineral
plant in the town 2008 Resources
of Kandyagash in
Aktobe region
operation of a new contract Temir Zholy
railroad between signed on (100 %
Korgas station and 18 April government-
Zhetigen station in 2008 owned
Southeast of national
Kazakhstan railroad
company)
(continued)
Table 4.3 (continued)
Project cost
(USD in Concession Date of the Public sector
No. Project million) term contract partner
5 Construction and $39.12 14 years Concession Regional
operation of 11 contract government
kindergartens in signed in of the
the city of November Karagandin-
Karaganda 2011 skaya oblast’
Source: Adapted from Tilebaldinov (2008), Kazakhstan Public-Private Partnership
Centre (2011), Regional Centre for Public-Private Partnerships of Karagandinskaya
Oblast (2011), Mouraviev et al. (2012)
summarises the available information regarding concessions that have

been approved in Kazakhstan; however, none of these concessions has
launched.
Table 4.3 highlights projects initially approved by the Kazakhstani
government, although they have been subsequently put on hold and
reconsidered. Whilst the exact reasons were never disclosed, this proj-
ect list provides details of sectors for PPP deployment (which include
energy, railroads and the social sector), project costs and the organisa-
tional arrangements applying to concessions and indicates the partner
representing the government in each of them. In two concessions (#1
and #4 in the table), the Kazakhstan national railroad company, which
is a fully government-owned corporation, assumed the role of the pub-
lic sector partner. In two other concessions (#2 and #3), the national
Ministry of Energy and Mineral Resources assumed the responsibility
of a public sector partner. Subsequently, in 2010, this Ministry ceased
to exist, although some of its functions were integrated with the newly
formed Ministry of Oil and Gas. The virtual absence of the public sector
partner and related changes in channels of government budgetary fund-
ing explain, at least in part, why the two projects have been put on hold.
These organisational arrangements, and the current on-hold status of PPP
projects, demonstrate the dominance of the public partner and the reluc-
tance or inability of private partners to accept larger risks. A project often
cannot begin or continue without extensive government financial sup-
port. For example, in the power-generating station construction project
(#3 in Table 4.3), 20 % of the funding was to come from the public sector
partner, 70 % from loans and only 10 % from the private partner (http://
union.kz 2009). Much like in Russia, in Kazakhstan, heavy reliance on
government financial involvement in PPPs is one of the key characteris-
tics of partnership development.
Whilst the government in Kazakhstan pushed for accelerated part-
nership formation, learning from each project is crucial for further PPP
development. In the situation of slow PPP expansion, each successful or
unsuccessful partnership experience may have a strong influence on other
PPP projects, both existing and planned. It is likely that the government
will use experience drawn from a successful PPP project when making
financial, administrative and risk allocation decisions regarding other
projects. However, if a project is unsuccessful, the government may can-
cel its own plans for PPP deployment in a certain sector and beyond it.
Amongst projects that are yet to display success is the concession
aimed at the construction and operation of 11 kindergartens in the city of
Karaganda, the contract for which was signed in 2011 (#5 in Table 4.3).
After a lengthy period that involved preparation for construction, the
project was put on hold and subsequently shut down. However, the sig-
nificance of this project should not be overlooked, as it was the first PPP
project in the social sector. The kindergartens’ PPP was formed as a pilot
socially oriented project and, therefore, serves as a reference point either
for further partnership expansion in the social sphere, or for illuminat-
ing (potential) operational problems, unforeseen risks, elevated costs and
citizens’ criticisms. Should the kindergarten project experience problems,
which it did, this may contribute detrimentally to the debate about the
need for PPPs in the social sphere. However, the successful running of
the kindergartens’ PPP may form a solid foundation for justifying a new
dimension in Kazakhstan’s public policy, namely that the public sector’s
social tasks may be effectively achieved with private sector financing and
management. From a long-term perspective, this case marks the evolu-
tion of a new standard in Kazakhstan’s public management, that rests on
the extensive use of private funds and business expertise in carrying out
government responsibilities specifically in the social sphere (Mouraviev
and Kakabadse 2013, 2015). Although the kindergartens’ project was
unsuccessful, the National PPP Centre in Kazakhstan displays a growing
number of similar projects, the descriptions of which are available on

its website (Kazakhstan Public-Private Partnership Centre 2016).
Furthermore, the same website provides a template for a standard con-
cession contract for a project aimed at the construction and operation
of kindergartens. This confirms the government’s plans for further PPP
deployment in the social sector and uses the kindergartens’ PPP as a refer-
ence point, at least in part, for cost and risk allocation between partners
in similar projects that are currently at the preparation stage. It is worth
noting that Kazakhstan’s plans to launch PPPs in the social sphere are
aligned to those of Russia, although Russia has been much more active
and has already deployed over 160 partnerships in the social sector (see
Table 4.2) including kindergartens, schools and healthcare facilities.
As of mid-2016, there are three ongoing PPP projects in Kazakhstan,
all in the concession form and in the transportation and energy sectors.
In the transportation sector, these are a 120-km segment of the railroad
in Eastern Kazakhstan between Shar and Ust-Kamenogorsk, and the
construction and operation of a passenger terminal in an international
airport in Aktau, a city on the Caspian Sea coast. In the energy sector, the
concession involves the construction and operation of an interregional
electrical grid between Northern Kazakhstan and the Aktobe region.
Table 4.4 summarises the available information about active, ongoing
concessions in Kazakhstan.
In addition to existing concessions, the Kazakhstani government plans
a large number of PPP projects such as toll roads, hospitals, schools
and kindergartens. The National PPP Centre leads the preparation of
a variety of projects and forms an expectation that many of them will
be launched in the near future (Kazakhstan Public-Private Partnership
Centre 2016). Despite the Centre’s efforts over several years, progress
towards PPP formation in Kazakhstan remains slow. It is expected that
the new law on PPPs that was adopted in 2015 and took effect in 2016
(Zakon Respubliki Kazakhstan 2015) will complement the work of the
national and regional PPP centres, by offering expanded opportunities
for investors and removing certain legislative obstacles.
Table 4.4 Ongoing concessions in Kazakhstan as of May 2016

Organisational
arrangement with
Project government:
cost (USD Concession public sector
No. Project title in million) term Project status partner
1 Construction $202.5 23 years, Concession Kazakhstan Temir
and operation from 2005 contract Zholy (100 %
of a railroad signed on 6 government-
between the July 2005. owned national
station of Construction railroad
Shar and the has been company) and
city of completed; Investment Fund
Ust- services are of Kazakhstan
Kamenogorsk being (the government
in Eastern provided. agency)
Kazakhstan
2 Construction $165.82 17 years, Concession Kazakhstan
and operation from 2005 contract Electric Grid
of signed on 28 Operating
interregional December Company
electrical grid 2005. (KEGOC)—100 %
from Construction government-
Northern has been owned national
Kazakhstan to completed; power
Aktobe services are transmission
region being company
provided.
3 Construction $65.5 30 years, Concession Regional
and operation from 2008 contract government of
of the signed on 3 the
passenger December Mangistausskaya
terminal of an 2007. oblast’
international Construction
airport in the has been
city of Aktau completed;
services are
being
provided.
Source: Compiled by the authors from Tilebaldinov (2008), Kazakhstan Public-
Private Partnership Centre 2011; Regional Centre for Public-Private Partnerships
of Karagandinskaya Oblast (2011), Mouraviev et al. (2012, 413)
Conclusion
Analysing the nature and scope of government involvement in PPPs, the
following conclusions can be drawn. First, the literature in Kazakhstan
and Russia is strongly biased towards large and increasing government
financial support to partnerships. The literature recognises that, often,
PPPs are not feasible without extensive government involvement to make
a project more attractive to private sector partners. In addition, govern-
ment financial support (such as guarantees for private loans) and other
kinds of government participation in a project (such as assistance to a pri-
vate partner in purchasing land or in obtaining required licences and per-
mits) are viewed by many academics and practitioners in the two nations
as a critical factor that may significantly help a private partner implement
a project and ensure the overall success of a PPP (see e.g. Firsova 2012).
These views have a limited focus and are unbalanced because the litera-
ture associates the government role with the larger payments of PPP costs
and with overcoming the government’s own bureaucracy. Furthermore,
calls for ever-increasing government financial and administrative sup-
port to PPPs contradict a separate notion discussed by the literature in
Kazakhstan and Russia, namely that partners should have equal rights
and privileges in a PPP (Alpatov et al. 2010; Kabashkin 2010).
Whilst the first conclusion concerns the nature of government support
to PPPs, the second conclusion refers to forms, methods and tools of gov-
ernment financial support. The current views in Kazakhstan and Russia
focus on a limited number of existing and proposed forms and tools of
government support (Pankratov 2010; Firsova 2012). Most often, they
include direct government payment of part of the project cost, waivers
of certain fees for a private partner during the project implementation,
and guarantees for the private partner’s loans and bonds. For example,
for a number of years, researchers and practitioners in both nations have
discussed the so-called infrastructure bonds that a PPP should be able
to issue in order to raise funds for carrying out a project (Firsova 2012).
However, there is a common understanding that these bonds should be
backed by a government guarantee; otherwise, it may be difficult or even
impossible to sell them. Although the government may use bonds and
other tools for the benefit of a PPP project, the range of tools seems to
focus on direct and indirect financial support of private investors. This

means that, in many cases, government payments to a PPP will be larger,
rather than smaller. From the societal perspective, the current focus on
increasing government payments needs to be replaced by incentives for a
private partner to achieve more efficient performance, in terms of lower
PPP costs and enhanced public service delivery.
References
Akintoye, A., M. Beck, and C. Hardcastle (eds.). 2003. Public-private partner-
ships: Managing risks and opportunities. Oxford: Blackwell Science.
Partnerstvo: Mekhanizmy Realizatsii (in Russian) (Public-private partnerships:
Broadbent, J., and R. Laughlin. 2003. Public private partnerships: An introduc-
tion. Accounting, Auditing and Accountability Journal 16(3): 332–341.
Federal Centre for Project Finance. 2016. Federalniy Tcentr Proektnogo
Financirovaniya (in Russian). www.fcpf.ru. Accessed 14 April 2016.
Federalnyi Zakon Rossiyskoy Federatsii #115–FZ. 2005. O Contsessionnykh
soglasheniyakh (in Russian). (Federal Law #115–FZ On concessionary agree-
ments). http://www.rg.ru/2005/07/26/koncessii-dok.html. Accessed 12
November 2012.
Federalnyi Zakon Rossiyskoy Federatsii #224–FZ. 2015. O gosudarstvenno-
chastnom partnerstve i munitsipalnom-chastnom partnerstve v Rossiyskoy
Federatsii (in Russian). (Federal Law #224–FZ On public-private partner-
ship and municipal-private partnership in the Russian Federation). http://
www.pppi.ru. Accessed 3 April 2016.
Firsova, A.A. 2012. Teoriya i Metodologiya Investirovaniya Innovatsionnoy
Deyatelnosti na Osnove Gosudarstvenno-Chastnogo Partnerstva (in Russian)
(Theory and methodology for investment in innovation activity using public-
private partnerships). Saratov: Saratov State University Press.
Elgar Publishing.
Hodge, G., and C. Greve (eds.). 2005. The challenge of public-private partner-
ships: Learning from international experience. Cheltenham: Edward Elgar
Publishing.
Hood, C. 1995. The ‘New Public Management’ in the 1980s: Variations on a

theme. Accounting, Organisations and Society 20(2/3): 93–109.
http://sroportal.ru. Eksperty veryat v rost rynka GChP v Rossii, nesmotrya na
krizis (in Russian) (Despite the crisis, investors believe that the PPP market
in Russia will grow). http://sroportal.ru/publications/eksperty-veryat-v-rost-
rynka-gchp-v-rossii-nesmotrya-na-krizis/. Accessed 12 May 2015.
http://union.kz (informational portal). 2009. http://union.kz/ru/cat/power/
kgtes/about. Accessed 26 November 2011.
Federazii (in Russian) (Public-private partnership in Regions of the Russian
Kazakhstan Public-Private Partnership Centre. 2011. Kazakhstan public-private
partnership centre. Concessions. www.ppp-center.kz/rus/activity/projekt/.
Accessed 25 February 2011.
Kazakhstan Public-Private Partnership Centre. 2016. http://kzppp.kz. Accessed
27 April 2016.
Mouraviev, N., N. Kakabadse, and I. Robinson. 2012. Concessionary nature of
public-private partnerships in Russia and Kazakhstan: a critical review.
International Journal of Public Administration 35(6): 410–420.
Mouraviev, N., and N. Kakabadse. 2013. Risk allocation in a public-private
partnership: A case study of construction and operation of kindergartens in
Kazakhstan. Journal of Risk Research 17(5): 621–640.
Mouraviev, N., and N. Kakabadse. 2015. Public-private partnership’s procure-
ment criteria: The case of managing stakeholders’ value creation in Kazakhstan.
Public Management Review 17(6): 769–790.
Northern Capital Gateway. 2010. The project. http://www.newpulkovo.ru/
eng/. Accessed 14 April 2012.
Praktike: Osnovnye Teoreticheskiye i Prakticheskiye Problemy (in Russian)
Regional Centre for Public-Private Partnerships of Karagandinskaya Oblast.
2011. http://www.karaganda-ppp.kz. Accessed 16 February 2011.
Kazakhstan (in Russian). Proceedings of international conference: Taking
public-private partnerships forward: New opportunities for infrastructure
development in transitional economies. Moscow. http://www.unece.org/ceci/

ppt_presentations/2008/ppp/Moscow/tilebaldinov.pdf. Accessed 1 March
2011.
Urio, P. (ed.). 2010. Public-private partnerships: Success and failure factors for in-
transition countries. Lanham, MD: University Press of America.
Partnerstvo: Teoriya i Praktika (in Russian) (Public-private partnerships: Theory
Wettenhall, R. 2005. The public-private interface: Surveying the history. In The
challenge of public-private partnerships: Learning from international experience,
ed. G. Hodge and C. Greve, 22–43. Cheltenham: Edward Elgar Publishing.
www.pppi.ru. 2015. Web resource. Accessed 7 May 2015.
www.pppinrussia.ru. 2015. Inostrannym investoram ogranichat dostup k vode
(in Russian) (Access to water will be limited for foreign investors). www.
pppinrussia.ru/main/novosti. Accessed 6 May 2015.
Yescombe, E.R. 2007. Public-private partnerships. Principles of policy and finance.
Burlington: Butterworth-Heinemann.
Zakon Respubliki Kazakhstan. 2006. O kontsessiyakh (in Russian) (The Law of
the Republic of Kazakhstan “On concessions”). www.kzppp.kz. Accessed 17
August 2012.
Zakon Respubliki Kazakhstan. 2015. O gosudarstvenno-chastnom partnerstve
(in Russian) (The Law of the Republic of Kazakhstan “On Public-Private
Partnerships”). www.kzppp.kz. Accessed 17 January 2016.
5
Concessions: PPP Pathfinder
Introduction
Concessions are broadly used in many nations around the world and
were used in Tsarist Russia long before the Soviet Union. Furthermore, in
the 1920s, Soviet Russia also launched concessions, including those with
foreign investors. It is not surprising that, due to concessions’ long his-
tory and accumulated experience, both domestic and international, mod-
ern Kazakhstan and Russia have turned their attention to the concession
as a principal PPP form. This has been reinforced by a lack of knowledge
regarding other PPP forms, such as an asset life-cycle contract or a service
contract. This focus on concessions has resulted in certain legislative acts:
instead of a general law that would govern PPPs and establish a variety of
PPP forms and models, in 2005–2006, each nation passed a law on con-
cessions. Subsequently, supported by relevant legislative acts and regula-
tory frameworks, Kazakhstan and Russia exclusively used concessions as a
PPP form for over ten years, until 2016. Since 2016, newly adopted PPP
laws in each country permit the use of a variety of PPP forms, in addition
to concessions.

DOI 10.1057/978-1-137-56952-3_5
Despite its widespread use, a concession is understood in different

ways. As a result of varying meanings assigned to the term, a concession
is underpinned by laws and regulations that include different kinds of
provision: they differ widely in countries around the world, and what
is called a concession in one nation may not qualify as a concession in
another. This chapter offers a detailed discussion of the meaning, nature
and application of concessions as a preferred form of PPP in Kazakhstan
and Russia.
A Concession: What’s in a Name?

A concession implies that an asset, such as a road, is constructed or reno-
vated by a private party with the use of private funding. In some cases, an
asset may be transferred from a public agency to a private sector partner.
A private company assumes responsibility for the service provision for a
specified period, often between 20 and 30 years, and at the same time,
accepts responsibility for asset maintenance and upgrade. To recover its
investment and operating expenses, a private company is paid by user fees.
With regard to a concession, there are varying opinions regarding the
source of payments made to a private partner. A prevailing view is that,
in a concession contract, a company is paid via user charges, meaning
that the government funds are not involved. Another form of partner-
ship—the PFI that is common in the UK—receives payments from a
public agency (Hall 2008). Alternative views suggest that, in a conces-
sion, a private company can receive some form of compensation from
final users or through regular payments by the public authority (Renda
and Schrefler 2006). The latter viewpoint acknowledges the possibility
of the use of public funds for making payments to a concessionaire. At
the same time, however, it remains unclear whether this form of PPP can
still be categorised as a concession, as it involves payments to a private
company by both the government and final users.
An additional form of payment found in concessions is so-called
shadow tolls. In these cases, the government pays the tolls in place of the
final user, to guarantee specific revenue to a private party for a prespeci-
fied volume of service (Williams 2003; Sadka 2007).
5 Concessions: PPP Path-Finder 75
In a search for better, more effective PPP policy instruments, both

countries have, since 2005, been paying greater attention to concessions.
As Kazakhstan to date (as of mid-2016) exclusively uses concession as a
PPP form, and Russia places a strong emphasis on the same, it is worth
explaining when and why concessions became the focus of government
policy in those nations.
In Russia, legislature in the 1990s discussed a number of drafts of the
law on concessions. However, the federal government finally passed the
law ‘On Concessional Agreements’ in 2005. Although this was a major
step forward in creating a legislative framework for concessions, there
were no concessions until 2008, when the government approved subse-
quent amendments to this law. From 2008, the preparation of concession
agreements became more intense, although, until 2009, the number of
concessions remained small. By the beginning of 2009, there were 23
concessions in Russia, with terms between 5 and 49 years, and all were
at the municipal level (Varnavskiy et al. 2010). They included objects of
power and heat generation, water supply and sewerage systems, waste
utilisation facilities and sports. Since 2009, Russia has demonstrated
remarkably fast PPP deployment, mostly in the form of a concession,
and the number of concessions in Russia exceeds 600.
Kazakhstan passed a similar national law on concessions in July 2006,
although the government approved two concessions in 2005 (possibly as
pilot projects on an experimental basis). These two projects included a
railroad in Eastern Kazakhstan between the station of Shar and the city
of Ust-Kamenogorsk (approved in July 2005, with a concession term
of 23 years, until 2028), and construction and operation of an inter-
regional electrical grid between Northern Kazakhstan and the Aktobe
region, approved in December 2005, with a concession term of 17 years,
until 2022 (Tilebaldinov 2008).
It is worth noting that the existing legislation in Russia and Kazakhstan
allows governments to provide additional forms of support to a conces-
sionaire, which makes the understanding of a concession quite differ-
ent from the typical approach in OECD countries. For example, Article
14 of the Law on Concessions in Kazakhstan dictates that govern-
ment can (a) co-finance concession projects and (b) compensate some
investment expenses of a concessionaire during the concession period.
This amendment to the original law was made in 2008, in order to address
concerns that PPP projects were financially unattractive for private com-
panies. The same Article notes that the total monetary value of govern-
ment support to a concessionaire should not exceed the total cost of an
asset constructed by a private company. In other words, this provision
includes the possibility that all of the investment expenses of a private
partner might be paid by the government, whilst citizens (customers)
may pay some or even nothing.
Similarly, in Russia, the law allows the government to pay part of
the investment cost of private companies. An example of government
support to a private company is the concession contract signed by the
Russia’s Federal Road Agency on 17 July 2009. This concession includes
construction of a road, which will link one of the federal highways (called
M1 ‘Belarus’ running from Moscow to Minsk) with a ring road around
Moscow. The concession term is 30 years, and the total cost of construc-
tion is 25.7 billion Russian rubles (USD 857 million). The Russian
Federal Investment Fund will pay 11 billion rubles (USD 367 million)
which is over 42 % of the total project cost. The remainder will be paid
by a concessionaire (Varnavskiy et al. 2010).
This example highlights a major discrepancy in the understanding of a
concession by governments in Kazakhstan and Russia when compared to
the prevailing approach in OECD countries. In Kazakhstan and Russia,
governments pay a significant proportion of the PPP costs, and in some
cases most of the project’s cost, whilst this would be almost impossible in
an OECD country.
Why Is the Focus on Concessions?

Despite discrepancies in meaning and approach when compared with
OECD countries, both Kazakhstan and Russia remain focused on the
use of concessions. The rationale for government policy regarding PPPs
in both nations is the general intention to become closer to international
standards and to adopt perceived ‘best practice’ standards. Whilst both
countries become more open economically and politically, they use this
typical justification for policy changes and actions and apply it to many
sectors. For example, Kazakhstan is making the transition to a 12-year

school education system despite widespread public concern. In an effort
to respond to the influences of globalisation, Kazakhstan’s government
has also approved a change to a three-tier academic degree structure—
Bachelor, Master and PhD—despite considerable concerns about the
quality of education. Claiming globalisation as a goal of their educational
reforms, both Russia and Kazakhstan have officially joined the Bologna
process that aims to harmonise higher education in Europe. With effect
from July 2010, Russia and Kazakhstan entered a Customs Union in
a controversial attempt to follow international trends in enhancing
regional economic integration, to which they subsequently invited
Belarus, Kyrgyzstan and Ukraine. Since then the Customs Union has
transformed into the Eurasian Economic Union that, as of 2016, includes
five nations: Kazakhstan, Russia, Armenia, Belarus and Kyrgyzstan. The
Eurasian Economic Union is often viewed as an attempt of the two lead-
ing economies, Kazakhstan and Russia, to achieve regional integration
that would mitigate the economic and political influence of the EU, the
Association of Southeast Asian Nations and other regional forms of inte-
gration. Russia and Kazakhstan strive for the positive recognition of other
countries as they attempt to formulate policies and practices, and create
institutions that are in line with those of industrialised countries and
Western orthodoxy of best practice. This motivation drives many policy
actions, including that related to PPP, and PPP deployment is increas-
ingly becoming the policy that the government presents as international
best practice.
Undoubtedly, economic and political reasons for PPPs in Russia and
Kazakhstan exist. Many of these stem from the onset of the 2008–2009
economic crisis. In 2009, the total funding from Russia’s Investment
Fund decreased from 113 billion rubles (USD 3.77 billion) to 64 bil-
lion rubles (USD 2.13 billion) due to budgetary constraints, and the
number of investment projects including PPPs dropped from 21 to 15
(Varnavskiy et al. 2010). Governments in both countries experienced,
during 2008–2010, larger budget deficits than in precrisis years, coupled
with a general long-term policy goal aimed at reducing the tax burden
and providing greater social benefits. For example, in 2009, value-added
tax in Kazakhstan decreased from 13 to 12 % as part of the long-term
taxation policy. During the period of economic decline, this further

decreased total government revenues.
In 2009, in the midst of the economic crisis accompanied by a grow-
ing budget deficit, the Russian government decided not to cancel its
original intention to raise pensions and proceeded with its long-term
plan of increasing the income of its retired population. As a result, many
regional and municipal budgets substantially decreased as their budgets
rely predominantly on transfers from the federal government, which
faced growing expenses and, consequently, experienced rising budget
deficit. Similarly, budgets in regions and municipalities in Kazakhstan
decreased, as there is no regional and municipal tax structure in place.
Both Kazakhstan and Russia have a high degree of fiscal centralisation;
thus, most of the tax revenue is in the hands of the national govern-
ment. In the light of shrinking national, regional and municipal budgets
in a time of economic downturn, governments in both countries paid
greater attention to concessions as a tool to obtain private funding in
order to implement public tasks. It is no surprise that the government
focus coincided with the approval of the Kazakhstani law on concessions
(and subsequent amendments) and Russia’s amendments to the law on
concessions. These legislative acts gave a stronger impetus to the use
of concessions in both countries. Whilst the new PPP laws adopted in
each nation in 2015 created opportunities to use new partnership forms
beyond that of a concession, these opportunities are still to be taken
up, and it is unclear whether investors may favour these forms over a
concession.
Whilst in 2012–2014 the two nations were recovering from the
worldwide financial crisis and economic downturn, in 2014, Russia
annexed Crimea that earlier, until 1954, was part of the Russian
Federation within the Soviet Union and, in 1954, was transferred to
Ukraine, also within the Soviet Union, by then Communist Party
leader Nikita Khrushchev. The same year (2014) two Ukrainian regions
populated by predominantly ethnic Russians—Donetsk and Luhansk
regions—declared themselves independent states, which Russia strongly
supported. Russia’s involvement in the Ukrainian affairs has drawn
considerable criticism from the international community and resulted
in economic sanctions. These were imposed by the European nations,

the USA, Canada and Australia against Russia, and cut off trade with
Russia. Most importantly, Western nations prohibited their banks from
extending loans to the Russian government, firms and financial institu-
tions, as part of these sanctions. This had a significant negative impact
on the Russian economy in general and on obtaining funding for PPP
projects in particular. A decreasing oil price that, in 2016, is often in the
range of USD 25 to USD 40 per barrel has further exacerbated difficul-
ties with budget revenues not only in Russia but also in Kazakhstan.
Although Kazakhstan is not subject to any trade sanctions, its depen-
dency on oil revenue and trade relations with Russia have driven the
country into recession, much like Russia. As of 2016, both economies
are experiencing an economic crisis with declining gross domestic prod-
uct (GDP), cash-strapped firms and banks, and severely limited options
for project loan financing. An acute shortage of budget funds for pub-
lic services has come increasingly evident, with unclear prospects for
improvement.
There are two key government challenges related to the use of PPPs.
The first is the lack of government funding for public services, such as
roads, railroads or airports, as discussed earlier in this chapter. The sec-
ond is the lack of progress regarding the development of partnerships
themselves, which, if it continues, may backfire on government policy
regarding PPPs. Concepts and terminology, such as public–private
corporations with non-governmental stock ownership, have so far not
helped governments apply theory to practice and increase the volume
of public services. The formation of special economic zones aims, as a
priority, to jump-start economic recovery in specific areas in order to cre-
ate jobs and stimulate business development. Production-sharing agree-
ments aim to increase revenue for the government budget from the sales
of oil and natural gas in both countries, without any specific connection
to public services. Knowing that PPP usage is globally widespread, the
two nations are testing another form of public–private collaboration—a
concession—that could offer tangible results in terms of larger volume
and better quality of public services; this may set a new standard for
public management.
Problems and Limitations of Concessions

Concessions in Russia and Kazakhstan have problems that stem directly
from existing laws and regulations. These issues include the limitations,
imposed by Russian and Kazakhstani laws until 2016, on what form or
model a concession can take: only the BOT model was permitted, with
no other choice for an operator. This model implies that a private party
engaged in a PPP is required to construct or renovate an asset at its own
expense, and on completion, the private sector partner transfers it back to
the government (as property ownership always remains with the govern-
ment). A better form of a concession might be build-own-operate-transfer
(BOOT) which offers a stronger efficiency stimulus to the private party
(Zusman 2008; Azizov 2009) whilst, since 2016, the new PPP laws in
Kazakhstan and Russia offer other models available to a PPP.
Another common problem is that both countries have laws requir-
ing applicants to use a generic boilerplate concession contract template.
The latter is a standard form contract that includes certain conditions
that cannot be taken out. It also does not allow to include additional
provisions unless extensive justification is provided. A standard contract
means ‘take it or leave it’ and gives no room for negotiation. A standard
contract specifies many terms, regardless of the industry. It could reason-
ably be questioned whether it is necessary and/or possible to use the same
provisions for PPPs in sectors that are inherently different, such as trans-
portation and water supply. Whilst this can be viewed as a limitation,
the government focuses on the positive side of a boilerplate concession
contract, which is a standardisation of contract terms. By doing this, the
government aims to reduce the potential for corruption, such as granting
certain privileges and benefits to an operator and/or limiting its respon-
sibilities and obligations.
In addition, there are concession features that render this PPP form
distinctive (Bult-Spiering and Dewulf 2006) and that may result in prob-
lems during the course of operations. One is that a PPP assigns a private
partner a long-term responsibility, which, in turn, stems from the life-
cycle of capital assets from a project. In a concession, a private company
is responsible for the design, construction, operation and maintenance of
capital assets. This may lead to a potential problem if the project requires
major maintenance or upgrade close to completion. In such circum-

stances, a private company may be inclined to make only cosmetic repairs
in an attempt to cut costs. However, upon completion of the concession
contract, the full cost of maintenance shifts to the government. This may
dramatically increase total government costs. It may be a natural course
of partnership development that the spirit of mutuality and collaboration
diminishes, as a project becomes closer to completion. This presents a
major risk for the government, which may face huge costs (much higher
than a private company’s costs in the latter years of the concession) soon
after the project completion. Technically, these large costs may occur
after the PPP project is finished, but they may also shift to the govern-
ment whilst a PPP project is still in operation. In either case, the govern-
ment must bear the costs, and this may dramatically reduce the value for
money associated with a concession. As no PPP projects in Kazakhstan
and Russia have yet been completed, it remains to be seen what the long-
term effect of a PPP might be, and whether private operators are com-
mitted to proper project closure, without shifting significant costs to the
government (e.g. by handing over a rundown facility to the government).
Another typical concession feature is the output specification. A public
sector partner should provide all of the details regarding its expectations
and requirements from a private partner: for example, the volume of a
product or services, quality requirements and all other details (such as
hours during which must provide services). However, citizens in Russia
and Kazakhstan are not involved in the determination of standards for
public services. There is no indication that the public can participate in,
or receive an invitation to provide input regarding the identification of
services that PPPs can provide, including quality standards and volume
specification. There are no public discussions on any issue related to a
concession.
The third typical feature that applies to a concession is the trans-
fer of risk from the public sector partner to a private sector partner.
Generally, a PPP project offers the advantage of a reduced burden on
public funds, and as a result, the public sector partner may enjoy addi-
tional elements of stability and efficiency since funds may be used for
other public tasks. However, the realities of PPP projects in Kazakhstan
demonstrate that some require government subsidies in order to increase
a project’s financial attractiveness to a private partner (the Kazakhstani

government has amended the law on concessions, which now allows the
government to extend a subsidy to a private partner). The ongoing con-
cessions in Kazakhstan serve as examples of projects that have enjoyed
extensive subsidies and other government financial support. This means
that the government, in some cases, pays a part of the project cost. In
other words, the government has accepted part of the risk, and the larger
the subsidy, the larger the government risk (e.g. there is a threat that a
private partner may use a subsidy inefficiently, or a subsidy is not large
enough to cover the cost of their intentions). The use of a subsidy may
directly reduce a PPP’s value for money and contradict the original aim
of attracting private funds for the delivery of public services. The more
the governments support the deployment of concessions by trying to
make them attractive to investors and paying part of the cost, the smaller
value for money they (the concessions) carry. However, the reality is
that, typically, a concession cannot be launched without government
financial support.
Other problems and limitations of concessions include the fact that
it is extremely difficult to obtain a long-term loan (ten years or more);
this seriously undermines private borrowing and makes it more expen-
sive. Loans in rubles (in Russia) and tenge (in Kazakhstan) are limited
because of the exchange rate risk. In addition, in 2015–2016, both
nations experienced exceptionally high interest rates at which com-
mercial banks could borrow funds from their central banks. These rates
ranged from 11.0 to 17.5 %, and therefore, the rates that commercial
banks set for lending were between 18 and 25 %. As a result, scholars
and practitioners in Kazakhstan and Russia argue that the government
should issue loan guarantees when the private sector partner borrows
from a commercial bank, because there is no other agency that could
act as a guarantor. However, this may substantially increase govern-
ment risk. In addition to financial risks, there is a threat of sub-optimal
risk allocation. This means that the government can allocate a certain
kind of risk to a party that may not be able to manage it effectively. An
example of this is where the government accepts financial risk in antici-
pation of a stable and growing budget that would enable it to make
regular payments to a concessionaire for its services. However, sharp

fluctuations in the price of oil in 2014–2016, when at times the oil price
decreased to about USD 25 per barrel, severely reduced budget revenues
in both Kazakhstan and Russia. As a result, budget outlays for all kinds
of public services, including those of concessionaires, have been subject
to delays and even cancellations.
Another potential risk is one related to the demand for services. For
example, in the case of a toll road, the question exists as to whether
demand will be high enough to justify investment. If not, the operator
may need to raise the toll, or in other cases, it may have to reduce the
volume of services. An example of issues related to service demand and
dependence on the user fee is the toll road opened in Russia in 2015.
This is a segment of road from Moscow to St Petersburg, originating
from the ring road around Moscow and extending to the Moscow major
airport Sheremetyevo (and beyond). As the public road to the airport had
notoriously been congested for many years, the toll road was intended to
provide a quick and reliable alternative route for cars travelling to and
from the airport. However, the high toll set by the operator immediately
from the road opening led to a seriously decreased demand; only a few
cars used the road. Whilst the high toll has resulted in public criticism,
and the regional and federal governments had to intervene in order to
adjust the toll, this example shows that a concession requires government
regulation, public engagement and careful assessment of demand. If at
least one element is missing, a concession’s risks may materialise, lead to
losses and the non-availability of the public services for which the conces-
sions were launched.
Concession issues and their limitations show that current government
approaches in Russia and Kazakhstan are overly optimistic and some-
what naïve. They focus on the advantages and benefits, such as the use of
private funding, whilst those involved downplay the potential problems.
The Russian-language literature remains silent on the multiple kinds
of risk in concessions. Although the literature claims that a concession
enables the transfer of risk from the public sector to the private sector, it
remains unclear exactly how much risk a private company in a concession
carries, whether risks are mitigated, and how.
Conclusion
The critical examination of the nature and scope of PPP arrangements
in Kazakhstan and Russia allows conclusions to be drawn regarding the
extent to which these arrangements mirror Western patterns or reflect a
distinct approach. It is also possible to offer theoretical insights in order
to inform future research.
Two reasons—lack of public funding and lack of progress with their
own PPP policy—have led Kazakhstan and Russia to adopt the conces-
sion as the main form of PPP. Whilst the first reason is typically used in
many countries, the second reflects efforts in the two nations to align
themselves with advanced international practices regarding the general
use of PPPs and concessions in particular.
Notwithstanding the rhetoric of partnership, the government approach
both in Russia and Kazakhstan ignores and/or downplays a number of
limitations and problems associated with concessions. These limitations
include:
• The often-unjustified use of a boilerplate contract template regardless

of an industry;
• Potentially large costs for the government (in cases when a private
partner does not spend adequate funds at later stages of the concession
period and when it requires a government subsidy);
• Ambiguous approaches to output specification; and
• Potentially high cost of loans to a private partner, as banking regula-
tion and economic indicators in transitional countries seriously restrict
long-term borrowing ability.
Additionally, there are concerns regarding potential benefits that the

private sector partner may bring to a concession. The reason is that,
normally, in Kazakhstan and Russia, a new company is formed specifi-
cally to implement the role of a concessionaire, and its experience and
expertise may thus be questionable. Furthermore, the discussion around
concessions in both academic literature and government documents is
biased, with a heavy emphasis on advantages, whilst potential shortfalls
are downplayed.
In summary, the overall risks and costs involved with PPPs may be
substantially higher than they presently appear. Current approaches may
undermine the overall goal of PPPs, including concessions. One of the
typical arguments in favour of PPPs is possible improvements in the deliv-
ery of public services, but there are no public discussions in Kazakhstan
and Russia around the required standards for these services. The example
of the Moscow toll road that runs to Sheremetyevo airport and that was
heavily underutilised in 2015–2016 shows that it is possible to see little
or no improvement in public transportation services as the result of a
concession.
Despite the limitations of concessions, in both countries, PPP imple-
mentation transforms into a policy paradigm and reflects the way in
which partnerships are understood and conceptualised by policy makers.
In Kazakhstan and Russia, one PPP form dominates, namely a conces-
sion. However, the understanding of a concession in the two countries
is quite different from the typical approach taken in OECD countries.
In Kazakhstan and Russia, extensive government financing of a partner-
ship project, including grants, subsidies and loan guarantees, exists and
dominates the current practice, whilst citizens may not make payments
at all. In other words, what governments in the two nations call ‘a con-
cession’ may not even be viewed as a concession in OECD countries.
Notwithstanding the variety of available approaches to a PPP, in
both countries, the transfer of the asset’s ownership to the public sec-
tor must happen, according to the law, immediately after an asset has
been built. This was the legal requirement in both nations until 2016.
Naturally, this limits the motivation of a private partner to ensure the
better construction and maintenance of a facility and is not in line
with regulations in many other countries that offer the potential for
private asset ownership for the length of a PPP project. In Russia and
Kazakhstan, this requirement reflects the past Soviet pattern of gov-
ernment dominance and comprehensive control and is likely to have
impeded PPP expansion. Experience of new partnerships launched
from 2016 onwards will enable the identification of the most effective
mix of elements (design, finance, build, own, operate and transfer) to
serve as a more efficient PPP model in a country-specific context and
in a particular industry.
References
usloviyakh krizisa (in Russian). (Opportunities for concessions in the time of
crisis). Korporativniy Yurist 5:1–3.
Hall, D. 2008. Public-Private Partnerships (PPPs). Summary paper. 1–26.
http://www.psiru.org/publicationsindex.asp. Accessed 12 February 2011.
Renda, A., and L. Schrefler. 2006. Public-private partnerships: Models and
trends in the European Union. A study requested by the European Parliament’s
committee on Internal Market and Consumer Protection. PE 369.859: 1–15.
Sadka, E. 2007. Public-private partnerships—A public economics perspective.
Kazakhstan (in Russian) Proceedings of international conference: Taking
public-private partnerships forward: New opportunities for infrastructure devel-
opment in transitional economies. Moscow. http://www.unece.org/ceci/ppt_
presentations/2008/ppp/Moscow/tilebaldinov.pdf. Accessed 1 March 2011.
1–40. www.businessofgovernment.org. Accessed 12 February 2011.
(Concessions as a form of privatization). Sliyaniya i Pogloscheniya 7–8:19–25.
6
Partner Interaction Dynamics and PPP
Organisational Forms
Introduction
Academics and practitioners in Kazakhstan and Russia pay significant
attention to the legal aspects of PPP formation and implementation. PPP
policy documents, such as the laws on concessions and PPPs within each
country, and the Russian-language literature, emphasise a contract to be
the only document that can ensure successful management for the part-
nership’s duration. As a result of this, another common topic is how, and
in which direction, to amend legal provisions that determine PPP con-
tract terms. Many scholars (Zusman 2008; Azizov 2009; Glumov 2009;
Gusev 2009; Firsova 2012) conclude their studies with observations that
the major reason for PPP shortfalls, both existing and potential, is that
PPP-governing laws and regulations are underdeveloped, lack specifics
and include ‘grey areas’ that are subject to differing interpretations. The
most common conclusion is that the laws on concessions and partner-
ships in each country, and other PPP-related laws and regulations, require
further improvement. For example, Glumov (2009) emphasises the need

DOI 10.1057/978-1-137-56952-3_6
to draft a law on PPPs that would set the guiding principles and the
legal basis for PPP formation and management specifically designed for
Russia’s regions (oblasti), rather than at the federal level. This law would
allow regional governments to use legally defined procedures and instru-
ments to initiate PPP projects, select a private partner and understand
how far they can extend their own participation.
Whilst the focus on PPP legal aspects has its merits, certain areas of
PPP governance remain beyond the scope of policy makers, academics
and practitioners in Kazakhstan and Russia. One neglected area (i.e.,
in fact, directly linked to legal provisions) refers to partner rights in a
PPP. However, the literature raises multiple concerns, particularly in
Russia, regarding the lack of trust between the private sector and the gov-
ernment as a factor that slows down PPP development. These concerns
note that partners in a PPP should have equal rights, and this should be
reflected in the legislation and implemented in practice (Zusman 2008;
Varnavskiy et al. 2010). The focus on ensuring partners’ equal rights also
refers to possible public partner dominance in a PPP (Kabashkin 2010;
Pankratov 2010; Varnavskiy et al. 2010). However, one can argue that the
discussion appears biased, when one notes the multiple calls to expand
the private partner’s, rather than the public sector partner’s, rights.
However, exactly which private party’s rights and privileges are miss-
ing, and/or which rights should be removed from (or handed to) the
public sector partner remains unexplained. Furthermore, the literature
is silent as to exactly why these rights require expansion, what aspects of
PPP management require the expansion of rights and what advantages
and drawbacks changes in partners’ rights and privileges may have. In
addition, there is no discussion regarding how citizens can effectively par-
ticipate in PPPs, taking into account that customers are also stakeholders
in a partnership.
Another neglected area of PPP studies in Kazakhstan and Russia is
partner interaction. The literature on partner interaction, and the con-
cept of relationship quality in a PPP, is very limited. This area should be
viewed from a broader risk management perspective. The latter includes
partner interaction, in which relationship quality may become an effective
PPP governance tool. This broader perspective makes risk management
a critically important theme, over and above government involvement
6 Partner Interaction Dynamics and PPP Organisational Forms 89
in partnerships, legal constraints to PPP development, or the selected

PPP advantages that the governments of Kazakhstan and Russia currently
emphasise.
The rationale for viewing partner interaction as a critical theme is
as follows. Partners do not have the capacity to foresee many kinds of
risk in a partnership that may then occur during the course of project
implementation. Before the project launch, risk allocation addresses only
known risks and only in such a way that partners are able to anticipate
limited risk implications. The probability of unforeseen risks grows over
time, whilst partners become more likely to exhibit opportunistic behav-
iour. As initial risk allocation cannot handle the problem of growing
opportunism, effective collaboration between partners may significantly
mitigate project uncertainties and risks and, ultimately, ensure PPP suc-
cess. However, partners need to manage their relationship, and govern-
ments need to ensure that partner interaction is an integral part of PPP
governance.
The Governance Concept

Partner interaction is underpinned by the PPP governance concept as
its theoretical framework (Pierre and Peters 2000, 2005; Bult-Spiering
and Dewulf 2006), with a focus on process and output management, in
contrast to input-oriented management. Many researchers have contrib-
uted to the development of the governance concept, which states that
managing relations between parties in a partnership is a major factor
for a PPP’s success or failure (Pierre 1997; Fischbacher and Beaumont
2003; Sedjari 2004; Brinkerhoff and Brinkerhoff 2004; Bult-Spiering
and Dewulf 2006).
In the Russian and Kazakhstani context, the main argument for the value
of the PPP governance approach is that the TCE theory appears insufficient
for explaining whether or not a government should form a PPP to econo-
mise on public service provision costs and—most importantly—whether a
partnership will be successful (Hill 1990; Madhok 1995).
Whilst TCE argues that the government should employ a PPP where
it minimises the sum of total social costs compared with the cost of direct
government provision or the cost of contracting-out, it specifies a crite-

rion for partnership deployment, although it does not resolve the issue
of uncertainty and related risks. In other words, TCE does not serve as
a reliable framework that may ensure effective operation and successful
partnership performance in the long run.
TCE implies that assessment of total social costs must happen during
the PPP selection process, prior to implementation. However, after the
project has begun, partners often deal with unexpected events that may
impact the total social costs. If, during the project implementation, the
total social costs increase to the level that renders a PPP project less cost-
effective than traditional government procurement, the technical appli-
cation of the TCE concept implies that the government must revoke a
PPP project. In reality, this may not be possible because shutting down
the project could be even more costly.
As opposed to TCE, a more practical approach suggests that it may
be useful to mitigate uncertainties by enhancing partner collaboration.
Keeping in mind that uncertainty and risk involved in long-term projects
often result in partners’ opportunistic behaviour, which may lead to even
greater risk and increased costs, either partner’s opportunistic behaviour
is the main factor that determines the need for effective PPP governance
(Ouchi 1980; Hill 1990; Madhok 1995; Pongsiri 2003; Vining and
Boardman 2008a, b).
Partner interaction appears to be a largely neglected research area.
This point is relevant to the research of PPPs in Russia and Kazakhstan
as, in these countries, academics and practitioners pay most attention
to the parties’ responsibilities specified in a contract. This is, to a large
extent, because partnerships are new; the two nations have only accu-
mulated experience with PPPs since 2005. Naturally, before the project
launch, parties focus on establishing the contractual details. As Russia
and Kazakhstan have limited expertise in PPP management, parties in
the public and private sectors lack a justification for paying attention
to partner interaction issues and, even if they did, to which issues. It is
therefore no surprise that the literature is silent about partner interaction.
The PPP governance concept enables the identification of issues
and risks that emerge during the project term, and to what extent they
were foreseen by the partners. Further, it provides a foundation for
understanding how actors have adapted to the emergence of problems in

risk management and partner interaction. Additionally, the PPP gover-
nance concept facilitates the exploration of factors that play a critical role
in a project, from the partner interaction perspective.
Partner Interaction Issues: Varying Perceptions

The study captured four groups of issues regarding which partner interac-
tion typically takes place. They include issues of:
• PPP project financing;

• Facilities construction;
• Tariff-setting; and
• Operational issues.
With regard to partner interaction, study participants have mixed

perceptions—negative and positive—on the range of issues. PPP actors
expressed most criticism and described particularly negative experiences
regarding interaction related to facilities construction, tariff-setting and
operational issues. At the same time, participants formed a positive per-
ception of interaction regarding PPP project financing, where a private
partner receives government financial support. Table 6.1 summarises the
themes and perceptions of partner interaction.
Table 6.1 Partner interaction: themes and perceptions

Perceptions of partner
Themes interaction
PPP project financing (i.e. government financial Mixed, whilst mostly
support to PPPs) positive
Facilities construction Mixed, whilst mostly
negative
Tariff-setting Negative
Operational issues Negative
Partner Interaction Issues: Positive Perceptions
As Table 6.1 shows, collaboration regarding PPP project financing is the

only theme of partner interaction that creates positive experiences and
forms positive perceptions. The reasons behind this are explored below.
In both Kazakhstan and Russia, the financial support that the gov-
ernment can extend to partnerships is well-defined by the legislation.
In both nations, the governments deem necessary extensive financial
support to partnerships. This is because, as the literature notes, PPPs
are often unattractive to private investors because they cannot gener-
ate profit (Alpatov et al. 2010; Pankratov 2010; Varnavskiy et al. 2010;
Firsova 2012).
To mitigate this thinking, the governments of Kazakhstan and Russia
have passed laws and regulations permitting various forms of government
financial contribution to a PPP. In Kazakhstan, they include: a subsidy
that the government can extend to a concessionaire; assets such as land
that the government may contribute to a partnership; government guar-
antees for private partner loans; and government exemptions of a private
partner from fines, fees and taxes. Until 2016, Russia had similar forms
of government financial support to partnerships. However, according to
the new PPP law that came into effect in 2016, whilst financial support
can be offered in the form of a subsidy, it is unclear whether other forms
are still available.
As the list of possible forms of government support to a partnership has
been until 2016 quite extensive, it promoted rising expectations amongst
private investors regarding government payments and other direct and
indirect financial benefits that they may expect from public agencies. In
addition to elevated government costs, this increasingly creates a guar-
antee culture among private investors (Pankratov 2010; Varnavskiy et al.
2010) who may view the government as their source of financial gain,
regardless of the project’s context.
For example, a railroad PPP project in Kazakhstan experienced
problems with operating losses for a number of consecutive years. In
2012, the company management applied for a government loan in
order to cover its operating loss in 2013. The government has been
responsive and extended the loan at an exceptionally low interest

rate, to the satisfaction of the project operator. A company officer
commented on this in a very positive way by confirming that it is
much better (i.e. there are minimal restrictions regarding loan use)
and cheaper to borrow from the government than from a commercial
bank.
The government’s willingness to extend its support and the positive
perception of collaboration with the government that PPP actors from
private organisations have formed are also illuminated by an example
from a PPP project in Russia (a toll viaduct). Participants confirmed their
positive experience in working with the municipal government, which
was keen to help the operator resolve multiple problems to ensure the
project began as swiftly as possible.
In summary, the study participants reported a principally positive
experience of collaboration with the government in cases where the lat-
ter clearly expressed an interest in a PPP project, specifically, in a quick
service launch. This demonstrates the governments’ motivation and will-
ingness to co-operate and achieve quick results. Most importantly, PPP
actors in both sectors often perceive partner interaction regarding PPP
project financing in a positive way because they know the ‘rules of the
game’ and both partners ‘play by these rules’. Naturally, a clearly con-
structed and open environment fosters more effective communication
between partners and enhances transparency surrounding the benefits
that each party can give or receive. Participants from the private sector
formed the perception that the government is very interested in giving an
investor what the law permits (i.e. support in a variety of forms). When
the government wants to launch a partnership and make it successful, it
tends to give as much as the laws allow, regardless of how necessary that
actually is. In turn, a private investor is eager to obtain as much as it can
from the government in order to ensure that it is going to make profit in
a project.
Hence, government regulations and guidelines regarding its own forms
of financial support to a PPP not only make the ‘rules of the game’ clear,
but also encourage both parties to use all available public resources, thus
contributing to a guarantee culture among private investors.
Partner Interaction Issues: Negative Perceptions
PPP Project Financing
In contrast to the positive perception of interaction regarding PPP proj-

ect financing issues, the study participants formed mostly negative per-
ceptions of other partner interaction topics. PPP actors from the private
sector asserted that the government does not distinguish a PPP from any
other private contractor that a public agency hires. This means that the
government treats the partner’s requests, applications and inquiries in the
same way as requests from any other contractor. Although representatives
from private firms did not ask for any favours as a result of a PPP, they
emphasised that a PPP carries out a project for and in place of the govern-
ment, that is, a partnership delivers a public service, rather than simply
selling private goods or services to the government like contractors. This
means, from the private sector’s perspective, that a PPP service—and a
PPP itself—should be more significant to the government than a private
contractor and its services. In the interviews, staff from private companies
expressed numerous concerns that the government does not see any dif-
ference between a private PPP operator and any other private company
that the government hired to do a certain job. They emphasised that a PPP
operator and the government have common goals and hence have shared
responsibility. Furthermore, staff from private firms noted that there are
certain risks that they need to handle jointly with the government, but
the government behaves as if these do not exist. The government behaves,
in the opinion of PPP private actors, as if it is the operator’s business,
and all problems and risks must be handled exclusively by the private
partner, rather than by the government or in collaboration. According to
the perceptions of many private sector staff, the government assumed the
following role in a PPP: supervise and pay.
From the private sector partners’ perspective, the government’s role in
a PPP can be summarised as follows:
– The government has assumed a narrow role, more aligned with that
of a manager than a partner;
– The government does not understand the PPP’s business and does
not acknowledge, from its interaction with a private partner, that
the latter implements a job instead of the government (i.e. delivers

a public service); and
– The government is not interested in closely interacting with the pri-
vate sector partner and supporting a PPP by effectively managing a
public–private relationship.
Facilities Construction
PPP participants from private firms recognise that there is a different

type of partner interaction, where the government exerts pressure on an
operator to complete construction sooner. This type of interaction hap-
pens between senior government officials and operators’ senior managers.
Participants asserted that this form of interaction occurs during formal
and, more often, informal conversations and is accompanied by vague
promises to support a PPP in the future. Most often, respondents rec-
ognised the need to treat this pressure seriously. However, they acknowl-
edged that accelerating the construction or renovation is an extremely
difficult endeavour and may incur large costs. An officer of a private oper-
ator explained that he takes this pressure seriously, by emphasising that
he would do everything to stay on schedule. Subsequently, he responds
to pressure from the government by explaining the reasons for delays
in construction; however, he does not extend any promises to speed up
construction.
Interaction Regarding Tariff-Setting
A typical field of partner interaction includes issues related to an opera-

tor’s applications for raising fees and tariffs for its services. This type of
interaction manifests itself in formal, rather than informal, encounters,
as an application requires formal approval from the government agency.
The experiences of private sector actors are diverse. On the one hand,
all actors claimed that the bureaucracy involved in the application pro-
cess is excessive, and justification for a tariff increase is a difficult and
labour-intensive process. On the other hand, a study participant from
Kazakhstan asserted that there is a convenient loophole: the government
can approve a new tariff more quickly and easily if it has a temporary
status. After a period of time, for example a year, the government can
approve a new tariff, also temporary. For a PPP operator, it is possible to
use temporary tariffs consecutively over a lengthy period. The government
seems to pay much less attention to temporary tariffs than permanent,
although they are not permanent and also tend to increase. An operator
must undertake significant effort every year to repeatedly apply for these
temporary tariffs, without a guarantee that a new tariff is going to be
approved. However, in reality, the government approved every request
from this operator for a new temporary tariff.
This example highlights imperfections in government regulations that,
in turn, influence partner interaction in a PPP: although the government
is interested in setting permanent tariffs, its own rules allow an operator
to legally bypass the requirement and receive government approval for a
temporary tariff much more efficiently.
In a project in Russia, a company officer shared his perceptions of
interacting with the government in a less optimistic way, noting the
bureaucratic procedures and heated debates that tariff-setting is likely
to involve. He cited the need to receive approvals for a new tariff from
numerous committees in city government, then from the city coun-
cil and finally from the mayor. As this PPP charges a fee for a service
(a railroad crossing) that used to be free, it is likely that a proposed
(higher) tariff will draw harsh criticism from both government officials
and citizens.
In summary, the interaction between partners regarding tariff-setting
has proven to be difficult, in the opinion of PPP actors. Most criticism
was about a lack of established and transparent application procedures for
tariff increases, lengthy application processes and complex approval crite-
ria. The common opinion was that government procedures for handling
applications must be significantly streamlined. Staff from private opera-
tors emphasised that applications are bulky and require a large amount
of supporting documentation. They also noted that it is unlikely that the
government agencies have the human resources to read and analyse these
applications as thoroughly as they should. In the words of an operator’s
expert who deals with tariff adjustments, this means that the govern-
ment staff are ‘playing by ear, rather than carefully examining all these
numbers’, when they consider applications for new tariffs. Most study
participants agreed that the tariff adjustment procedures are bureaucratic,

lengthy and cumbersome.
Interaction Regarding Other Operational Issues
Three categories of issues requiring partner interaction and that are

explored above (project financing, facility construction and tariff-setting)
fall in a broader category of strategic choices. In contrast to this, part-
ner interaction regarding other PPP aspects typically involves operational
issues. An example is the pressure placed on an operator in Kazakhstan to
move its office from a major city where it had been located for seven years
to another city, closer to the project’s facility and operations. This pres-
sure came from the public sector partners, via both informal and formal
(i.e. a decision from the Board of Directors) means.
A company officer asserted that the office move was a condition for
securing a role in a PPP. Other managers also confirmed that the decision
regarding the office move took the form of an ultimatum: the public sec-
tor partners put it forward as a condition for employing a new manage-
ment team.
The way in which partners handled this operational issue highlights
the public sector partners’ dominance in this PPP and their unwillingness
to have an open discussion with the private sector partner, or to give the
latter flexibility in decision-making.
A similar lack of flexibility offered to a private partner manifests itself
in an additional example. In autumn 2012, the anti-monopoly agency
instructed a PPP operator in Kazakhstan to sell a building that it had
owned for several years and that it used both as an office and temporary
housing for its staff in close proximity to the facility. According to the
anti-monopoly agency, an operator does not have a right to own real
estate. This stems from Kazakhstan’s laws and regulations that prohibit
daughter firms of government companies (the operator’s legal status)
from permanently owning property. After the sale of the building, the
operator had to rent the same building and continue to use it in exactly
the same way that it had previously used the building. This resulted in
additional costs (e.g. real estate agent commission fees, legal fees and
rental expenses). Assuming that rental costs become an ongoing expense

for many years ahead (i.e. for the project length until 2028), the opera-
tor’s additional outlays may become significant. Participants from private
operators asserted that they have experienced:
(a) Significant public sector partner dominance and, consequently,

(b) Framed, reduced operator flexibility in business management.
Service Quality: A Neglected Area of Partner

Interaction
Some issues were completely beyond the scope of the interests of the PPP
actors and were not noted during interviews. There were no comments
regarding partner interaction related to service quality. The ongoing ser-
vice provision, or the quality of future public services, did not attract the
attention of any PPP actors.
One can interpret this in two ways: that quality is the least of the
participants’ concerns, or it is not a concern at all as long as the service
is provided to predetermined standards. It appeared that PPP partners’
thinking regarding quality is based on a simple notion: prior to a PPP,
the service was unavailable, non-existent; so, once a PPP provides a ser-
vice and satisfies a need, almost any acceptable service quality will suffice.
Although the range of acceptable quality parameters may be quite broad,
its normal understanding, as the study shows, is that it is much like the
service quality of other providers. To conclude, service quality has not
yet become a concern for partners in a PPP in either country, nor has it
become an issue requiring partner interaction.
PPP Organisational Forms and Their

Implications for Partner Relations
Partnerships may take different organisational forms, with varying conse-
quences for partner relations. This section discusses the typical organisa-
tional forms used in Kazakhstan and Russia, including:
• A project company that partners jointly formed as a stand-alone cor-

poration, and in which they jointly invested funds (Kazakhstan);
• A private sector partner’s company that itself (without a special-
purpose vehicle—SPV) implements a project (Kazakhstan and Russia);
and
• An SPV that the parent company (i.e. the private sector partner)
formed specifically for the purpose of project implementation, and in
order to shield the parent company’s assets and financial flows
(Kazakhstan and Russia).
The analysis is based on the select case studies of certain PPPs in the
two nations, which means that other partnerships, not captured by this
study, may use different organisational forms.
A Jointly Formed Project Company
From the perspective of partner interaction, the first type of organisa-

tional form—a project company—features the following characteristics:
(a) In a Kazakhstani PPP, public sector partners have tangled relations as

each owns more than 45 % of stocks, and the degree of their influ-
ence on the operator is subject to an ongoing debate;
(b) Two private sector partners in the same PPP have zero influence on
the operator due to their small stock ownership: about 5 %;
(c) Interaction between an operator and the public sector partners is epi-
sodic (i.e. it mostly happens during the Board of Directors’ meet-
ings); and
(d) Interaction between an operator and the private sector partners is
virtually non-existent, and there are no governance structures in
place other than the Board of Directors.
The PPP actors commented that relations between partners are tangled
and often ineffective (e.g. members of the Board of Directors do not know
who the officers of the private sector partners are). These relationships
highlight a lack of formal procedures that would enable faster and more
effective partner communication and would result in well-informed and
improved decision-making. Figure 6.1 shows the complex partner inter-
action scheme that this organisational form implies.
In Fig. 6.1, the direct link between a PPP operator and the ‘public sec-
tor partner 2’ denotes the customer–supplier relationship, in which the
national railroad company is a customer, whilst an operator is a provider
who carries cargos for a fee. At the same time, the national railroad com-
pany is an investor in this PPP, as it owns more than 45 % of the opera-
tor’s shares. The direct link between an operator and the Samruk-Kazyna
government holding (that fully owns the national railroad company)
denotes a considerable amount of reporting required from the operator
by the government’s umbrella organisation. These tangled relations and
multiple interdependencies render partner interaction in the PPP com-
plicated and often ineffective.
Fig. 6.1 Partner interaction scheme in a PPP implemented by a jointly

formed project company. Source: Compiled by the authors
A Project Management Structure without an SPV
The second type of PPP organisational form is where a PPP contract winner
carries out a project without an SPV. This form is used in both Russia and
Kazakhstan. For example, a Turkish company that won a PPP contract in
Kazakhstan for the construction and operation of kindergartens intended
to make use of this structure. Although the relationship between part-
ners (i.e. regional government and an operator) seemed straightforward,
in reality, substantial interaction between an operator and the municipal
government was also required, for example, regarding connecting newly
built facilities to the city’s power, natural gas, water and sewer networks.
Figure 6.2 illuminates partner interaction in this organisational form.
As Fig. 6.2 shows, an operator is involved in interacting with both
PPP centres, national and regional, as it must comply with various
monitoring and reporting requirements. Reporting regarding the proj-
ect’s status (i.e. work in progress, compliance with employments laws,
etc.) appears extensive. The study participants explained this by the fact
that—as government money is involved—the PPP centres are required to
closely monitor project implementation and collect regular reports. The
PPP actors from the public and private sectors demonstrated contradic-
tory perceptions of reporting requirements. Those who work in a project
tended to perceive this reporting as excessive, whilst those who work for
the government perceive reporting as a fairly simple, routine activity.
A Project Management Structure with an SPV
The third organisational form of PPP, used in both nations, is an SPV

that is formed exclusively for the project implementation purpose: as a
stand-alone organisation, an SPV shields a parent company from finan-
cial claims and possible losses. Different options are available in order to
make use of an SPV in the management structure. Figure 6.3 depicts one
of the options that highlights partner interaction in a Russian PPP.
One can compare this structure with another Russian partnership
project, which has a simpler organisational form and more streamlined
102
Municipal
government
Regional National
government PPP operator PPP Centre
N. Mouraviev and N.K. Kakabadse
Regional
PPP Centre
Fig. 6.2 Partner interaction scheme in a PPP project implemented by a private operator without an SPV.
Regional
government
Municipal
government Parent company
SPV
(an operator)
6 Partner Interaction Dynamics and PPP Organisational Forms
Fig. 6.3 Partner interaction scheme in a PPP project with an SPV, option one. Source: Compiled by the authors
103
City
government
(with the status Parent company
of regional
government)
SPV
(an operator)
Fig. 6.4 Partner interaction scheme in a PPP project with an SPV, option two.
partner interactions, as shown in Fig. 6.4. This project is carried out in

St Petersburg, which, along with Moscow, are the only two Russian cities
with regional status (i.e. oblast’). In other words, when a PPP is deployed
in Moscow or St Petersburg, an operator needs only to deal with the city
government, which also assumes the role of regional government. Hence,
instead of two government levels (i.e. regional and municipal), in this
case, a PPP involves just one: the city government.
Findings show that the organisational form employing an SPV pro-
vides a successful structure for partner interaction, with minimal bureau-
cracy and reporting. The city government is fully aware of the project
status, and the operator’s staff keep the government informed of devel-
opments, both by submitting a limited amount of documentation and
also informally. In summary, the organisational form involving an SPV
appears, as perceived by the PPP actors, much more streamlined from the
perspective of reducing bureaucratic interaction, minimising reporting
and permitting greater effectiveness in management decision-making.
PPP Organisational Forms: Advantages

and Disadvantages
Different PPP organisational forms hold advantages and disadvantages,
as summarised in Table 6.2.
Table 6.2 PPP organisational forms: principal features

PPP organisational form Features, advantages and drawbacks
Joint venture formed by public • Tangled power relationships between
agencies and private investors partners
• The operator’s Board of Directors is the
only governance structure
• Private investors play no significant role
• Lack of formal governance structures and
procedures
• Multiple interdependencies render
partner interaction ineffective
An operator without an SPV • More effective interaction between
partners
• Streamlined communication
• Streamlined power relations
• Extensive monitoring by the local and
regional governments
• Extensive reporting to the national and
regional PPP centres
An operator with an SPV • Considerably streamlined partner
interaction
• Reduced bureaucracy
• Minimal reporting
• Greater flexibility and larger effectiveness
in decision-making
• Clear accountability
As shown in Table 6.2, an organisational form employing an SPV

provides a better and more effective platform for partner interaction
in a PPP. In contrast to this form, a joint venture company, used
in selected projects, is characterised by significantly more complex
power arrangements, extensive reporting requirements and a con-
straint placed on the private operator’s flexibility in business man-
agement (e.g. all purchasing must take place through competitive
bidding, whilst it takes between two and six months to run a tender).
To summarise, PPP staff from operators that do not employ an SPV,
and staff from the projects carried out by SPVs, did not express any
serious concerns about lack of clarity in power arrangements between
partners or about excessive reporting and monitoring. Their only
concern was a lack of well-established governance procedures. On

the contrary, workers from a joint venture expressed deep criticism
on the complex power relations, ineffective governance structure and
lack of well-designed management procedures, which appear to be
inherent in that organisational form.
Governance Structures
PPP actors were silent on the theme of governance structure, but not due
to a reluctance to discuss these matters. PPP actors from both the public
and private sectors did not elaborate on the use of PPP governance struc-
tures as a method for dispute resolution because, in the studied projects,
no governance structures were used for general management or specifi-
cally for dispute resolution other than the operator’s Board of Directors
and its meetings. To reiterate, PPP projects in Kazakhstan and Russia
normally do not have any governance structures that specifically reflect
their partnership nature.
Operators’ staff recognised in many different ways that the gov-
ernment and its agencies treat a PPP in exactly the same way as they
interact with any private contractor: the government does not attach
a greater importance to interaction with a PPP on any issue including
disputes. This perspective—that a partnership is much like any private
contractor for the government—is dominant among PPP actors from
both the private and the public sectors. Furthermore, actors do not
see a need for specialised governance structures and dispute resolution
methods.
In addition, national and regional PPP centres do not typically play
the role of regulator. For example, a staff member from Kazakhstan’s
National PPP Centre argued that PPP operators have considerable flex-
ibility in what they do, and never ask for advice or assistance. In some
cases, PPP operators are constrained by certain laws and regulations
because they may be officially included on the list of natural monopo-
lies. However, the National PPP Centre in Kazakhstan has no power
over PPP operators and does not regulate them. PPP centres play an
advisory role, principally at the stage of project preparation; however,

quite a few prepared projects have yet to find investors. In summary,
actors from the government and private companies generally agree that
a private operator enjoys substantial flexibility, whilst governance struc-
tures are lacking.
Assessing the effectiveness of the Board of Directors, an operator’s staff
member noted significant deficiencies in the ways in which the Board of
Directors works. He reported that often key Board of Directors’ mem-
bers were absent and the rest simply rubber-stamped the operator’s pro-
posal. Overall, Board of Directors’ effectiveness was assessed as low, with
no actions that resulted in significant changes or improvements for a
PPP. Another staff member confirmed the Board of Directors’ limited
influence on a PPP operator, arguing that often members simply do not
know what an operator is doing. The Board of Directors’ involvement is
limited to reviewing selected documents, usually at meetings. Yet another
respondent was critical of the The Board of Directors’ effectiveness, claim-
ing that absenteeism in meetings is the norm, rather than the exception. As
some members rarely attend meetings of the Board of Directors, a natural
concern is whether they are then able to make sound strategic decisions.
The highlighted irregularities in the work of the Board of Directors
(e.g. poor meeting attendance, meeting cancellations because key mem-
bers are missing, lack of continuous information about the project’s
progress and a debatable capacity to make informed decisions) highlight
considerable room for improvement in the Board of Directors’ ability to
effectively undertake strategic management of a PPP project.
In summary, actors do not attach significance to governance structures
in a PPP: not only do participants pay insufficient attention to the struc-
ture that is already in place (the operator’s Board of Directors); they also
neglect opportunities to form structures and employ them as an effec-
tive PPP management tool. Another improvement opportunity for PPP
management, which the study participants also disregarded, includes
effective dispute resolution. The latter may include the employment
of better-organised and streamlined procedures, such as that for tariff
adjustments, dealing with customer complaints or for formally address-
ing issues regarding which PPP partners express contradictory opinions.
Tools and Methods for Dispute Resolution

between Partners
In the two nations, PPP actors employ the following methods for dispute
resolution between them:
• Good informal relations with lower-level government staff;

• Good informal relations with senior government officials; and
• A governance structure such as the operator’s Board of Directors.
Many practitioners highlighted the need to maintain good informal

relations with lower-level staff in the public agencies and with senior offi-
cials in municipal and regional governments. For example, a study partic-
ipant emphasised that approaching ‘the right person’ can solve a problem
quickly, as opposed to engaging in formal correspondence with another
party. Another practitioner also recognised the importance of communi-
cating with government clerks at the informal, rather than formal, level
by occasionally bringing a small gift, such as a box of chocolates, and by
maintaining an informal communication channel. Whilst it appears that
significant importance is attached to informal relations, this does not
involve any corruption. Another study participant emphasised the need
for good informal relations with government staff at all levels, arguing
that nourishing the relationship will always reap rewards.
This is reinforced by one more opinion that focused on relations with
executives. When reflecting upon formal and informal relations with gov-
ernment senior officials, another PPP actor summed up the perceptions
regarding informal connections at the top level of government agencies:
The boss’s opinion makes a huge difference. I’ve seen people who used to
come to a meeting with strong ideas set in their minds. But after they heard
what the boss says, they changed their opinions quickly. Many officials vote
how the boss votes, they just need to understand where the wind blows. So,
we [a PPP operator] want to keep the good relations with the boss.
This comment is indicative of the high value that a PPP actor places on
good informal relations with the organisation’s managers, which may also
influence other staff to the benefit of the private sector partner.
Overall, PPP actors paid limited attention to techniques for dispute

resolution and largely disregarded this area of PPP governance. Table 6.3
summarises perceptions of PPP actors from both sectors regarding dis-
pute resolution tools and their importance.
Table 6.3 shows a significant disregard of the formal dispute resolu-
tion mechanisms by PPP governance in Kazakhstan and Russia. Dispute
resolution as a sub-field of PPP governance does not yet exist in the two
nations as a recognised area of partner interaction, with established and
transparent tools, procedures and governance structures.
Table 6.3 Tools for dispute resolution in PPPs: perceptions and practice
Perceived
Tools and methods importance Existing practice
Formal dispute Low • Not used
resolution importance • Study participants disregarded
mechanisms formal mechanisms in PPP
governance
Good informal relations High • Used often
importance • Study participants emphasised their
use
Governance structures Moderate • In the vast majority of studied PPPs,
importance partners do not use any governance
structures for dispute resolution
• The operator’s Board of Directors
exists in a small number of PPPs
The operator’s Board of Moderate • The Board of Directors’ influence on
Directors importance the operator is highly limited due to
the occasional nature of
interventions
• There are serious irregularities in
the Board’s work
• At this time, the Board is an
ineffective tool for dispute
resolution
Preferential treatment High • No special treatment
of a PPP as a joint importance • The government treats a PPP in the
public–private project same way as it treats any other
private contractor
• No indication of government
commitment to a PPP project
Conclusion
This discussion of partner interaction issues has explored specific PPP
governance aspects, in which the study participants themselves identified
problems and improvement opportunities. Table 6.4 summarises these
governance issues.
As shown in Table 6.4, PPP actors’ experiences in partner interaction
are mixed and include both positive and negative aspects. Most often,
actors were concerned with ineffective procedures and poorly designed
organisational forms. In addition, they criticised the lack of government
commitment to a PPP and ineffective communication between partners.
In regard to partner interaction, the issue of the public sector partner
dominance has been highlighted on numerous occasions. A certain per-
spective on dominance appeared more significant than others. In par-
ticular, the public sector partner tended to exhibit its dominance in those
situations where the nature of the issue lacked an established structure or
Table 6.4 Partner interaction in a PPP: summary of issues and improvement

opportunities
Aspects of partner
interaction Issue
Administrative • Lack of established well-designed procedures
processes • Ineffective communication between partners
• The public sector partner dominates
decision-making.
• The government treats a PPP as it treats any private
contractor (i.e. public sector partners show limited
commitment to a PPP)
PPP governance • Joint ventures exhibit ineffective governance
structures • Organisational forms that employ an SPV show
greater effectiveness
Dispute resolution • Operators place significant emphasis on maintaining
methods good informal relations with government staff
• Partners from both sectors display a disregard for
formal dispute resolution mechanisms
Neglected areas of • Service quality
partner interaction • Improvement of PPP governance structures and
administrative procedures
known guidelines for resolution. In situations of uncertainty, the govern-

ment normally insisted on its own ways of solving the problem, rather
than giving flexibility to a private party in decision-making. This is a
result not of a high sense of accountability from the government for the
PPP, but of the government’s fear to let the private sector partner make an
independent decision. To reiterate, a public party takes the lead in mak-
ing a decision in situations of uncertainty not because of a business need,
but because of the fear of penalty for non-action.
In part, good informal relations between the operators’ staff and gov-
ernment staff could substitute ill-designed governance structures and
a lack of formal administrative procedures, such as dispute resolution
mechanisms. However, the overall disregard by both partners for formal
management tools significantly reduces opportunities for more effec-
tive PPP governance. In addition to service quality, participants clearly
disregard another area of partner interaction: governance structures and
administrative processes that would reflect the partnership’s collaborative
nature and allow its synergistic effect to fully materialise.
References
Partnerstvo: Mekhanizmy Realizatsii (in Russian) (Public-private partnership:
usloviyakh krizisa (in Russian) (Opportunities for concessions in the time of
crisis). Korporativniy Yurist 5:1–3.
donors and non-governmental development organizations: Opportunities
and constraints. International Review of Administrative Sciences 70(2):
253–270.
Fischbacher, M., and P. Beaumont. 2003. PFI, public-private partnerships and

the neglected importance of process: Stakeholders and the employment
dimension. Public Money and Management 23(3): 171–177.
Glumov, E. 2009. Zakon o gosydarstvenno-chastnom partnerstve:
Neobkhodimost’ prinyatiya i predmet regulirovaniya (in Russian). (The law
on public-private partnerships: The need for adopting the law and the subject
of regulation). Korporativniy Yurist 5:8–11.
Gusev, I. 2009. G.Ch.P. v usloviyakh ekonomicheskogo krizisa: Noviye tenden-
tsii razvitiya (in Russian) (PPPs under the conditions of an economic crisis:
New development trends). Jurist 1:23–27.
Hill, C.W. 1990. Co-operation, opportunism, and the invisible hand:
Implications for transaction cost theory. Academy of Management Review
15(3): 500–513.
Madhok, A. 1995. Opportunism and trust in joint venture relationships: An
exploratory study and a model. Scandinavian Journal of Management 11(1):
57–74.
Ouchi, W. 1980. Markets, bureaucracies, and clans. Administrative Science
Quarterly 25(1): 129–141.
Pierre, J. 1997. Conclusions. In Partnerships in urban governance: European and
American experiences, ed. J. Pierre, 187–199. London: Macmillan.
Pierre, J., and G. Peters. 2000. Governance, politics and the state. London:
Macmillan.
Pierre, J., and G. Peters. 2005. Governing complex societies. Basingstoke: Palgrave
Macmillan.
Pongsiri, N. 2003. Public-private partnerships in Thailand: A case study of the
electric utility industry. Public Policy and Administration 18(3): 69–90.
291–306.

Vining, A., and A. Boardman. 2008a. Public-private partnerships. Eight rules
for Governments. Public Works Management and Policy 13(2): 149–161.
Vining, A., and A. Boardman. 2008b. Public-private partnerships in Canada:
Theory and evidence. Canadian Public Administration 51: 9–44.
(Concessions as a form of privatization). Sliyaniya i Pogloscheniya 7(8):19–25.
7
PPP Risk Management: Management
of Financial and Revenue Risks
and an Emergent Guarantee Culture
in PPPs in Kazakhstan and Russia
Introduction
In Kazakhstan and Russia, progress with accelerated partnership creation
remains slow, as the governments themselves are undecided as to how
to define certain aspects essential for PPP development. Specifically, the
governments lack effective solutions regarding risk allocation between
partners, how to mitigate risks and what mechanisms the partners must
employ to renegotiate risk distribution, should it become necessary.
This chapter seeks to investigate whether the distribution of two
principal PPP risks—financial risk and revenue risk—conforms to risk
allocation principles. Whilst financial risk refers to uncertainty associ-
ated with errors in the estimation of project revenue streams and project
financing costs, revenue risk is associated with the uncertainty that stems
from unknown demand for PPP services and from volatility of prices for
services (Grimsey and Lewis 2002). Risk allocation has certain impli-
cations for PPP governance and society, which this chapter identifies;
it also highlights commonalities and differences in risk management in

DOI 10.1057/978-1-137-56952-3_7
Kazakhstani and Russian PPPs. The overarching objective is to explore

the impact of risk distribution in PPPs on an emergent guarantee culture
in partnerships.
The essence of a guarantee culture refers to a distinct pattern of a pri-
vate investor’s behaviour that is characterised by an unwillingness to take
on additional risk in a PPP and acceptance of (possibly) low but—most
importantly—stable long-term profits. A guarantee culture stems from
convenient and financially attractive arrangements that the government
creates for a private partner in a PPP and includes certain contributing
elements. This chapter investigates, from the risk management perspec-
tive, how and in what ways these elements form a guarantee culture in
PPPs.
The significance of this study is justified by the high degree of attention
paid by both Kazakhstan and Russia to PPP deployment: in both nations,
the governments claim that accelerated economic and social development
is impossible without extensive use of private funds and private expertise,
in the form of PPPs. Although an emergent guarantee culture stems from
government actions to further PPP employment, it reduces PPP value
for money, that is, the more the government pays, the greater the burden
to the taxpayer and the smaller the private partner’s contribution (Sadka
2007). Hence, if a guarantee culture takes root and expands, it will clearly
contradict the governments’ original intention to employ PPPs as a cost-
effective option for the provision of public services.
This chapter begins by delineating the study’s theoretical framework, that is,
the lens through which risk management was analysed. The next section dis-
cusses how PPP actors perceive financial risk, followed by a discussion around
perceptions of revenue risk and relevant mitigation tools. The concluding sec-
tion draws insights into how the governments, by their own actions, foster a
guarantee culture in partnerships. The implications of risk perceptions for the
investors’ emergent risk-averse behaviour are also outlined.
Risk Management: Theoretical Framework

Risk management embraces certain themes, including strategies for effec-
tive risk ownership, dynamics of risk distribution between cooperating
parties, partner interaction as a method of risk management and, more
7 PPP Risk Management: Management of Financial... 117
generally, the interplay of networks, actors and policy making that consti-
tutes risk governance. Whilst risk management may pursue varying goals,
this chapter’s theoretical framework rests on the optimal risk allocation
principle: that risk should be transferred to the party best able to handle
it at the least cost (Hodge and Greve 2005).
Risks have multiple links to a guarantee culture in PPPs because gov-
ernments often attempt to facilitate partnership formation by reducing
investors’ risks. For example, the UK, France, Germany, Portugal and
Spain have designed schemes via which their governments essentially
guarantee low-interest funds to PPPs: the governments borrow at low
rates and then lend money to PPPs at similar rates (Hall 2010). Although
governments do not intentionally seek to create a guarantee culture, this
is inevitably being formed: the government attracts investors by offer-
ing them low-cost financing opportunities and low-risk revenue streams.
Privileged access to government guarantees, loans and subsidies, all of
which reduce investors’ risks and are offered by the government to private
investors when trying to deploy more PPPs, is a principal element of a
guarantee culture (Whitfield 2001; Hall 2010).
Risk is usually viewed as a degree of uncertainty, which is associated
with hazard. Risk is ‘the probability of an adverse future event multi-
plied by its magnitude’ (Adams 1995, 69). This chapter’s theoreti-
cal framework implies that risk allocation in a PPP should pursue the
goal of efficiency, that is, it should be based on risk sharing, which is
one of a partnership’s principal features (Osborne 2000; Grimsey and
Lewis 2002, 2004; Klijn 2010). Researchers and PPP guidebooks
released by many government agencies and international organisations
(e.g. the ‘Guidebook on Promoting Good Governance in Public-Private
Partnerships’ [United Nations Economic Commission for Europe 2008]
and ‘Guidance for Public–Private Partnerships [PPPs] in New Zealand’
[National Infrastructure Unit 2009]) assert that partners should employ
the optimal risk allocation principle, namely, that the ‘risk should be
transferred to the party best able to manage it in the most cost effec-
tive manner’ (European Commission 2003, 52). Risk management refers
not only to negotiations between partners and how successful one party
might be compared to another, but also to a certain risk allocation that
ultimately transforms into the project’s total cost: this is the cost that
society (i.e. customers, the government and future generations) would
have to pay. Whilst PPP costs are society’s costs, risks may add a signifi-
cant premium to production and operating expenses. Furthermore, the
risk premium may considerably increase if a partnership does not follow
the optimal risk allocation principle.
A PPP faces many risks, including construction risk, operation and
maintenance risk, political risk, legal and contractual risk, and force
majeure. Out of a range of risks, two particular risks have been selected,
namely financial risk and revenue (demand) risk, for the following rea-
sons. Whilst they are of a similar nature and overlap each other to a cer-
tain extent, they both have a direct impact on a partnership’s financial
position. Additionally, our interview data show that respondents possess
greater knowledge of these two risks compared with others (e.g. construc-
tion, political or legal risks). Furthermore, PPP actors’ perception of finan-
cial risk as high, and revenue risk as low, as the subsequent sections of
this chapter show, offers an opportunity to investigate the underlying rea-
sons for this and to draw comparisons. Projects from the same sectors in
Kazakhstan and Russia have been selected to ensure that cases permit cross-
country and cross-sector comparisons in the area of PPP risk management.
Perceptions of Financial Risk

Financial risk stems from errors in the estimation of project revenue
streams and project financing costs (Grimsey and Lewis 2002).
When reflecting upon project revenue streams, a staff member of a
PPP operator highlighted an unusual design of revenue flows in the kin-
dergartens’ PPP in Kazakhstan, which depicted an operator’s risk. He
noted that the government project proposal included a revenue stream
from non-core PPP services. He further emphasised that the government
believed that an operator should make money, not only from the activity
for which it was hired, but also from some type of additional business.
The project requires that we generate revenue from something unrelated to

the core service–childcare. So, the government hires us to provide PPP ser-
vice and do some kind of additional business. How do they know what we
want or can do?
This shows that, in the project’s financing scheme, the government

included revenue from non-core services in the total project’s revenue,
alongside government payments and the childcare fees that the private
sector partner receives from parents. When asked about the nature of
non-core PPP services, the interviewee explained that they might include
any business unrelated to childcare. However, what the government staff
had in mind was the fee-generating use of kindergartens’ premises (e.g.
classrooms) for providing various types of training, such as English lan-
guage tutoring, to the public. However, much like core PPP service, non-
core services may be risky, and revenue from their provision is in no way
guaranteed. Due to this, the need for risk mitigation evolves, although
the study participants did not outline any risk mitigation tools.
In another project—a railroad concession in Kazakhstan—another PPP
actor recognises financial risk stemming from incomplete construction:
We need to complete the construction as soon as possible. But a lot of

technical documents have to be approved first. We are not receiving suffi-
cient money [revenue from services] because the railroad is not fully opera-
tional. Now, it’s very difficult to count on revenue that we need to earn
later this year [with the use of a completed facility] because we haven’t yet
started the construction of this segment.
The above excerpt highlights financial risk not only for the construction
year, but also for subsequent years, depending on when exactly the opera-
tor will complete the construction. This interviewee also did not outline
any methods that may mitigate the risk.
In a different project—a schools and kindergartens’ partnership in
Russia—another type of financial risk transpired. In this project, the
city government put its payments to the concessionaire on hold for an
unspecified period, claiming temporary difficulties with the availability
of budget funds. The interviewee described the difficulties that this event
caused:
We are lucky that my company is part of a holding. So, my company just

borrowed some money for a short term from other companies so that we
can pay salaries and all other operating expenses. But what if the government
stops paying us again in the future? These kinds of events totally ruin all
our financial flows.
Although the interviewee expressed a clear concern regarding financial

risk, he did not identify any ways in which to mitigate it. Furthermore,
he admitted the possibility that this risk may materialise again in the
future. He associated financial risk with the way in which the govern-
ment treats a PPP:
Well, the government kept paying salaries to school teachers, doctors in

public clinics, all staff in municipal agencies. However, we [a PPP] didn’t
receive the payments for a few months. So, it’s just us.
Therefore, in the interviewee’s view, the government’s treatment of a part-

nership differs from their treatment of other public sector organisations.
The government showed that a payment to a PPP is not a priority com-
pared with paying salaries to staff at schools, public clinics, hospitals and
municipal agencies.
In another project (a railroad concession in Kazakhstan), a company
officer highlighted the government’s lack of commitment in connection
with operating and financial risks as follows:
We [an operator] have prepared a plan that includes more than last year’s
volume of services. But the larger volume depends on whether the national
[i.e. government-owned] company is going to purchase more services from
us. The plan was approved, but the buyer has not signed any contracts with
us for additional purchases.
In the third PPP project studied (kindergartens’ partnership in

Kazakhstan), an operator’s staff member also questioned whether finan-
cial risk is aligned with the government’s commitment to the project. The
following excerpt illustrates this:
Why do we need to undertake the construction of all eleven kindergartens

at once, simultaneously, and complete the construction of all of them at
the same time? Financially, it is so costly to run eleven construction sites
rather than one at a time. But it does not look that somebody in the gov-
ernment is concerned with this. This is just because the government wants
to open them at the same time.
Most interviewees perceived this risk as high. Only in one out of the four
studied projects—a toll viaduct in Russia—did the interviewees state that
the probability of financial risk occurrence is low, although they did not
exclude it completely. An excerpt illustrates this as follows:
Financially, we [an operator] will be in good shape as long as drivers use a

viaduct. We know that there is a public acceptance issue because a toll via-
duct is something new for most people. But we are confident that the demand
for the service will be huge. We just need to show how effective a viaduct is,
so that a driver can cross the railroad using a viaduct within a minute.
The interviewee justifiably connected public acceptance risk and financial

risk. When the first risk materialises, this inevitably triggers the occur-
rence of the other. Therefore, both need to be mitigated.
To summarise, in three out of the four projects studied, PPP actors
associated financial risk with the lack of government commitment to a
PPP, which had various manifestations depending on the specific project.
Although the government extended significant financial support to PPPs
at the time of a partnership formation, that is, at the strategic manage-
ment level, this level of commitment was not mirrored by operators’ staff
during everyday operational management. Contrary to these findings,
the literature argues that commitment, solidarity, mutuality and shared
responsibility for the service, risk and costs form the set of defining PPP
features (Klijn and Teisman 2000; Bovaird 2004); these are missing in the
studied projects in the two countries. Furthermore, with regard to risk
mitigation, PPP actors have not identified any tools and methods that
may enable partners to effectively mitigate financial risk. This justifies an
argument that the lack of mitigation stems from a corresponding lack of
governmental commitment to the studied projects, explaining why risk
mitigation tools are missing from the discussion.
Perceptions of Revenue (Demand) Risk

Revenue risk stems from insufficient demand for PPP services and from
volatility of prices for services (Grimsey and Lewis 2002). Staff in three
out of the four studied PPPs viewed the demand for their services as high
and stable (although they have not excluded revenue risk completely),
whilst a worker from one PPP (a toll viaduct in Russia) noted that his
project was exposed to this kind of risk. In his project, if the actual traf-
fic volume fell short by more than 10 % of the projected traffic after the
first year of operations, the municipal government agreed to purchase the
facility. The following excerpt illuminates this:
Our estimations are based on the number of cars that used the older facility
[i.e. before the PPP launch]. Our forecast shows that after we open a new
facility the traffic volume is going to increase. But you never know. If for
some reason drivers would prefer to use alternative routes or another railroad
crossing, then we are in trouble. Then we will go to the city government.
The excerpt above not only demonstrates the demand risk, but also out-
lines how partners handle this risk: the government has agreed to buy
out the facility from a private investor should the risk materialise. From
the private operator’s perspective, the way in which the respective parties
handled the risk is a risk mitigation tool. However, from the public sec-
tor partner’s perspective, there is no risk mitigation: the city government
bears all the risk.
The operator in a Kazakhstani railroad concession is exposed to rev-
enue risk from another source. The company had produced its annual
budget based on the tariff increases for its own services, although the new
tariffs were not yet approved. Hence, if the government did not approve
the proposed new tariffs, complete or partial revenue risk might result:
All tariffs go up every year. Of course, we don’t know whether the anti-
monopoly agency approves our proposal. It is not yet prepared. But we will
work with them [the national anti-monopoly agency] and will try to justify
higher tariffs.
Taking into account that the company approved its annual budget just
a week before the beginning of a new year, therefore, leaving no time
for further adjustments, the PPP officer did not note employing any
risk mitigation tools in this case. Both in 2013 and at the beginning of
2014, the government has rejected the operator’s applications for a tariff
increase, and hence, revenue risk has materialised two years in a row.
Another PPP actor, who denied demand risk in his PPP (a kindergar-
tens’ partnership in Kazakhstan), provided the following comment:
We will be getting payments from both the government and parents [for
childcare]. I’m sure there will be a long waiting list for a place in our kin-
dergartens because people just can’t afford private kindergartens. So, I
think there will be no vacancies for children after we complete the enrol-
ment. I’m positive. Perhaps, we can even exceed the enrolment limits a
little bit.
This comment shows that anticipated capacity utilisation may even

exceed 100 %, and under such circumstances, demand risk mitigation is
unnecessary. A worker from another project (schools and kindergartens
in Russia) also asserted that capacity utilisation in his PPP is likely to be
at, or above, 100 % throughout the concession term.
Our facilities [kindergartens and schools] are located in a brand new city
district. As far as I know, there are no private kindergartens there and no
private schools. And, of course, parents want to send their children to a
kindergarten and school close by. So, that’s us [a PPP that builds schools
and kindergartens in the area]. At this point, we don’t have any competitors
in the area.
Hence, in this project, there were no concerns regarding demand risk,

and consequently, the operator’s perception is that there is no need for
risk mitigation.
Revenue (demand) risk is unique to only one project in Russia (a toll
viaduct) because, in the other studied PPPs, a high demand for part-
nership services is essentially guaranteed. In three projects, quantity
demanded exceeds quantity supplied because the PPPs’ service volume is
insufficient to satisfy consumer needs: PPPs satisfy the need only in part.
The following excerpt confirms the typical situation with no demand risk
in a PPP:
I know that the waiting line for childcare is huge. And I don’t think that the
newly built kindergartens [the kindergartens’ PPP] will be able to eliminate
the waiting line totally and completely. It looks like we [the kindergartens’
PPP] will have to enrol more children in each group than our planned
capacity suggests. And the waiting line still will be there. Sometimes par-
ents are waiting for a place in a public kindergarten for years.
The same type of situation, with no demand risk, was found in a Russian
PPP project (schools and kindergartens’ partnership), as an operator’s
worker highlighted:
We are building schools and kindergartens in a brand new development

of the city. There are many new apartment buildings here, people just
moved in, but there are no schools and kindergartens. We intend to sat-
isfy an acute need. As of today, educational facilities simply are unavail-
able for the population. We are not even sure that the capacity of what
we are building is going to suffice; perhaps there will be a shortage of
places after we finish the construction.
To summarise, in three out of the four studied projects, operators’

staff did not identify revenue risk. This suggests that there is a pref-
erence towards low revenue risk projects in Kazakhstan and Russia.
It is no surprise that the governments have formed PPPs specifically
in the fields that experience an acute shortage of services, such as
educational services at schools and kindergartens or transport infra-
structure such as a railroad or a railroad viaduct. This corresponds
to claims in the literature that, in transitional countries, the gov-
ernments traditionally form partnerships in the transportation field
and in the social sector including hospitals, spas, recreational facili-
ties, schools, kindergartens and stadiums (see e.g. Bult-Spiering and
Dewulf 2006; Urio 2010).
At the same time, the fact that a distinct feature of PPP projects in
Kazakhstan and Russia is a demand risk close to zero suggests that the
governments are interested in keeping the PPPs’ exposure to risks low,
thus inevitably enhancing the private operators’ risk-averse behaviour.
This behaviour rests on the preference for risk avoidance and on various
government guarantees, including those that ensure a stable, risk-free rev-
enue stream to a contractor.
Analysis of the project data also confirmed the findings regarding

no demand risk in a PPP and operators’ risk-averse behaviour (www.
karaganda-ppp.kz 2011). The following example from the kindergartens’
PPP in Karaganda, Kazakhstan, illustrates this. In this PPP, a relatively
small proportion of revenue risk (14 %) transfers to the private partner,
whilst the government guarantees a much larger revenue part (47 %)
(www.karaganda-ppp.kz 2011). Additionally, an extremely high and sta-
ble consumer demand for childcare essentially guarantees another 39 %
of revenue (www.karaganda-ppp.kz 2011). This revenue risk allocation is
highly favourable to the private sector partner, as its risk is very low.
The study confirms that the government has acted—for the most part,
although not always—in line with the theory underpinning risk allo-
cation in a PPP: that risk should be allocated to the party best able to
manage it at the least cost (Akintoye et al. 2003). The findings show that
the government bears many risks, which is in line with extant literature
(Akintoye et al. 2003; Chung et al. 2010).
Additionally, the literature emphasises that effective risk transfer to
the private sector will facilitate investment in critically needed infrastruc-
ture objects, whilst protecting the taxpayer from cost overruns (Flyvbjerg
et al. 2003; Chung et al. 2010). In the area of risk transfer to the private
sector, the most controversial element is the proposed revenue stream
that an operator is intended to receive from the provision of services
unrelated to childcare. The government and the private sector partner are
unable to mitigate this revenue risk. For a private operator, there are no
performance incentives linked to revenue from non-core services other
than a need to start some unspecified business that is, like any business,
risky in and of itself. Hence, the effectiveness of this government method
of revenue risk transfer is debatable.
In the kindergartens’ PPP, the government has achieved almost a com-
plete transfer of risk to the private sector partner. However, the costs of
transfer are extensive government financial outlays to the partnership,
which seriously compromises the PPP’s value for money. This finding is in
agreement with the literature that argues that partnerships often carry lit-
tle value for money (Mouraviev 2012; Siemiatycki and Friedman 2012).
Conclusion: How the Government Fosters

a Guarantee Culture in PPPs?
The discussion of financial risk revealed that PPP actors associate it with
the way the government treats a private partner, that is, in the same way
as any private contractor. The government’s treatment of a private partner
often stems from a lack of government commitment to a PPP, which the
private sector partner is unable to mitigate.
Highlights of revenue risk showed that this risk is virtually non-exis-
tent in three out of the four studied projects. Furthermore, by providing
extensive financial support to a PPP at the time of the partnership for-
mation, the government facilitates a guarantee culture amongst private
investors, who view the government as a source of financial gain regard-
less of the project context. Table 7.1 summarises the PPP actors’ experi-
ences and perceptions of risks and risk mitigation tools.
PPP actors perceive some risks as being low, owing to the efforts of
the government. Part of the supporting evidence for this is the fact that
the governments in both countries design for themselves a PPP project
proposal and then put it out to tender, rather than inviting bidders to
submit their own proposals, for example, regarding how to construct a
set of kindergartens, or a segment of a railroad, or a tunnel. This implies
that, at the project design stage, the government is able to purposely form
a project as being low risk. The principal reason for this is the need to
attract private investors; otherwise, there may be no investors at all.
Although the government’s desire to find private investors is easily
understandable, by reducing investors’ exposure to risks, the government
encourages their risk-averse behaviour and furthers a guarantee culture.
As this chapter shows, at the project implementation stage, the govern-
ment often exhibits a disregard for higher PPP costs, for example, where
the government insists on simultaneous, rather than sequential, construc-
tion of kindergartens. This creates a vicious circle which links private
operators’ risk-averse behaviour to extensive government financial sup-
port to a PPP. The latter explains the government’s self-assumed right
to push contractors for faster results, for which operators demand even
greater financial support. Figure 7.1 depicts the links between partners’
behaviour in a PPP.
Table 7.1 Summary of risks, perceptions and risk mitigation methods

Tools and methods
Types of used for risk
risk Perception of risk mitigation Project country
Financial In three projects, None Kazakhstan (railroad
risk private partners concession and
associate this risk kindergartens’ PPP);
with how the Russia (schools and
government treats kindergartens’
a PPP (i.e. much concession)
like any private
contractor)
This risk overlaps
with operating risk
Revenue Three out of four The government has Russia (a toll viaduct
(demand) studied PPPs are agreed to buy out concession)
risk risk-free the facility at a
In one studied PPP (a predetermined price
toll viaduct), the if traffic volume falls
government bears 10 % short of the
all the risk, target level
although it shifted Lack of competition
all risk mitigation ensures high capacity
effort to a private utilisation
party
Source: Compiled by the authors from the interview data
As Fig. 7.1 shows, either partner’s opportunistic behaviour, which can

be conceptualised as any kind of behaviour, action or non-action that
pursues a party’s self-interest and departs from the project goals (Ashforth
and Lee 1990), reinforces and enhances a guarantee culture. This then
becomes a prevailing set of rules for partnerships in both Kazakhstan
and Russia. When viewed through the prism of opportunistic behaviour,
this emphasises the limitation of the TCE theory (Brown and Potoski
2003; Vining et al. 2006; Sadka 2007): it cannot provide reliable data
in favour of a decision regarding the formation of a PPP. Reliability of
long-term estimations on whether a PPP will incur lower costs than
traditional government procurement methods may be undermined as
a result of unknown risks and partner opportunism, whilst cost sav-
ings may be significantly overrated. Furthermore, as the governments in
Kazakhstan and Russia tend to extend significant financial support to
Public sector partner:

• attracts private
investment
• provides extensive
financial support
• Pressure to achieve fast results

• Risk-averse behaviour
• Disregard of higher cost
• Price-increase efforts
• Low government commitment to a PPP
Private sector partner:

• receives extensive government
guarantees
• enjoys low risk
Fig. 7.1 Links between partners’ behaviour in a PPP: fostering a guarantee

culture. Source: Compiled by the authors
PPPs, TCE as a guiding set of rules for PPP formation and management
gives place to a growing guarantee culture, in which costs become of a
secondary importance and the policy paradigm aimed at PPP prolifera-
tion prevails.
To conclude, the government’s own actions foster an emerging guar-
antee culture amongst private investors in PPPs. Four factors contribute
to a guarantee culture:
– First, the government may reduce investors’ exposure to risks by
accepting some themselves (e.g. part of revenue risk).
– Secondly, the government may directly or indirectly encourage
investors’ risk-averse behaviour by deliberately designing a project
as low risk.
– Thirdly, the government may provide extensive financial support to
a PPP by directly paying part of the construction cost or extending
a subsidy.
– Fourthly, the government may guarantee certain revenue streams to
a private firm, for example, the government itself may pay a
significant percentage of revenue. Sources of demand and financial

risk and mitigation tools are summarised in Table 7.2.
Table 7.2 shows sources of revenue risk and financial risk in a more
general sense and highlights how risks are mitigated. It appears that rev-
enue risk is fully mitigated by certain ways in which the government
launches a PPP: in particular, the government aims to provide a PPP
service in those geographical areas and sectors that experience an acute
shortage of public services. Therefore, the government assures that quan-
tity demanded will exceed quantity supplied over an extended period,
and there will be no risk of insufficient demand. The government empha-
sis on revenue risk can be explained by the fact that it can be more easily
estimated, whilst financial risk is subject to considerable uncertainty, for
example, it is unclear whether the government will approve a PPP appli-
cation for a tariff adjustment and what exactly this adjustment will be.
Due to this high uncertainty, it is difficult to mitigate financial risk, and
this explains why PPP actors have not identified risk mitigation tools.
It is worth noting that PPP actors’ perceptions and observations were
common across both nations, and there was no major cross-country dis-
crepancy. The findings appear to be context-specific, rather than indus-
try-specific, as both nations exhibit a high degree of commonality in their
Table 7.2 Sources of risk and risk mitigation tools

Revenue (demand) risk Financial risk
Sources of • Unknown demand for PPP • Uncertainty regarding tariff
risk service increases
• Volatility of prices • Uncertainty as to whether
government can maintain
regular payments for PPP
service
• Uncertainty regarding the
cost of borrowing
Risk • PPP service is provided in • None
mitigation areas and sectors that show
tools high sustainable demand
• Government subsidies are
stable and for long term; they
compensate a large share of
operators’ cost
contractual, legal, economic and social PPP environment. The overarch-

ing government intention to attract private investors to infrastructure
projects, and to create favourable conditions for them at almost any cost,
is the dominating factor that underpins an emergent guarantee culture.
Going forward, an acute need for massive infrastructure overhaul in
Kazakhstan and Russia, as well as in many other transitional economies,
determines the growing interest in those nations towards a broader PPP
deployment. Therefore, conceptualising PPP risks and forming adequate
risk governance strategies remains a key task that scholars and policy
makers must tackle. By investigating best practice and pitfalls in PPP risk
management, research may well serve the partnership development needs
and enhance the body of knowledge. Whilst long-term data on PPP costs,
risks and their allocation (that quantitative studies often require) may be
difficult to obtain, due to the infancy of many projects, the PPP field may
significantly benefit from case studies and qualitative research of risk gov-
ernance. Specifically, topics requiring further investigation include the
drivers of risk allocation in a PPP in relation to stakeholder values, risk
mitigation tools and the effectiveness of partner interaction as a principal
dimension of risk governance.
References
Adams, J. 1995. Risk. London: Routledge.
Akintoye, A., M. Beck, and C. Hardcastle (eds.). 2003. Public-private partner-
ships: Managing risks and opportunities. Oxford: Blackwell Science.
Ashforth, B.E., and R.T. Lee. 1990. Defensive behaviour in organisations: A
preliminary model. Human Relations 43(7): 621–648.
Bovaird, T. 2004. Public-private partnerships: From contested concepts to
prevalent practice. International Review of Administrative Sciences 70(2):
199–216.
Brown, T., and M. Potoski. 2003. Managing contract performance: A transac-
tion cost approach. Journal of Policy Analysis and Management 22(2): 275–297.
nerships: An international perspective. Oxford: Blackwell Publishing.
Chung, D., D.A. Hensher, and J.M. Rose. 2010. Toward the betterment of risk
allocation: Investigating risk perceptions of Australian stakeholder groups to
public-private partnership tollroad projects. Research in Transportation

Economics 30(1): 43–58.
European Commission. 2003. Guidelines for successful public-private partner-
ships. http://ec.europa.eu/regional_policy/sources/docgener/guides/ppp_en.
pdf. Accessed 11 December 2011.
Flyvbjerg, B.B., N. Bruzelius, and W. Rothengatter. 2003. Megaprojects and risk:
An anatomy of ambition. New York: Cambridge University Press.
Management 20(2): 107–118.
Elgar Publishing.
Hall, D. 2010. A crisis for public-private partnerships (PPPs)? http://www.psiru.
org. Accessed 7 April 2014.
Hodge, G., and C. Greve (eds.). 2005. The challenge of public-private partner-
ships: Learning from international experience. Cheltenham: Edward Elgar
Publishing.
Klijn, E.H. 2010. Public-private partnerships: Deciphering meaning, message
and phenomenon. In International handbook on public private partnerships,
Klijn, E.-H., and G.R. Teisman. 2000. Governing public-private partnerships;
analyzing and managing the processes and institutional characteristics of
public-private partnerships. In Public-private partnerships: Theory and practice
in international perspective, ed. S.P. Osborne. London: Routledge.
ships in Kazakhstan and Russia: Value for money? Organizations and Markets
National Infrastructure Unit. 2009. Guidance for public private partnerships
(PPPs) in New Zealand. 2009. National Infrastructure Unit of the Treasury.
Version 1.1. http://www.infrastructure.govt.nz/publications/pppguidance/.
Accessed 6 May 2011.
Siemiatycki, M., and J. Friedman. 2012. The trade-offs of transferring demand
risk on urban transit public-private partnerships. Public Works Management
and Policy 17(3): 283–302.
United Nations Economic Commission for Europe (UNECE). 2008. Guidebook

on promoting good governance in public-private partnerships. http://www.
unece.org/ceci/publications/ppp.pdf. Accessed 12 May 2011.
Vining, A., A. Boardman, and F. Poschmann. 2006. Public-private partnerships
in the U.S. and Canada: There are no free lunches. Journal of Comparative
Policy Analysis 7(3): 199–220.
Whitfield, D. 2001. Private finance initiative and public-private partnerships:
What future for public services? European Services Strategy Unit (previously the
Centre for Public Services). http://www.european-services-strategy.org.uk.
Accessed 8 April 2014.
www.karaganda-ppp.kz. 2011. Stroitel’stvo i Ekspluatatsiya Kompleksa Detskikh
Sadov v Karagande po Skheme Kontsesii. Razyasneniya po Povodu Konkursnoi
Dokumentatsii (in Russian) (Construction and operation of kindergartens in the
city of Karaganda in the form of a concession. Comments regarding tender docu-
mentation). Regional Public-Private Partnership Centre of the Karagandinskaya
oblast’. Accessed 16 December 2011.
8
Legal and Regulatory Barriers
to Effective PPP Governance
in Kazakhstan: Findings from the Field
Introduction
PPP development in Kazakhstan began in 2006, when the government
adopted the law on concessions. Subsequently, the government formed
the national, and several regional, PPP centres and approved seven PPP
projects, although some went on to close down. Despite government
efforts to expand PPP implementation in Kazakhstan, private investor
interest remains limited, and the number of partnerships has remained
static. What are the impediments to swift PPP deployment in the nation?
What are the obstacles that reduce the efficiency of PPP operations?
This chapter explains the principal legal and regulatory barriers to
effective PPP governance in Kazakhstan. The chapter’s objective is to
identify and critically assess the constraints to PPP development and
effective management that relate to imperfections in partnership laws
Parts of this chapter are reproduced from the paper Mouraviev, N., and N. Kakabadse. 2015.
Legal and regulatory barriers to effective public-private partnership governance in Kazakhstan.
International Journal of Public Sector Management 28(3): 181–197, with the journal’s permission.

DOI 10.1057/978-1-137-56952-3_8
and regulations, based on data collected by interviewing staff who

work for PPP operators and government PPP centres in Kazakhstan.
It is worth noting that this case study was completed prior to 2016
when the new law ‘On Public–Private Partnerships’ came into effect.
Although this law is viewed as a step forward in the direction of broader
PPP implementation, as it resolved some key issues, other problems
related to PPP deployment still require attention as they appeared to
be beyond the scope of both the newly adopted law and the 2006 law
on concessions.
What Is Critical for Successful PPP

Implementation?
A large body of literature focuses on PPP development in transitional
countries (see e.g. Pongsiri 2003; Jamali 2004; Bult-Spiering and Dewulf
2006; Urio 2010). These studies typically emphasise the organisational
and financial arrangements that underpin partnerships. However, studies
that reflect the initial stage of partnership development, particularly rele-
vant to the emerging PPP experiences in Kazakhstan, are rare.
As progress with regard to PPP formation in Kazakhstan is slow (as of
mid-2016, there are just three active PPP projects launched since 2005),
the question regarding constraints and impediments to partnership pro-
liferation becomes increasingly important. A literature appraisal identi-
fies two themes of critical importance for rapid PPP implementation in
developing economies:
• The legal and institutional framework as a critical success factor for

PPP governance; and
• The role of government regulation for successful PPP management.
After highlighting each theme and exploring how governments usu-

ally foster PPP implementation, the study’s questions will be stated.
Subsequently, findings from the field will be presented. This will be fol-
lowed by insights into what is involved in government activity related
8 Legal and Regulatory Barriers to Effective PPP Governance... 135
to each theme and an assessment of the ultimate impact of government

efforts on PPP performance.
Legal and Institutional Framework as a PPP

Critical Success Factor
Many researchers and official guidelines emphasise the importance of
creating a clear legal framework and solid institutional basis for success-
ful PPP project initiation and implementation (European Commission
2003; Klijn and Teisman 2003; Grimsey and Lewis 2004; United Nations
Economic Commission for Europe [UNECE] 2008).
Some legal framework issues are common across emerging economies
and may seriously undermine PPP implementation, such as the protec-
tion of private sector interests, the bureaucracy involved in obtaining
permits and consents, and excessive restrictions on public procurement
(Grimsey and Lewis 2004). The first and foremost prerequisite for PPP
development is to adopt relevant national PPP laws that establish a basic
framework for partnership formation, and which permit the government
authorities to engage in a PPP arrangement and extend long-term pay-
ment guarantees (Ismail 2013).
In addition, a critical condition for successful partnership develop-
ment is the establishment of a national PPP unit. This centre provides
a methodology and guidance for project selection and design, assists in
contract preparation and project assessment, and facilitates general PPP
activity, for example, by initiating necessary changes in legislation and
regulation (Asian Development Bank 2008; United Nations Economic
Commission for Europe [UNECE] 2008).
Much discussion regarding the legal, regulatory and institutional
framework for PPP development is country-specific (see e.g. Qiao et al.
2001; Jefferies et al. 2002; Klijn and Teisman 2003; Chan et al. 2004;
Li et al. 2005). Generalisations are limited because the contextual
political, economic, legislative, social and cultural environment shape
the unique features of each nation’s PPP framework. Owing to the
uniqueness of each country’s setting, delineation of commonalities and
differences in PPP frameworks between countries is normally beyond

researchers’ scope. However, a promising research opportunity mani-
fests itself in the field of cross-country comparisons of PPP success fac-
tors, including those that relate to the legal and institutional framework.
This opportunity is particularly relevant to research in Kazakhstan and
Russia because they share a common Soviet legacy, including Russian as
a widely spoken language; similar educational, cultural and social reali-
ties; and aligned economic, financial, taxation, regulatory and customs
systems, although the contextual environment may still dominate the
design of the legal framework.
To summarise, the PPP literature emphasises a need for governments
to create a solid legal and institutional basis for PPP development (Qiao
et al. 2001; Jamali 2004; Urio 2010), although borrowing legal and organ-
isational solutions from another country’s experience is of limited value,
given the critical significance of the political, social and economic context.
Identifying a need to establish a basic framework for partnership forma-
tion, the government in Kazakhstan adopted a national law on conces-
sions in 2006 (The Law of the Republic of Kazakhstan ‘On Concessions’
[Zakon Respubliki Kazakhstan 2006]) and formed the key elements of
an institutional PPP framework. This included the National PPP Centre
in 2008 and a number of regional PPP centres: in the Karagandinskaya
oblast’ in 2010, in the Vostochno-Kazakhstanskaya oblast’ in 2011 and then
more centres in 2013—in the Mangistausskaya, Yuzhno-Kazakhstanskaya,
Almatinskaya and other regions and cities. Now that critical elements of
the nation’s PPP legal and institutional framework have been designed, as
recommended by the literature for any economy keen to promote PPPs,
the government anticipates faster PPP development in the country.
This raises the following questions for the study:
• Has the government in Kazakhstan supported extensive PPP develop-

ment by designing a clear and effective PPP legal framework? How
clear and effective is the PPP legal framework? and
• Does the government unambiguously support PPP development,
without compromising the partnerships’ future? In other words, how
high is the degree of support that the Kazakhstani government offers
to PPP development?
Irregularities in the PPP Legal Framework

and Lack of Government Commitment to PPPs
This theme highlights the study’s findings, that is, that certain issues in
the legal and institutional framework remain unresolved in Kazakhstan.
Interviewees highlighted irregularities in the legal framework that gov-
erns PPPs. In Kazakhstan, prior to 2016, there was no general law that
defined a PPP, its legal status and the principal legal provisions gov-
erning PPP employment in the country. The law on concessions that
the nation adopted in 2006 filled the legal gap only in part (Zakon
Respubliki Kazakhstan 2006), whilst the new law ‘On Public–Private
Partnerships’ was effected in 2016 (Zakon Respubliki Kazakhstan
2015). Interviewees asserted that the law on concessions was incom-
plete and was not harmonised with other national laws. In particular,
the law on concessions contradicted the provisions of the budget law
that permits the government to extend payment guarantees for a maxi-
mum of three years. The new PPP law has not resolved this issue. The
following quote shows that a public organisation’s commitment, espe-
cially at the regional level, to extending payments to a PPP over a long
period is highly questionable:
When a regional government grants a concession for many years, how can it
guarantee that it will actually pay? It gives its guarantee in writing, but where
can it get the money in the future? The regional government gets funds from the
national government, but the national government does not give any guaran-
tee. This is confusing, isn’t it?
Another interviewee expressed similar concerns regarding the validity of

long-term PPP contracts signed by regional governments:
Regions [in Kazakhstan] don’t impose their own taxes. The regional govern-
ments are financed by the national government. The latter decides how much
money each region receives. So, when a region engages itself in partnerships, it
essentially counts on more money from the national government in the future.
But who can argue with confidence that the national government will give this
money to the region?
In Kazakhstan, the high degree of political and administrative centralisa-

tion leads to contradictions within the PPP legal framework, specifically
between national and regional legislation. An interviewee described the
problem as follows:
Some regions [in Kazakhstan] have formed their own PPP centres and adopted
regional rules and regulations. I’m not sure that these regulations are really
helpful. Kazakhstan has a unitary system. Everything is prescribed by the
national government. Regional regulations may simply repeat the national
laws, but the former may not replace the latter, and may not fill some existing
gaps in the national legislation. For example, the national law does not specify
what a PPP means or what an asset life cycle contract means. So, the regional
law cannot help here at all.
Another interviewee asserted that the government tools and possibilities

for supporting and/or penalising a PPP are vaguely defined and that their
implementation lacks procedures and guidelines:
I think the government staff sometimes simply don’t know what [legal provi-
sions] they can apply to a PPP and what they can’t apply. They always refer to
the law, but there is a broad range of laws governing partnerships, each law
governs in part. They point to one law for some reason and then they refer to
another law, and then they argue that they contradict each other, and they can-
not use these provisions. Normally there are no explanations regarding what
law should be applied or why certain laws cannot be applied.
Findings related to this theme support the notions expressed in the litera-
ture regarding the significance of a clear legal, regulatory and institutional
framework for PPP development (Osborne 2000; Grimsey and Lewis
2004; Ismail 2013). Where the private sector partners have concerns
regarding the reliability of government payment guarantees to PPPs over
the long term, this inevitably diminishes the private investors’ interest.
The same applies to the ambiguity of national and regional PPP laws and
regulations: the larger the ambiguity, the smaller the private investors’
interest.
In summary, the extent of the regional government’s privileges and
responsibilities regarding PPP formation and management remains
ambiguous. These privileges and responsibilities are even less clear at the
municipal government level. This suggests that PPP development at the
country’s local level may be stalled.
Hence, the study’s findings have not confirmed that the government
in Kazakhstan supports extensive PPP development by designing a clear
and effective PPP legal framework. The findings demonstrate that the
lack of progress related to PPP development in Kazakhstan stems, in part,
from imperfections in the PPP legal and institutional framework and
ambiguity of Kazakhstan’s state government’s role in relation to PPPs.
The national government allows regional and local authorities to launch
PPPs and engage in contractually binding relations (including obliga-
tions to pay PPPs), but without a clear commitment from the central
state authority. Naturally, this makes PPPs and their future unclear and
uncertain.
The Role of Government Regulation

for Successful PPP Management
The level of government regulation in PPPs depends on the nature of
the industry. The government regulates some industries, such as the oil
and gas sector, to a greater extent, whilst other sectors may enjoy less
regulation. The nature and scope of government regulation, including
price-setting, determination of import and export quotas and customs
duties, environmental control, safety standards and administrative proce-
dures, influence the interaction between PPP partners. However, studies
conclude that, in some sectors, such as construction, the relevant parties
pay little attention to PPPs’ relational aspects and focus instead on con-
tractual arrangements in which the government spells out its regulations
(Egan 1998; Dorée 2004; Bult-Spiering and Dewulf 2006).
The scope and tools of government regulation play a key role in PPP
management. For example, government organisations may view PPP
complexities as a threat (Teisman and Klijn 2002). In this case, the gov-
ernment is likely to use traditional mechanisms of working with the pri-
vate sector, for example, contracting-out schemes. ‘The interaction with
the private sector can be defined in terms of a principal-agent relation.
The government decides what it wants and the private sector decides what
it can deliver and at what price’ (Teisman and Klijn 2002, 199). Hence,
the government may choose to strictly regulate PPP tariffs, parameters
of the service delivery, PPP budget, the number of employees and other
elements of PPP business. Some regulated elements, such as tariffs and
service quality features, are part of output, rather than input, specifica-
tion. This is viewed by scholars as a distinct advantage of PPPs because
it enables a private operator to innovate and find the most efficient solu-
tions to deliver the specified public service (Pierre and Peters 2000).
Output specification in PPPs, which defines the service’s elements and
its delivery parameters, becomes more important than input specifica-
tion, for example, how much a private partner has to spend on asset
construction or maintenance, when exactly the construction should be
completed or how many staff should be hired (Morallos and Amekudzi
2008). Hence, output management in PPPs, as opposed to input-
oriented management in the public sector that focuses on institutions
(Bult-Spiering and Dewulf 2006), may have a significant positive influ-
ence on the overall PPP performance. As the government sets the output
specifications, it is in a position to increase or decrease its influence on
successful PPP management.
Other partnership specifications, such as the number of employees in
a PPP and their wage rates, refer to partnership inputs, which the gov-
ernment may also choose to regulate. However, the literature does not
provide evidence that this kind of government regulation is one of the
success factors for PPPs. A considerable number of studies identify crit-
ical factors that ensure management success in PPPs in the context of
different economies, including the UK, China, India, Egypt, Lebanon
and Malaysia (see e.g. Zhang 2005; Jacobson and Choi 2008; Chan et al.
2010; Gupta et al. 2013). None of the studies identify any significance in
government regulation with regard to effective PPP management, whilst
certain findings pointed out exactly the opposite, such as the importance
of ‘entrepreneurship and leadership’ (Tiong 1996) and ‘built-in flexibility
for future growth and changes’ (Gupta and Narasimham 1998).
Hence, empirical evidence reflected in the literature does not support
the need for a government to regulate PPP inputs. This is in contrast to
PPP output specification by the government, which the literature views
as highly desirable because it offers incentives to a private partner to per-

form more efficiently.
This raises the following questions:
• What is the impact of government regulation of PPP tariffs on part-

nership management and overall PPP performance?
• What impact does the government regulation of PPP workers’ wage
rates have on partnership management?
The next section presents the findings that were obtained by interview-
ing actors from PPP projects and government agencies in Kazakhstan, as
well as from national and regional PPP centres.
The Role of Government Regulation in PPP

Management: Findings from the Field
Government Regulation of PPP Tariffs: Effective or
Bureaucratic?
Interviewees noted that, amongst the legal and regulatory barriers to effec-
tive PPP governance, in their experience, bureaucratic tariff regulation
for partnership services was one of the biggest challenges. This often falls
within the domain of the country’s anti-monopoly agency. Interviewees
believe that tariff-setting is lengthy; criteria for approvals are blurred; and
the procedures are cumbersome. An interviewee suggested the following:
There should be a totally different process for tariff-setting. The anti-monopoly

agency may need to monitor tariffs. However, the tariff-setting should not be
between an operator and the anti-monopoly agency. It should be between a
service provider and customers. At this point, there are no negotiations between
a supplier and a customer. So, how does the anti-monopoly agency know what
tariff level it should deem acceptable and what level is unacceptable?
Another interviewee reinforced the importance of direct tariff-setting

between a PPP operator and a customer:
We [a PPP operator] formed a tariff that is much higher than the

allowed limit. But we are convinced that this is the right tariff.
However, the anti-monopoly agency allows an actual tariff to exceed
what it considers a ‘target tariff ’ by no more than 5 %. Well, we got the
fine from the agency for exceeding the 5 % limit. I don’t really under-
stand who needs these ‘target tariffs’ and why we [an operator] have to
pay the fine. What company will want to be in business like that,
where some government agency regulates its prices?
The above excerpt demonstrates clearly an interviewee’s negative percep-

tion of the government’s bureaucratic tariff regulation in cases where tar-
iff-setting is a part of anti-trust policy and a responsibility of the public
anti-monopoly agency. In contrast to this perception, a staff member in
the National PPP Centre argued the following:
Without government regulation tariffs may increase very quickly. Think

about a railroad, for example. A railroad operator is a monopolist and its
tariffs may be very high. I don’t think that customers will appreciate this.
The interviews have highlighted two varying perspectives on tariffs. The

first perspective focuses on the perceived need for PPP operators to deal
directly with clients, so that the two parties may be able to negotiate
tariffs directly, without government involvement. The other perspective
focuses on desirable pricing for users and takes into account that PPPs
may engage in monopolistic pricing, which may be damaging for users of
partnership services. The first perspective is associated with the needs of
a private operator (i.e. when it pushes for higher tariffs in order to gen-
erate higher revenue), whilst the second perspective is societal (when the
government aims to ensure that public services remain low-priced and,
hence, affordable for all users).
The study revealed that the two perspectives—that from the private
operator’s perspective and that from the societal perspective—are oppos-
ing. From the operator’s perspective, the government regulations seri-
ously limit a private partner’s potential to maximise profit. Interviewees
from the private sector asserted that the government regulation of
partnership tariffs does not effectively contribute to PPP management.

They argued that, as a result of government regulation, certain PPP
advantages, such as a profit-driven private partner’s motivation to iden-
tify the most efficient solutions, are largely lost. To summarise, those
interviewees who emphasised the operators’ perspective (‘PPP operators
should be able to directly negotiate tariffs with clients’) in effect called for
loosening government regulations and giving private firms greater flex-
ibility in tariff-setting.
In contrast, from the societal perspective, the government pursues the
goal of keeping prices for the public services at a minimum. As a PPP
often becomes a monopoly, the government seeks to regulate monopolis-
tically provided services in order to limit the emergence of monopolistic
trends, namely in the field of price-setting. From this perspective (which
is societal, rather than corporate), the tight government regulation of tar-
iffs contributes to the overall successful performance of the PPP, as cit-
izens benefit from low-priced, privately provided, public services. This
conclusion was drawn on the premise that the societal perspective pre-
vails over the corporate perspective.
The following comments aim to emphasise the effectiveness of govern-
ment regulation of PPP tariffs. As Kazakhstan’s economic development
has been accompanied by a relatively high inflation rate of 7 to 8 % a
year for an extended period (i.e. longer than ten years), the government
is naturally keen to combat inflationary pressures. Whilst prices within
the public sector remain under central government control, and PPPs are
subjected to the public sector’s regulations, the government uses price
controls to keep prices for public services low. Not only does it ensure
affordable prices for users, both individual and corporate, but also it
effectively curbs inflationary processes in the nation. Furthermore, by not
allowing the public sector companies, including PPPs, to raise tariffs, the
government creates incentives for these companies to reduce costs, opti-
mise their cost structure and seek ways to increase their own efficiency.
Hence, the findings from the field confirm that the government regula-
tion of PPP tariffs should be viewed as effective and as having a positive
impact on partnership performance.
The Government Regulation of PPP Workers’ Wage:

What Is the Impact on Partnership Management?
In Kazakhstan, another area that the Agency for Regulation of Natural

Monopolies keeps under its tight control is wage rates. These are subject
to regulation in cases where a government-owned company, even in part,
has formed a PPP operator. For interviewees, it remains unclear why the
government needs to regulate the operator’s wage rates. An interviewee
provided the following comment:
If we set our wage rates ourselves, what’s wrong with that? With or without
government regulation, we have to pay our workers at market rates; otherwise
no one would want to work for us. We also need to pay bonuses for good perfor-
mance. Again, nothing is wrong with that because it’s a standard practice. So,
why government regulation? How does it help? And whom?
This excerpt shows that the interviewee is not supportive of government

regulation and perceives it to be an impediment to the operator’s flexi-
bility regarding hiring and retaining a qualified workforce. His comment
implies that the wage-rate-setting power should belong to an operator.
In contrast, another interviewee, who works for the regional PPP centre,
expressed a different opinion regarding why the government regulates
wage rates of PPP staff:
There is a concern in the government that a PPP may pay high wages to its own
workers, which means that the PPP costs will be rising. This may drive PPP
prices up and customers may be disadvantaged.
However, most interviewees took the view that a PPP should be able to set
wage rates on its own, based on prevailing market rates in order to attract
the most capable employees. These findings are aligned with the litera-
ture regarding the meaning and principal advantages of the PPP arrange-
ment: it is the private partner’s initiative, driven by the profit motive,
that permits a PPP to find the most efficient business solutions and cut
costs whilst it delivers the public service (Colman 2000; Hofmeister and
Borchert 2004; Klijn 2010). Once this initiative is constrained, the core
advantage of engaging the private sector partner in the delivery of pub-

lic services becomes severely undermined (Wettenhall 2003; Williams
2003). When government regulation does not permit a private operator
to hire and retain the most capable workers at market wage rates, this
may lead to the PPP’s inability to employ qualified staff and is likely to
have a negative impact on the PPP’s overall performance.
Table 8.1 summarises the study’s questions and findings regarding the
two dimensions of government support for PPP implementation.
Discussion and Conclusion

Based on a thorough analysis of partnerships in both industrialised
nations and emerging markets, Grimsey and Lewis convincingly argue
that PPPs should be seen as a process of identifying the service needs
and matching them with the most efficient delivery mechanisms: ‘if
this process is applied rigorously to each contract, then it will inevita-
bly result in a different approach for every project’ (Grimsey and Lewis
2004, 245). As the study’s findings showed, many interviewees tended to
disregard or downplay a case-by-case approach to PPP implementation.
Instead, they mostly focused on creating the basic conditions for PPPs,
such as the legal and institutional framework, and streamlining govern-
ment tariff-setting. This means that certain principal elements of the PPP
governance in Kazakhstan were missing (e.g. the general law that would
define a PPP, which was resolved in 2015 when the new PPP law was
adopted) or still require serious improvement (e.g. PPP tariff-setting and
wage-rate-setting).
The interviewees emphasised the importance of ensuring greater pri-
vate party flexibility in business management for the overall performance
of the PPP. Justifying restrictions on PPP operations, such as government
regulation of contractor workers’ wage rates, is a challenging endeavour.
In a market-oriented economy, attracting a highly qualified workforce
requires each company to pay workers at market or above market rate,
whilst administrative restrictions may simply lead to staff attrition. From
this perspective, government regulation of wage rates seems excessive and
unnecessary and is difficult to justify.
Table 8.1 The field study’s questions vs. findings

Questions for
investigation Findings Comments
Does the Lack of progress with In Kazakhstan, there was until
government in PPP development in 2016 no general law that
Kazakhstan Kazakhstan stems, in defined a PPP, its legal status
support extensive part, from and the principal legal
PPP development imperfections in the provisions governing PPP
by designing a PPP legal framework. implementation in the
clear and effective country. The law on
PPP legal concessions is incomplete
framework? and is not harmonised with
other laws. Regional PPP
regulations and procedures
are ambiguous.
Does the national There is ambiguity Some interviewees view
government of regarding the state long-term PPP contracts as
Kazakhstan government of legally invalid. Naturally, this
unambiguously Kazakhstan’s attitude makes PPPs and their future
support PPP to PPPs. The national unclear and uncertain.
development, government allows
without regional and local
compromising the authorities to launch
future of PPPs and engage in
partnerships? contractually binding
relations, but without
a clear commitment
from the central state
authority.
What is the impact The government aims to From the societal perspective,
of the government ensure provision of the tight government tariff
regulation of PPP affordable public regulation contributes to
tariffs on services and a successful PPP performance,
partnership slowdown of as citizens would benefit
management and inflationary pressure in from low-priced public
overall PPP the economy. services.
performance?
What impact does The private partner’s The government seriously
the government initiative, driven by the constrains a private partner’s
regulation of PPP profit motive, appears flexibility in management by
workers’ wage severely constrained. not permitting a private
rates have on operator to hire and retain
partnership the most capable workers at
management? market wage rates.
However, in another area of partner interaction—tariff-setting—inter-

viewees gave a private operators’ perspective that one can view as opportu-
nistic, because operators call for tariff-setting directly between themselves
and customers, without approval from the anti-monopoly agency. As
partnerships’ services are often monopolistic (e.g. a railroad, a toll road,
a water treatment facility or a stadium), the risk of market failure where
a monopoly increases the price without losing customers is high (Stiglitz
2000; Hyman 2002). The threat of monopolistic manipulation with ser-
vice price, quality and quantity, requires mitigation via the government
regulation of tariffs; otherwise, citizens may witness shrinking volumes
and rising prices for traditional public services. Hence, government tar-
iff regulation should be viewed as effective in terms of reducing private
partners’ opportunistic behaviour, that is, the pursuit of self-interest.
Nevertheless, the government should ensure that procedures for submit-
ting and processing new tariff applications are streamlined and shortened.
It is worth noting the significance of another perspective that inter-
viewees emphasised, namely that PPP operators should be able to directly
negotiate tariffs with clients. Current calls to loosen government regu-
lations in tariff-setting in Kazakhstan are premature, as the nation is a
highly centralised economy. However, interviewees have highlighted the
future of PPP governance in which the scope of central government’s
regulation is likely to significantly decrease. Whilst at present time opera-
tors’ demand for decreased government regulation may be viewed as the
pursuit of self-interest, as it would allow them to more easily raise tariffs,
from a long-term perspective, the operators’ vision of direct tariff nego-
tiation between a service provider and a customer is aligned with the
nation’s intent to build a market-oriented economy.
The creation of effective provider–customer relations might serve
as a reliable foundation from which demand for PPP services evolves.
Currently, PPP deployment is facilitated by the government acting as
strong launching customer. For example, in a PPP that has built and
now operates a 120-km railroad in Eastern Kazakhstan, the government-
owned railroad company Kazakhstan Temir Zholy serves in two capacities:
it was one of the principal partners and investors in a PPP, and it is also a
customer as it now buys a large volume of the transportation services that
this PPP provides (www.kase.kz 2012).
Looking ahead at how tariff regulation can be handled in the long

run, a range of opportunities can be provided by political development
in Kazakhstan, in particular, by the transition from a unitary state to a
decentralised unitary state. Examples of the latter include nations such
as Belgium and the Netherlands (Toonen 1987; Hulst 2005). As transi-
tion to a decentralised unitary state often incorporates economic decen-
tralisation, this implies a shift of functions from the public sector to the
private sector due to privatisation and deregulation (Toonen 1987; Hulst
2005). Whilst, in a decentralised unitary state, certain decisions are still
made at the national level, local and regional governments have extensive
privileges in decision-making, and hence, many issues including tariff-
setting for partnerships can be negotiated more easily and quickly. In a
more complete form of a decentralised unitary state, tariff-setting might
become a matter of direct negotiation between a PPP operator and clients,
although at the present time in Kazakhstan this would not be possible.
Findings from the field contribute to PPP theory that emphasises the
management of co-production (Klijn and Teisman 2005) by highlight-
ing the limitations of the government’s management approach that it
borrowed from its own experience of dealing with private sector organ-
isations and subsequently applied to PPPs. As the study shows, many
drawbacks manifest themselves in the management approach to PPPs
currently taken by the government of Kazakhstan. These include the
constrained management flexibility of private operators, losses in their
efficiency due to cumbersome government-imposed procedures (e.g.
bureaucratic tariff-setting and excessive procurement restrictions), and
disincentives to private operators to better manage a property due to
deliberate restrictions that prohibit private asset ownership. By elucidat-
ing multiple examples of overregulation and PPPs’ inefficiency, this chap-
ter demonstrates that the government dominance in PPP management
is conceptually inappropriate. Instead, the government should adopt the
concept of co-production and manage its relations with the private sector
partner in a collaborative fashion.
Additionally, the findings contribute to praxis along two dimensions.
The first dimension is the set of legal and institutional impediments to
effective PPP management that the findings have identified. Resolving
legal irregularities might drastically improve the legal PPP framework’s
clarity and, hence, attract more private investors. Further, consistent gov-
ernment efforts to improve the legislative and institutional environment
for PPPs would clearly demonstrate the central government’s commit-
ment to partnerships including meeting its own financial obligations to
private operators, which would attract additional investment. The second
dimension of contribution to practice stems from a range of examples
regarding how the government overregulates private sector partners. The
most salient examples that the findings have highlighted include cum-
bersome tariff-setting procedures (although the study’s findings support
the view that government regulations of tariffs are necessary) and disin-
centives to a private operator due to its inability to set wage rates for its
workers according to market conditions. Practitioners, particularly those
in public agencies, must focus on ways to reduce the government over-
regulation of private operators. This is likely to result in greater PPP flex-
ibility in management and, ultimately, higher efficiency in the delivery of
public services.
References
Asian Development Bank. 2008. Public-private partnership (PPP) handbook.
h t t p : / / w w w. a p e c . o r g . a u / d o c s / A D B % 2 0 Pu b l i c % 2 0 Pr i va t e % 2 0
Partnership%20Handbook.pdf. Accessed 25 September 2012.
Chan, A.P.C., D.W.N. Chan, Y.H. Chiang, B.S. Tang, E.H.W. Chan, and
K.S.K. Ho. 2004. Exploring critical success factors for partnering in con-
struction projects. Journal of Construction Engineering and Management
130(2): 188–198.
Chan, A.P.C., P.T.I. Lam, D.W.M. Chan, E. Cheung, and Y. Ke. 2010. Critical
success factors for PPPs in infrastructure developments: Chinese perspective.
Journal of Construction Engineering and Management 136(5): 484–495.
Colman, J. 2000. Examining the value for money of deals under the private
finance initiative/public private partnership. Public Policy and Administration
15: 71–81.
Dorée, A. 2004. Collusion in the Dutch construction industry: An industrial
organisation perspective. Building Research and Information 32(2): 146–156.
Egan, J. 1998. Rethinking construction. London: Department of the Environment,

Transport and the Regions.
European Commission. 2003. Guidelines for successful public-private partner-
ships. http://ec.europa.eu/regional_policy/sources/docgener/guides/ppp_
en.pdf. Accessed 14 March 2014.
Elgar Publishing.
Gupta, M.C., and S.V. Narasimham. 1998. Discussion of CSFs in competitive
tendering and negotiation model for BOT projects by R.L.K. Tiong. Journal
of Construction Engineering and Management 124(5): 430.
Gupta, A., M.C. Gupta, and R. Agrawal. 2013. Identification and ranking of
critical success factors for BOT projects in India. Management Research
Review 36(11): 1040–1060.
Hyman, D. 2002. Public finance: A contemporary application of theory to policy.
Fort Worth, TX: Harcourt.
Hulst, R. 2005. Regional governance in Unitary States: Lessons from the
Netherlands in comparative perspective. Local Government Studies 31(1):
99–120.
Ismail, S. 2013. Critical success factors for public private partnership (PPP)
implementation in Malaysia. Asia-Pacific Journal of Business Administration
5(1): 6–19.
Jacobson, C., and S.O. Choi. 2008. Success factors: Public works and public-
private partnerships. The International Journal of Public Sector Management
21(6): 637–657.
Jamali, D. 2004. A public-private partnership in the Lebanese telecommunica-
tions industry: Critical success factors and policy lessons. Public Works
Management and Policy 9(2): 103–119.
Jefferies, M., R. Gameson, and S. Rowlinson. 2002. Critical success factors of
the BOOT procurement system: Reflection from the stadium Australia case
study. Engineering, Construction and Architectural Management 9(4):
352–361.
Klijn, E.H. 2010. Public-private partnerships: Deciphering meaning, message
and phenomenon. In International handbook on public private partnerships,
Klijn, E.-H., and G. Teisman. 2003. Institutional and strategic barriers to

public-private partnerships: An analysis of Dutch cases. Public Money and
Management 23(3): 137–146.
Klijn, E.H., and G. Teisman. 2005. Public-private partnerships as the manage-
ment of co-production: Strategic and institutional barriers in a difficult mar-
riage. In The challenge of public-private partnerships: Learning from international
experience, ed. G. Hodge and C. Greve, 95–116. Cheltenham: Edward Elgar
Publishing.
Li, B., A. Akintoye, P.J. Edwards, and C. Hardcastle. 2005. Critical success fac-
tors for PPP/PFI projects in the UK construction industry. Construction
Management and Economics 23(5): 459–471.
Pierre, J., and G. Peters. 2000. Governance, politics and the state. London:
Macmillan.
Pongsiri, N. 2003. Public-private partnerships in Thailand: A case study of the
electric utility industry. Public Policy and Administration 18(3): 69–90.
Qiao, L., S.Q. Wang, R.L.K. Tiong, and T.S. Chan. 2001. Framework for criti-
cal success factors of BOT projects in China. Journal of Project Finance 7(1):
53–61.
Stiglitz, J. 2000. Economics of the public sector. New York: W.W. Norton.
Teisman, G., and E.H. Klijn. 2002. Partnership arrangements: Governmental
rhetoric or governance scheme? Public Administration Review 62(2): 197–205.
Tiong, R.L.K. 1996. CSFs in competitive tendering and negotiation model for
BOT projects. ASCE Journal of Construction Engineering and Management
122(3): 205–211.
Toonen, T.A.J. 1987. The Netherlands: A decentralised unitary state in a welfare
society. West European Politics 10(4): 108–129.
United Nations Economic Commission for Europe (UNECE). 2008. Guidebook
on promoting good governance in public-private partnerships. http://www.
unece.org/ceci/publications/ppp.pdf. Accessed 19 April 2012.
Wettenhall, R.A. 2003. The rhetoric and reality of public-private partnerships.
Public Organization Review: A Global Journal 3: 77–107.

1–40. www.businessofgovernment.org. Accessed 4 May 2011.
www.kase.kz. 2012. Doszhan Temir Zholy data. Kazakhstan Stock Exchange
(KASE). http://www.kase.kz/ru/emitters/show/DTJL. Accessed 12
December 2013.
the Republic of Kazakhstan On concessions). www.kzppp.kz. Accessed 17
August 2012.
Zakon Respubliki Kazakhstan. 2015. O gosudarstvenno-chastnom partnerstve (in
Russian) (The Law of the Republic of Kazakhstan On Public-Private
Partnerships). www.kzppp.kz. Accessed 17 January 2016.
Zhang, X.Q. 2005. Critical success factors for public private partnerships in
infrastructure development. Journal of Construction Engineering and
Management 131(1): 3–14.
9
Case Study: How Experiential Learning
Facilitates the Formation of a Public–
Private Partnership in Russia
Introduction
The number of partnerships in Russia, mostly concessions, grew to over
600 in 2016. Although there was a notable increase in the number of
concessions at the municipal level, progress at the federal and regional
levels remains small. What hinders the formation of PPPs? If partnerships
can be formed more quickly and easily, this offers societal benefits via an
increased volume of public services and profits to the private providers
of these services. Additional benefits include accelerated economic devel-
opment, more jobs, greater efficiency in service provision, and potential
technological and management innovation. Can experiential learning
facilitate PPP development? How can parties engage in a partnership
faster and more effectively? This chapter intends to answer these ques-
tions, at least in part.
Parts of this chapter are reproduced from the paper Mouraviev, N. and N. Kakabadse. 2014. ‘Rules
of engagement’: How experiential learning facilitates the formation of a public-private partnership
in Russia. Journal of Management Development 33(6): 551–563, with the journal’s permission.

DOI 10.1057/978-1-137-56952-3_9
The case study begins by providing the contextual details of the case—a
PPP project in Russia. The concept of experiential learning is then intro-
duced; this is a theoretical framework that provides a useful perspective
on the case. The chapter outlines the limitations of the framework and
proposes its extension in order to accommodate experiential learning in a
partnership setting. The case study’s aim and approach to data collection
are stated. Next, the study’s findings are discussed, and the case study’s
contribution to experiential learning theory is delineated. The chapter
concludes by highlighting implications of experiential learning in the
PPP field for both theory and practice.
Project Background
In 2010, a Russian company called Regional Toll Roads formed a PPP
that bypassed Russia’s federal law ‘On Concessions’. At that time, the
company began building a viaduct—an automobile road overpassing the
railroad, which became the first toll viaduct in Russia once it opened in
2013 in Ryazan, a city about 190 km southeast of Moscow.
This viaduct was intended to replace an older free railroad crossing. A
traditional railroad crossing in Russia is often an outdated facility with
a bar that opens, allowing cars to cross the railroad tracks for a few min-
utes. After it shuts, cars typically have to wait a long time to allow the
train to pass before they can cross the tracks. The railroad crossing in this
case study is close to Moscow, and therefore, train traffic is intense, so cars
often have significant waiting times ranging from 15 minutes to an hour.
Regional Toll Roads agreed to invest 250 million rubles (USD 8.3 mil-
lion at the 2012 exchange rate) in the viaduct project. In return, the
government granted the company the right to collect a fee from each
vehicle that uses the viaduct (except government cars) for a 20-year period
(Sopryakov 2012). Upon project completion, Regional Toll Roads will
transfer the viaduct’s private ownership to the municipal government.
The company claimed that the PPP project is not a concession,
although it has all of the essential features of a concession including
the use of private funds for investment, private facility ownership, joint
9 Case Study: How Experiential Learning... 155
contribution of resources (as the government provides land), risk trans-

fer to the private sector and the collection of user fees to recoup the
investment. Regional Toll Roads used a loophole in Russia’s law, which
entails that a concession in Russia is a contractual arrangement that is
based on the 2005 federal law ‘On Concessions’. This implies that a
concessionaire uses some form of government funding (e.g. the govern-
ment pays part of the construction cost) (Federalnyi Zakon Rossiyskoy
Federatsii #115–FZ 2005). Regional Toll Roads argued that the federal
law did not apply to a contract in which the company has engaged with
the municipal government, as the contract does not include any form
of government financial support to the PPP. Table 9.1 summarises the
essential project features.
Table 9.1 Construction and operation of a toll viaduct in Ryazan, Russia: key proj-
ect details
Descriptor Detailed information
Country and city Russia, Ryazan
PPP objective Attract private funds in order to replace an older
free railroad crossing with a modern toll viaduct
and ensure its long-term operation
Capacity 25,000 cars per day
Type of contract A concession (although partners claim that they use
agreement between a non-concession model)
parties
Implementation model Build-own-operate-transfer (BOOT)
Concession term 20 years
Construction cost 250 million Russian rubles (USD 8.2 million)
Construction phase One to two years
PPP actors Ryazan municipal government; a private operator
Regional Toll Roads; its SPV RTR–Ryazan; a private
investor: Norilskiy Nickel pension fund
Financial structure Private investor financing, with subsequent
collection of tolls by a private investor
Government The government temporarily provides land for a
contribution to a PPP viaduct. After project completion, an operator
transfers the facility and land to the municipal
government.
Tariff-setting Municipal government must approve toll setting.
Whilst the project has successfully commenced, the case presents an

inquiry into the management dilemma:
• Form a partnership in the future using non-concessionary claims in

reference to an arrangement that is essentially a concession, or
• Form a partnership as a concession according to the federal law and
make use of government funding and other forms of financial support
(such as exemption from selected taxes) that the law permits.
This managerial dilemma demonstrates the significance of the study,

as the non-concessionary option opens a loophole for future PPP proj-
ects. The federal legislation defines a concession as a project that is
formed and then operated according to the relevant law. This means that
a concession is a project that draws some form of government financial
support, as specified by the law (Federalnyi Zakon Rossiyskoy Federatsii
#115–FZ 2005). Where the partners do not use the government finan-
cial support available to a PPP, this enables them to argue that a project
is a partnership, but not a concession within the meaning of the law.
But how did the partners in the project make a decision regarding their
strategic choice? Experiential learning offers a useful platform for man-
agement decisions. This study fully explains how, and what, managers
learned at each stage of the experiential learning cycle in order to make
an informed decision.
Theoretical Framework
There are multiple approaches to the study of experiential learning.
Amongst many perspectives, David Kolb’s Experiential Learning Theory
(ELT) attracts the attention of many researchers and practitioners due
to its notable contribution to cognitive theories (Kelly 1997). In Kolb’s
ELT, the learning cycle model plays the key role. The model includes four
principal elements: (1) concrete experience, (2) reflective observation,
(3) forming abstract concepts, followed by (4) active experimentation
(Kolb 1976, 1981, 1984; Kolb and Fry 1975). The learner begins at any
stage and then proceeds through other learning cycle stages. They then
begin a new cycle, thereby forming a continuous learning process (Kolb

1984). In addition, Kolb’s ELT defines four learning styles: diverging,
assimilating, converging and accommodating (Kolb 1984); for example,
an accommodating learning style refers to a person’s ability to learn from
primarily hands-on experience.
A field that extensively uses experiential learning is management edu-
cation. However, the application of ELT in this field reveals some theo-
retical limitations regarding the influence of social power relations on
concrete experience, which Kolb’s ELT largely disregards (Vince 1998). It
is the societal aspect (i.e. society’s influence in a broad meaning depend-
ing on the context) that ELT does not fully incorporate and, therefore,
underestimates.
This case study draws on Kolb’s ELT and attempts to adapt it to the
PPP field. As a PPP presents a complex set of legal, institutional, finan-
cial and power arrangements, ELT requires extension by incorporating
societal influence into these arrangements. By extending ELT, the study
has two aims: overcome the ELT limitation noted above (i.e. the under-
estimation of society’s impact on learning) and test the applicability of
ELT to learning in a complex organisational setting, such as a PPP. As
researchers have not, to date, applied Kolb’s ELT to the PPP context,
this case study intends to contribute to the PPP body of knowledge via
insights gained from the application of extended ELT to experiential
learning in a partnership setting.
Approach and Aim

Interviews conducted to investigate the case revealed that learning has
occurred based on the experience of other PPP projects in Russia. The
company—Regional Toll Roads—simply could not use its own experience
in the PPP formation because it lacked prior experience. As partnerships
are new in Russia, a business firm that has accumulated any significant
PPP experience is hard to find. Given management relied upon the learn-
ing experience of other organisations and projects, does that mean that
the concrete experience stage, according to Kolb’s learning model, is miss-
ing? If so, can ELT still apply?
This study aims to investigate to what extent one can apply ELT in the
PPP case and what insights can be drawn regarding the learning cycle’s
nature. In addition, the study will assess whether this PPP case confirms
Kolb’s ELT.
The study draws on data collected from interviews with Regional Toll
Roads’ corporate managers and senior staff at the National PPP Centre
in Russia, which was at the time a department within Vnesheconombank,
the government-owned investment bank. Although experiential learning
occurred at the organisational (company) level, additional data were col-
lected by interviewing lawyers from Russian law firms engaged in PPP con-
tract preparation. The lawyers were selected from two different Moscow
law firms to allow for diversity of experiences, perceptions and opinions.
The purpose of interviews with the lawyers was to cross-check the company
managers’ data, in order to ensure the validity of the study. Finally, National
PPP Centre’s senior experts provided a government perspective, in addition
to that of the private sector partner, on PPP formation. This facilitated addi-
tional company management data cross-checking. To reiterate, the study’s
aim was to capture the participants’ understanding of legal, institutional,
financial and power arrangements involved in the PPP formation in Russia.
Findings and Discussion

After critically assessing the accumulated experience of a range of
companies that either were engaged in a PPP or were preparing a
partnership agreement, Regional Toll Roads management opted for a non-
concessionary legal framework for the partnership. This means that the
company formed a PPP with the municipal government by receiving
land (for temporary use) from the latter and building a viaduct at the
firm’s expense. The critical element of a non-concessionary framework
is that a company neither requests nor receives any form of government
financial support to a PPP, as delineated by the Russian federal law on
concessions (Federalnyi Zakon Rossiyskoy Federatsii #115–FZ 2005).
The private sector partner will collect user fees, as permitted by federal
legislation, and must also ensure that an alternative, free railroad cross-
ing is available in close proximity to the toll viaduct, as required by the
federal law on automobile roads (Federalnyi Zakon Rossiyskoy Federatsii

#257–FZ 2007).
Experiential learning has resulted in the successful and relatively fast
launch of a PPP project without the concessionary framework. In con-
trast, the formation of many PPPs that intend to use some form of gov-
ernment financial support has been hindered by the multiple rounds of
approval required at various governmental levels. After the launch, the
project enjoyed fast progression through the construction stage. One of
the company managers described the project’s swift launch and progres-
sion as follows:
All we [the private sector partner] had to get was the approval by the city
government. This was quite easy because the city does not invest anything and
the city wants this project badly. After that, we quickly started the construction
as the engineering design was already prepared. We began the project quickly
because we didn’t need any approvals from ministries or regional government.
The operator in this case enjoyed a broad range of advantages. It secured

funding for investment from a single source—a major Russian private
pension fund. There is a very productive and fruitful collaboration with
the public sector partner (i.e. local government in Ryazan). Construction
began quickly and remained largely on schedule. Furthermore, the com-
pany effectively managed public acceptance risk by maintaining an infor-
mative website and extensive communication with prospective viaduct
users. The following excerpt highlights a project advantage related to the
financial arrangement:
It is great that we got the Norilskiy Nickel Pension Fund as an investor. It needs
to invest money for the long term and that’s what we [an operator] need as
well. The other option was to get a bank loan. But banks can lend money for
five years, perhaps for ten; however, we need the money for 20 years. This means
that we had to borrow a few times. We considered this but everyone understands
that borrowing is expensive and we didn’t want to depend on banks.
The fast and successful project progression has contributed to managers’

experiential learning: the company plans to apply the same kind of PPP
model to other projects that it wants to launch in the same region and
beyond. The following comment by a company manager highlights the

extensive plan for business development:
The current project goes well. We [the company] want to launch about 50
more projects. We know for sure that many cities and regions are very interested
because we already talked to them. The second project will be in the same city
[i.e. Ryazan]. But for these projects we need to find investors. That’s the difficult
part.
Overall, the company’s top management went through two rounds of

learning:
• Learning from the experience of other PPPs and, subsequently,

• Learning from its own experience.
Both learning experiences confirmed the effectiveness of a non-

concessionary approach to PPP formation. Learning from the experience
of others was necessary to launch an original PPP project. Learning from
its own experience has resulted in the company’s extensive plans to engage
in other projects aimed at viaduct construction and operation all over
Russia, as the PPP formation model has been proved to be successful.
Lessons Learned
The principal lessons learned clearly highlight the need for effective stake-
holder engagement. For the successful launch of a PPP, a company needs to:
(a) Get the key government stakeholders (e.g. regional government and
national Russian railroad company) on their side by highlighting
how each will benefit from the adopted approach, and
(b) Attract strategic private investors (such as Norilskiy Nickel’s non-
governmental pension fund) that would avoid the need for partial
government financing.
The PPP decision-makers learned a lesson about effective stakeholder

engagement during the reflective observation stage of the learning cycle
and when managers studied the societal experience in PPP formation. The
stance taken by a key actor, such as the Russian national railroad com-
pany, could significantly influence the decisions by regional and/or local
governments, national and regional PPP centres, and private investors.
The manager’s opinion regarding the significance of stakeholder
engagement is depicted by his comment that a letter of support (not even
a contract) from a key stakeholder—the national railroad company—was
sufficient proof of support for the project, and this cleared the questions
that some individuals in the government and general public had when
the project was at the preparation stage.
Additionally, lessons learned are indicative of the significance of soci-
ety’s influence on PPP arrangements. Society’s influence, such as bureau-
cracy, can be detrimental. The operator’s managers emphasised the danger
of becoming mired in bureaucracy, for example, collaboration with the
PPP Centre at Vnesheconombank, the national Russian railroad company,
federal ministries, regional PPP centres and the anti-trust agency that sets
tariffs for natural monopolies. The following comment highlights this:
The Ministry of Transportation also supports the project because we solve some
of their problems [i.e. the company builds a modern viaduct instead of an
older railroad crossing]. We keep good relations with them. But the Ministry
is not involved in our project, which is really good. There is a lot of bureaucracy
there [in the Ministry].
For a partnership, society’s influence can also be a positive factor, for

example, when citizens’ engagement results in public acceptance of the
project or when citizens exert pressure on all parties to complete the proj-
ect as soon as possible. A manager commented on civic participation by
noting that the company had a blog on its website where people share
their thoughts and make suggestions. People often argued with each
other, not with the company. The company benefited from this because
supporters of the PPP project did an excellent job of answering those who
made critical comments about the project. Table 9.2 summarises lessons
learned and the corresponding dynamics.
These findings link to Kolb’s experiential learning model as follows.
In the studied PPP project, the learning cycle begins at the reflective
observation stage, rather than with concrete experience. This is because
Table 9.2 Experiential learning in a PPP: underpinning dynamics

Factors that shape
experiential learning, by
Lessons learned category
Get the key government stakeholders (e.g. • Effective stakeholder
regional government and national Russian engagement
railroad company) on your side
Avoid becoming mired in bureaucracy such as • Institutional dynamics
collaboration with federal ministries, anti- • Administrative barriers
trust agency and regional PPP centres • Intergovernmental financial
arrangements
Do not apply for government funding, as the • Intergovernmental financial
approval process is tangled and lengthy arrangements
• Administrative barriers
Attract strategic private investors in order to • Effective stakeholder
avoid government financing engagement
• Financial arrangements
Shape public perception; apply continuous • Effective stakeholder
effort in order to effectively manage the engagement
public acceptance risk and mitigate public • Civic participation
criticism
prospective PPP partners, during their selection of the best option for
a partnership formation, investigated and relied on societal experi-
ence rather than their own, as, in Russia, extensive expertise and con-
crete experience in the PPP field were (and still are) hard to find. At the
reflective observation stage, decision-makers looked back at the societal
experience that involves multiple actors working with PPPs, intercon-
nected events, negotiations regarding PPP terms, power arrangements
and processes. Learning from this societal experience has enabled public
and private partners to revisit the reflective observation stage again; this
is where ideas about an alternative (i.e. non-concessionary) option for a
PPP formation emerged. As partners’ learning progressed and their ideas
were substantiated by legal advice and expert opinions, decision-makers
proceeded to the next stage in the learning cycle, forming abstract con-
cepts. At this stage, managers began to lean towards an alternative (non-
concessionary) route for PPP formation and started drafting the project
proposal for a new partnership. Decision-makers then proceeded to the
active experimentation stage, where partners agreed upon the project
proposal, a private party attracted a strategic investor, and the city gov-
ernment officially approved a PPP and the public contribution (i.e. land
for the project). This was followed by the launch of the viaduct’s con-
struction, which marked the beginning of the concrete experience stage
in the learning cycle. From this stage, managers’ learning switched simul-
taneously, rather than sequentially, to all other three stages:
• Forming abstract concepts, as the PPP operator now intends to launch

50 more partnership projects using the non-concessionary option;
• Reflective observation, as the PPP operator has obtained its own expe-
rience in PPP formation and is now in a position to improve this pro-
cess, making it faster, less bureaucratic and more effective; and
• Active experimentation, as the PPP operator is actively seeking private
investors and has already prepared a second project proposal for a toll
viaduct in the same city (i.e. Ryazan).
To summarise and relate the findings to Kolb’s learning stages, the PPP
partners’ learning cycle began with reflective observation of the societal
experience and has ended with the partners’ own, rather than societal,
concrete experience. Not all stages were present in the first cycle, and it is
likely that reflective observation and forming abstract concepts occurred
simultaneously. After that, a new learning cycle began, in which the use
of stages was random and simultaneous, rather than orderly and sequen-
tial. Our findings do not disagree with Kolb’s model. Rather, our find-
ings extend Kolb’s ELT by incorporating the societal experience into the
learning process and emphasising that different learning stages can occur
simultaneously and not necessarily in a certain prescribed order. The PPP
setting, with multiple actors and tangled interactions, explains the learn-
ing’s complexity in this environment, which the findings confirm.
Other Opinions: The Value of Cross-Checking

As part of this study, the data provided by the company managers were
cross-checked. The area of concern was whether the principal study par-
ticipants were biased in any way. For the purposes of cross-checking,
lawyers with extensive expertise in the legal aspects of PPP formation

and experience of preparing PPP contracts have been interviewed. These
lawyers confirmed four things:
(a) The extreme bureaucracy and lengthy approval process involved in

PPP formation,
(b) The legitimacy of a partnership formed by Regional Toll Roads
together with the Ryazan municipal government, in terms of not
violating federal legislation,
(c) The legitimacy of PPP future operations, including toll collection by
the viaduct, and
(d) Multiple gaps in federal laws and regulations governing PPPs.
The following respondent’s comment highlights the federal and

regional governments’ positions:
They [a viaduct PPP] didn’t ask any money from the federal or regional govern-
ment. Then the federal government simply doesn’t care about this project. And
the regional government is probably very happy with the project—it doesn’t
spend any money and doesn’t carry any responsibility. All responsibility is on a
private operator.
Another comment was indicative of the lengthy bureaucratic process

involved in PPP formation as required by the 2005 federal law ‘On
Concessions’. The lawyer confirmed that a company that is interested in
forming a PPP could secure considerable financial support from the fed-
eral government. However, the approval process could be lengthy: at least
two years. Furthermore, in addition to providing budgetary support, the
government has an expectation that a private investor must invest its own
money and that the investment should be sizeable as the federal govern-
ment gives financing only to very large projects.
The lawyers also commented on the more fundamental PPP issues
that stem from federal legislation imperfections. They pointed out that
the definition of a PPP was missing in the federal laws; this held true
prior to the adoption of the new PPP law in 2015. This gave room for
interpretation and creative approaches to PPP formation, as the case
study confirms. However, the Russian law (both prior to and after 2015)
defines the term ‘concession’. Although the definition may be less than
perfect, in the same law on concessions, the articles delineate the forms
of government financial support that a concessionaire may receive. The
following excerpt illuminates federal legislation gaps regarding PPPs:
If an investor wants to form a PPP and get funding from the government, an
investor must form a concession and strictly follow the law on concessions. That’s
what this law is for. If an investor is not going to apply for government financial
support, then it can call its project anything, but it won’t be a concession.
An expert from the PPP Centre of the government investment bank

Vnesheconombank expressed a similar opinion about the federal legisla-
tion governing PPPs. He emphasised that Vnesheconombank used the
law on concessions and specified in the project proposal what forms of
support regional governments and private investors could receive, and
what they could not. The expert argued that only this law spelled out
what a concession was, whilst other laws were supplemental. The same
expert also commented on the bureaucracy involved in the PPP approval
process and confirmed that it takes a few years to receive all the approv-
als, although for some projects—more complicated, involving multiple
actors—the approvals might take significantly longer.
To summarise, there were no major discrepancies in the data that all
study participants provided. Thus, data from various sources have ensured
corroboration of empirical evidence, meanings and participants’ insights.
Case Study: Implications for Theory

The case study contributes to ELT in two ways.
First, processes in the learning cycle can occur simultaneously, and
some stages may be missing. Learning does not necessarily require a man-
ager going through each stage sequentially. Conceptualisation and action
are different aspects of the same process and may occur simultaneously.
Second, the concrete experience stage in Russia’s PPP case is not missing.
Rather, the experience, as the learning process stage, is an attribute that is
more accurately captured by the category of the societal experience. The

experience’s societal nature can be explained by the complex PPP charac-
teristics involving a set of multiple institutional interactions, contractual
legal provisions, power arrangements and social relations. Therefore, at
the organisational level, researchers need to view experience as the set of
interconnected events, power structures and processes that societal rela-
tions shape. By extending the model in this way, the case study contrib-
utes to ELT by incorporating the impact of social environment into the
learning model.
In reference to ELT’s applicability to PPPs, the case study has not
only confirmed its applicability, but also illuminated the usefulness of
experiential learning as an analytical perspective. The case study revealed,
through empirical evidence, that learning is part of an organisation’s
adaptation and growth.
Conclusion
As a result of experiential learning, there are implications for both theory
and practice. The practical implications concern further PPP development
in Russia. Whilst the PPP actors in Russia (e.g. staff of regional PPP cen-
tres, ministry officials, industry experts, interested businesspersons, lawyers
and researchers) actively debate conceptual, legal, institutional and finan-
cial barriers to PPP development in the country, experiential learning has
allowed progress in PPP formation by essentially bypassing the federal leg-
islation regarding concessions. Unless the government initiates regulatory
changes, an opportunity that experiential learning has identified opens the
back door for faster and easier PPP formation. Using this back door, the
‘rules of engagement’ in a PPP become considerably more straightforward
when compared to when partners seek some form of government financial
support as permitted by the law on concessions. This back door may look
like a language game; however, the use of appropriate terminology carries
legal meaning, critical for the success of any business endeavour.
The macro-economic benefits of the back door option include:
– Faster PPP proliferation in Russia,
– Greater economic activity,
– Construction of modern public facilities such as bridges, tunnels,

toll roads, viaducts and recreational centres to replace outdated
versions,
– The attraction of private investment for solving public sector
challenges,
– Significant risk transfer to the private sector, and
– The employment of managerial and technological private sector
expertise.
The downside is that citizens may experience a significant reduction in
the scope of traditional free public services at the expense of newly built
toll services. In addition, as services of some facilities may be unregulated
(because they will be non-monopolistic), prices and fees for their use may
be quite high.
An implication for theory concerns its further advancement. The case
study illuminates that Kolb’s ELT benefits from its extension in order
to incorporate social influence. Specifically, parties in a prospective PPP
received a clear benefit by reviewing the societal experience, as they did
not have their own experience in PPP formation. A PPP is of a com-
plex and often-tangled nature that involves a large number of actors (e.g.
the government at different levels, regulatory agencies, banks, inves-
tors, citizens and community groups), legal and financial arrangements,
social relations and multiple interactions. In other words, PPP formation
involves many actors and far broader arrangements, relations and pro-
cesses than the experience of a private firm that interacts with a public
organisation. The studied case vividly showed that the creative approach
employed by the Russian business managers enabled them to overcome
their own limitation (i.e. the lack of their own concrete experience):
managers began with reflective observation of the societal experience in
PPP formation, which allowed them to propose the back door (although
legal) option for designing a partnership.
From the perspective of Kolb’s model and its learning cycle, the inter-
view data revealed that the concrete experience stage (that refers to the
participants’ own experience) is unavailable during the first learning cycle
in this case study. However, it was essentially replaced by the societal
experience in PPP formation, that is, by the experience of those firms,
public agencies, PPP centres and citizens who dealt with partnership for-
mation prior to this project. Hence, the case study has demonstrated
that the complex PPP organisational dynamics are better served by the
researchers and practitioners’ view of experience as a set of intertwined
events and processes, multiple actors, power arrangements and interac-
tions that societal relations shape. The benefit of this view is greater ELT
applicability, as the extended theory facilitates the analysis of a broader
range of industries, problem situations and actors.
This case study involved just one company in the context of a transi-
tional country; this is the study’s limitation. Contextual details were criti-
cal in this case study as they uniquely reflect Russia’s PPP environment,
as opposed to the environment of any other nation. Keeping in mind that
contextual features also shape experiential learning, the study’s findings
may have limited applicability to other environments.
References
soglasheniyakh (in Russian) (Federal Law #115–FZ On concessionary agree-
November 2012.
Federalnyi Zakon Rossiyskoy Federatsii #257–FZ. 2007. Ob avtomobil’nykh
dorogax i o dorozhnoy deyatel’nosti v Rossiyskoy Federatsii i o vnesenii izmeneniy v
otdelnye zakonodatel’nye akty Rossiyskoy Federatsii (in Russian) (Federal Law
#257–FZ On automobile roads and on road activity in the Russian Federation and
on amendments to selected laws of the Russian Federation Article 37, Section 1).
http://www.rg.ru/2007/11/14/dorogi-dok.html. Accessed 12 November 2012.
Kelly, C. 1997. David Kolb, the theory of experiential learning and ESL. The
Internet TESL Journal 3(9). http://iteslj.org/Articles/Kelly-Experiential/.
Accessed 18 December 2012.
Kolb, D.A. 1976. The learning style inventory: Technical manual. Boston, MA:
McBer.
Kolb, D.A. 1981. Learning styles and disciplinary differences. In The modern
American college, ed. A.W. Chickering. San Francisco: Jossey-Bass.
Kolb, D.A. 1984. Experiential learning: Experience as the source of learning and
development. Englewood Cliffs, NJ: Prentice-Hall.
Kolb, D.A., and R. Fry. 1975. Toward an applied theory of experiential learning.
In Theories of group process, ed. C. Cooper. London: Wiley.
Sopryakov, V. 2012. Platnoye – ne znachit dorogoe (in Russian) (Toll service
does not have to be expensive). Avtomobilnye Dorogi 4: 123–124.
Vince, R. 1998. Behind and beyond Kolb’s learning cycle. Journal of Management
Education 22(3): 304–319.
10
The Role of PPPs in Disaster Risk
Management in Infrastructure
Introduction
In the search for ways to ensure sustainable economic and social devel-
opment, many nations are increasingly using PPPs as a tool to attract
private funding for the implementation of public sector tasks (Osborne
2000; Grimsey and Lewis 2004). As a contractual long-term arrangement
between the government and private actors, PPPs are often deployed with
the objective of improving an economy’s infrastructure, such as roads,
bridges and airports, and social infrastructure, such as hospitals, schools
and recreational facilities (Hodge and Greve 2005).
Whilst the direct purpose for which the government launches PPPs
(i.e. public service delivery using private investment) is usually appar-
ent, there are also many underlying factors. These include attempts to
improve service delivery efficiency and lower costs, to attract private sector
expertise in technology and management, and to secure innovation and
reduce government spending (Hofmeister and Borchert 2004; Grimsey
and Lewis 2004). Although PPPs are associated with a number of advan-
tages, there are also disadvantages; for example, a PPP shifts the financial

DOI 10.1057/978-1-137-56952-3_10
burden to future generations and governments, because payments to a

partnership must be made over a lengthy period of time (Osborne 2000;
Savas 2000; Parker 2012).
The controversial nature of PPPs raises a key question about the
(potentially) broader role that partnerships play in society. Do partner-
ships play a role that might be associated with public value? If so, what is
it, and what are its dimensions? This chapter discusses just one dimension
of the broader role a PPP might play, by investigating the links between
PPPs and their ability to reduce disaster risk. ‘Disaster’ is defined here as
an event that occurs suddenly and causes great destruction, damage or
hardship. Specifically, this chapter investigates the role PPPs may play in
capacity building for disaster risk management in infrastructure and the
dynamics contributing to this role.
What Is Capacity Building for Disaster Risk

Management?
In this chapter, disaster risk management is viewed in the broad context
of sustainable development. This is aligned with the Sendai Framework
adopted by the United Nations in 2015, which lists the need for recov-
ery, rehabilitation and reconstruction as one of its four priorities. As the
Sendai Framework notes, disaster risk management should be understood
as a comprehensive set of efforts that are measured against developmental
outcomes (United Nations Office for Disaster Risk Reduction [UNISDR]
2015b). One of these outcomes, in which PPPs could play a critical role,
is society’s ability to build, maintain and enhance a resilient infrastructure
that can ensure environmental, economic and social sustainability. Once
society’s needs are met by enhanced infrastructure, society’s resources can
then be used for other purposes; this offers the potential for achieving
even greater developmental outcomes. To summarise, the PPP’s role in
disaster risk management can be viewed along two dimensions:
(a) Direct partnership involvement in building and reconstructing resil-

ient infrastructure creates the capability to mitigate disaster risk and
the consequences of disasters; and
10 The Role of PPPs in Disaster Risk... 173
(b) PPPs create an opportunity to release, at least in part, society’s

resources from the needs related to disaster management and reallo-
cate these resources to other developmental goals.
The evolving international approach to disaster risk management calls

for the integration of a variety of efforts. Rather than focusing on reduc-
ing the damage caused by natural hazards, such as earthquakes or floods,
the UN Synthesis Report on consultations on the post-2015 framework
on disaster risk reduction defined three core categories, one being the cre-
ation of an ‘enabling environment’, in addition to local action and inte-
grated approaches (United Nations Office for Disaster Risk Reduction
[UNISDR] 2015a). An enabling environment means a set of conditions
that permit actors to prevent disasters, maintain disaster-resilient infra-
structure and/or effectively rebuild infrastructure in a relatively short
time. Whilst PPPs have multiple uses as a means to create an enabling
built environment and as an instrument of integrated approach (i.e. com-
bining government funding with private investment and expertise), their
role in disaster risk management from the integrated perspective can also
be salient. To summarise, this chapter views disaster risk management as
a complex field that embraces multiple aspects, ranging from preventive
tools to investment in infrastructure and other facilities involved in risk
reduction and disaster recovery. Furthermore, the field includes multiple
actors, with whom PPPs may play a key role.
Capacity building for disaster risk management means enhancing
the effectiveness of the built environment and actors in their efforts to
mitigate risk and deal with consequences of disasters. Much like the
conceptualisation of disaster risk management, this definition also
adopts a broad perspective that focuses on the value to society. Can
PPPs deliver this value? Are partnerships instrumental in building
capacity for effective disaster risk management? As the chapter aims to
answer these questions, the significance of this theme is explained by
the following: if a government is successful in justifying PPPs by argu-
ing that they play a broader role (i.e. that they deliver societal value),
this will be a strong factor that might underpin extensive PPP deploy-
ment. Conversely, if PPPs’ societal value is non-existent or negative,
decisions regarding PPP formation must rest mainly on the financial
cost-benefit analysis. Therefore, PPP contribution to effective disaster

risk management can be viewed as one of the critical dimensions of
PPPs’ societal value.
Infrastructure and Disasters

Outdated utilities and housing infrastructure is a critical driver for effec-
tive risk management, as these are often common factors when disasters
occur. The government, therefore, must overcome the challenge of build-
ing capacity to reduce the risk of disasters that might result from the
breakage of older infrastructure assets or poor maintenance of renovated
facilities.
As disasters in infrastructure happen frequently (e.g. often on a weekly
basis across Russia), a large part of population (i.e. tens of thousands or
even millions of people) might find themselves without essential public
services, such as water or electrical power. A vivid illustration of a disaster
in the housing and utilities infrastructure is the massive power outage
(i.e. blackout) in Russia on 25 May 2005 involving four regions includ-
ing Moscow. Over six million people were without power for over ten
hours as a result of outdated and depleted equipment that failed and
caught fire (expert.ru 2008).
The highlights of PPP development in Kazakhstan and Russia and the
identification of governments’ rationale for PPP deployment (discussed
in Chaps. 2–4) demonstrate the contextual need that exerts significant
pressure on governments and forces them to resort to partnerships. The
need to overhaul the utilities and housing infrastructure is driven by
concerns as to how to reduce disaster risk in this sector; this includes
economic concerns (i.e. the high cost of maintenance) and social con-
cerns (i.e. that public services, such as water supply and power supply,
must be uninterruptible and safe for citizens’ consumption) (Mouraviev
2012). Therefore, if PPPs are able to reduce disaster risk, this will attach
an important social value to partnership activity and foster broader PPP
development in a country.
Theoretical Framework
As Chap. 3 discussed, there is no empirical evidence that shows that either
the value-for-money (VfM) concept or the TCE approach is being used
for PPP deployment in Kazakhstan and Russia. More generally, these
concepts cannot serve as reference points for PPP development in the
two nations.
Stakeholder theory (Carroll 1999; Philips 2003; Freeman et al.
2010) provides a useful perspective for understanding on what grounds
PPPs are formed in Russia and Kazakhstan. Stakeholder theory argues
that a corporation needs to actively serve the interests of its stakehold-
ers, that is, anyone who can affect, or be affected by, the organisation’s
actions, objectives and policies (Freeman et al. 2010). In the case of a
PPP, stakeholder theory requires careful application, as it is not imme-
diately clear who needs to serve whose interests. The reason is that a
PPP should not be viewed as a traditional corporation that is owned by
its shareholders. Rather, a PPP should be viewed as a triangle of rela-
tionships: government–private company–citizens (Sadran 2004). In
this triangle, citizens play a critical role both as a party who should be
able to provide input regarding, for example, what services are needed
and under what terms, and also as users of public services. However, it
cannot be argued that it is the sole responsibility of the private sector
partner and/or its operator to serve the interests of citizens. As PPPs,
by their collaborative nature, involve shared use of resources and shared
responsibility for service provision, both the government and a pri-
vate party carry a responsibility to serve citizens. Keeping in mind that
many public services are vital (e.g. water and power supply), any sig-
nificant service disruption may create a disaster for a large number of
users, particularly in densely populated urban areas. This notion, that
is, that PPPs typically cater to the needs of a large cohort of users, sup-
ports the idea that the task of delivery of public services is shared by
the private provider and the government: if services are disrupted for
any reason, the ultimate responsibility lies with the government, rather
than an operator.
Drawing on stakeholder theory (Freeman 1984; Mitchell et al. 1997;

Carroll 1999; Freeman et al. 2010), it can be argued that a PPP needs to
provide balanced, although not necessarily equal, benefits to all principal
stakeholders (i.e. the government, the private sector partner and citizens)
in order to overcome the limitations of the VfM concept and/or the TCE
approach. Most researchers have adopted the key notion that stakeholder
theory is applicable to the effective management of an organisation, rather
than securing the corporation’s survival (Donaldson and Preston 1995;
Philips 2003; Fassin 2009; Freeman et al. 2010). In addition, researchers
assert that a company must be responsive to external demands (Clarkson
1995; Jones 1995; Carroll and Buchholtz 2008; Freeman et al. 2010).
A blend of two factors that stakeholder theory emphasises—external
demands and a call for greater effectiveness—implies that a partnership
must respond to citizens’ demands as they are a primary PPP stakeholder.
As such, they should respond effectively and efficiently, for example, by
ensuring uninterruptible service delivery, meeting quality standards and
offering affordable prices.
But how can the government ensure that a PPP serves the interests
of its citizens? One way is to set the selection criteria for the best bid at
the stage when the government chooses the private sector partner. It is a
government’s privilege and responsibility to approve the selection crite-
ria for the best bid, and it is the means by which a government engages
itself in a partnership, signs a contract and assumes contractual obliga-
tions (Mouraviev and Kakabadse 2015). By setting the bids’ assessment
criteria, a government plays an important role defining organisations,
special interest groups and people who may become future stakeholders
(Donaldson and Preston 1995; Yescombe 2007). Prioritising stakehold-
ers is ‘a matter of strategic choice’ (Freeman 1984: 61). Thus, a govern-
ment may exclude, intentionally or unintentionally, specific values and
their stakeholders during the process of setting the bids’ assessment crite-
ria. In contrast to this, a government’s intentional inclusion of stakehold-
ers and their values at the bidding stage, by steering the bidders in the
desired direction, will permit a proposed PPP to better serve the interests
of certain user groups. Amongst possible values at stake are societal values
(e.g. environmental concerns or equal access to a service), religious values
(e.g. concerns of people who belong to a certain denomination), personal
values (e.g. a young family’s need for childcare), normative values (e.g.
free choice guarantee or ensuring service delivery to disabled individuals),
corporate values (e.g. wealth creation for shareholders) and economic val-
ues (e.g. government concerns regarding promoting economic growth or
about rational use of taxpayers’ money). In summary, when the govern-
ment approves the preferred bid selection criteria, it essentially exercises
the power of choosing stakeholders, setting values for them and/or serv-
ing their interests (Yescombe 2007; Mouraviev and Kakabadse 2015).
A PPP’s response to citizens’ demands also may be viewed through
the lens of a social contract that exists between corporations and society
(Donaldson and Dunfee 1994, 1999; Donaldson and Preston 1995).
Ordinary economic contracts are driven by individual efficiency consid-
erations (Williamson 1979, 1985; Williamson and Winter 1991) which,
in the case of a PPP, would mean an efficient use of public funds in order
to create VfM (i.e. the government financial support to a PPP should be
lower than the value of privately delivered public services). In contrast
to an economic contract, a social contract rests upon broad normative
principles governing human conduct (Donaldson and Dunfee 1994;
Donaldson and Preston 1995).
From the stakeholder theory perspective and a social contracts
approach, the significance of how accurately the PPP VfM is calculated,
or how precisely transaction costs are assessed, gives way to citizens’ sat-
isfaction with uninterrupted, disaster-free and inclusive public services.
The government retains ultimate responsibility for public services, regard-
less of their provider.
A Conceptual Model
A PPP has to satisfy the government and private investors, but principally
the citizens: all those who are currently receiving a public service from the
government provider or who are lacking services due to limited govern-
ment effort and funding. As governments in Russia and Kazakhstan per-
sistently fail to provide an adequate level of these services and to ensure
certain quality standards (e.g. there is not enough centralised heating in
some urban areas; water treatment often requires serious improvement;
and power outages are frequent in many areas due to worn out power
lines and outdated power transmission equipment), PPP deployment is
used to overcome government failure in the field of utilities and housing
infrastructure. By building capacity for disaster risk reduction in infra-
structure, PPPs are able to deliver social value that outweighs monetary
costs.
In Kazakhstan and Russia, PPPs presently cannot secure VfM: as the
PPPs’ costs are high, the government effectively pays more than it would
have cost to provide a public service in-house. However, PPPs bring social
value, as they deliver services that the government or other business and
organisational arrangements are unable to provide. A significant dimen-
sion of the PPP social value is disaster risk reduction. Partnerships rebuild
infrastructure and hence protect it from disasters, such as major disrup-
tions in urban water pipeline networks or breakage in power transmission
facilities, by providing continuous maintenance throughout the length of
a PPP project. They attract private funds in sectors that traditionally suf-
fer from a lack of private investment. In addition, they may improve the
public service delivery (e.g. provide services better, faster and to greater
customer satisfaction) by using private sector technological and manage-
ment expertise; this also contributes to capacity building for disaster risk
reduction.
In summary, stakeholder theory allows for deeper conceptualisation
of the underlying reasons for PPP deployment in transitional nations,
such as Kazakhstan and Russia. The rationale lies in the social value that
PPPs contribute: by reducing the risk of disasters in the housing and
utilities infrastructure, the government bypasses the limitations of com-
monly used criteria for PPP formation and, with partnerships’ help, aims
to deliver value to society.
Conclusion: PPPs’ Social Value

PPPs have social value that lies above and beyond the mere calculation
of how much a partnership costs the government. From the capacity
building perspective, PPPs’ social value refers to their capacity for provid-
ing an uninterruptible supply of public services, such as potable water,
central heating and electrical power to residential customers and busi-

nesses. Additionally, public services must adhere to quality and safety
standards that are set by the government. The PPPs’ social value discussed
here refers specifically to Kazakhstan and Russia, as both economies have
largely outdated housing and utilities infrastructure. An uninterrupt-
ible supply of public services that comply with government standards,
which PPPs are able to deliver, is an overarching objective of disaster risk
reduction in the infrastructure sector. As governments in Kazakhstan and
Russia have not yet identified any other feasible solution for upgrading
the utilities and housing infrastructure, PPPs should play a significant
role in capacity building for disaster risk reduction in infrastructure and
also in protecting the constructed assets. To summarise, partnerships’
social value can be conceptualised as PPPs’ capacity to effectively miti-
gate risks of human origin (e.g. construction and technological errors
or breakage of outdated infrastructure), which is critical for economic
and social sustainable development. By establishing a PPP model that
is underpinned by stakeholder theory rather than the VfM concept or
TCE, this chapter contributes to an enhanced conceptualisation of PPPs.
The model’s core lies fundamentally in the social value that partnerships
bring (i.e. the capacity to reduce disaster risk in infrastructure) and that
outweighs the PPP monetary cost to the government.
However, extensive PPP deployment in housing and utilities infra-
structure might lead to the increase of user fees, for example, for water
use or power consumption. In addition, some might perceive the massive
PPP proliferation as a governmental attempt to distance itself from the
provision of traditional (for Kazakhstan and Russia) public services. This
is an object for political debate: whilst some would argue that Kazakhstan
and Russia are building a market-oriented economy, and hence, PPPs
contribute to market development, others would claim that public ser-
vices (e.g. water and power supply) should be provided and subsidised by
the government (i.e. without PPPs), to ensure they are affordable to every
user, regardless of income. In this debate, the authors’ stance is that PPP
deployment allows governments and citizens to make a gradual, rather
than swift, transition to those methods of provision and use of public
services which, over a lengthy period of time, should become increas-
ingly aligned with market principles. Provision will rest on the ‘user pays’
concept, which will ease the financial burden on the government’s budget
(Osborne 2000; Savas 2000). Closer alignment with market principles,
as a contribution to societal development, can be viewed as public value
that PPPs offer. Furthermore, PPP deployment may permit the avoid-
ance of market failure in infrastructure, as there is generally a lack of
interest amongst private firms to invest in infrastructure projects due to
low government-regulated prices, high capital costs and, hence, difficul-
ties in generating profit.
As a broader implication of PPP development, it is worth noting that,
after the completion of a PPP contract (e.g. after 30 years), an asset that
a private operator has rebuilt and has been maintaining over the project’s
length, such as a sewerage system or water treatment facility, remains the
property of the government. This gives the government three options:
to launch a new PPP, to privatise an asset or to provide services in-house
depending on political imperatives, social considerations and budgetary
constraints. The availability of these options for decision-making brings
flexibility to the PPP policy, should the government decide to reconsider its
priorities. Hence, this limits the societal risk involved in PPP deployment
as partnerships can be used as a tool that lies between traditional public
procurement and full privatisation (Sfakianakis and van de Laar 2013).
Limitations of the Concept

This chapter draws on the Russian and Kazakhstani context and demon-
strates that, in the PPP field, this context is critical for decision-making.
A largely outdated utilities and housing infrastructure exerts significant
pressure on governments in these two nations and, hence, provides a
strong impetus to extensively deploy PPPs in order to reduce disaster
risk. Industrialised economies, such as the UK, USA or Germany, do
not experience this kind of pressure as their utilities infrastructure is in
a much better condition compared to many transitional nations. Hence,
the chapter’s conclusions are limited by the contextual features of the
PPP environment in two economies. Further research might address the
role of PPPs in disaster risk reduction in sectors other than the utilities
and housing infrastructure, for example, whether PPPs can be useful for
rebuilding and operating healthcare facilities or power generation plants

in areas that suffered from a hurricane or earthquake.
References
Carroll, A.B. 1999. Corporate social responsibility: The evolution of a defini-
tional construct. Business and Society 38(3): 268–295.
Carroll, A.B., and A.K. Buchholtz. 2008. Business and society: Ethics and stake-
holder management, 7th ed. Mason, OH: South Western Cengage Learning.
Clarkson, B.E. 1995. A stakeholder framework for analyzing and evaluating
corporate social responsibility. Academy of Management Review 20(1):
92–117.
Donaldson, T., and T.W. Dunfee. 1994. Towards a unified conception of busi-
ness ethics: Integrative social contracts theory. Academy of Management
Review 19: 252–284.
Donaldson, T., and T.W. Dunfee. 1999. Ties that bind: A social contracts approach
to business ethics. Cambridge, MA: Harvard University Business School Press.
Donaldson, T., and L.E. Preston. 1995. The stakeholder theory of the corpora-
tion: Concepts, evidence, and implications. Academy of Management Review
20(1): 65–91.
expert.ru. 2008. Moskovskiy blackout. Khronika sobytiy (In Russian) (Moscow
blackout. The chronology of events). http://expert.ru/expert/2008/04/hronika_
sobytiy/. Accessed 12 May 2015.
Fassin, Y. 2009. The stakeholder model refined. Journal of Business Ethics 84(1):
113–135.
Freeman, R.E. 1984. Strategic management: A stakeholder approach. Marshfield,
MA: Pitman Publishing.
Freeman, R.E., J.S. Harrison, A.C. Wicks, B.L. Parmar, and S. De Colle. 2010.
Stakeholder theory: The state of the art. Cambridge: Cambridge University
Press.
Elgar Publishing.
Hodge, G., and C. Greve (eds.). 2005. The challenge of public-private partnerships:
Learning from international experience. Cheltenham: Edward Elgar Publishing.
Jones, T.M. 1995. Instrumental stakeholder theory: A synthesis of ethics and

economics. Academy of Management Review 20(2): 404–437.
Mitchell, R., B. Agle, and D. Wood. 1997. Toward a theory of stakeholder iden-
tification and salience: Defining the principle of who and what really counts.
Academy of Management Review 22(4): 853–886.
ships in Kazakhstan and Russia: Value for money? Organizations and Markets
Mouraviev, N., and N. Kakabadse. 2015. Public-private partnership’s procure-
ment criteria: The case of managing stakeholders’ value creation in Kazakhstan.
Public Management Review 17(6): 769–790.
Parker, D. 2012. The private finance initiative and intergenerational equity. The
Intergenerational Foundation. www.if.org.uk. Accessed 23 September 2012.
Philips, R. 2003. Stakeholder theory and organizational Ethics. San Francisco,
CA: Berrett-Koehler Publishers.
Sadran, P. 2004. Public-private partnership in France: A polymorphous and
unacknowledged category of public policy. International Review of
Administrative Sciences 70(2): 233–251.
Savas, E.S. 2000. Privatization and public-private partnerships. New York:
Chatham House Publishers.
Sfakianakis, E., and M. van de Laar. 2013. Fiscal effects and public risk in
public-private partnerships. Built Environment Project and Asset Management
3(2): 181–198.
United Nations Office for Disaster Risk Reduction (UNISDR). 2015a. Basics of
capacity development for disaster risk reduction: Capacity for Disaster Reduction
Initiative (CADRi): 1–3. http://www.unisdr.org/files/18061_cadribro-
chureweb2.pdf. Accessed 2 April 2016.
United Nations Office for Disaster Risk Reduction (UNISDR). 2015b. Sendai
framework for disaster risk reduction 2015-2030. http://www.unisdr.org/we/
coordinate/sendai-framework. Accessed 2 April 2016.
Williamson, O. 1979. Transaction-cost economics: The governance of contrac-
tual relations. Journal of Law and Economics 22: 233–261.
Williamson, O. 1985. The economic institutions of capitalism. New York: Free Press.
Williamson, O.E., and S.G. Winter (eds.). 1991. The nature of the firm: Origins,
evolution, and development. New York: Oxford University Press.
Yescombe, E.R. 2007. Public-private partnerships. Principles of policy and finance.
Burlington: Butterworth-Heinemann.
11
PPP Impact on Market Failures
and Externalities
Introduction
Governments usually justify private sector involvement in financing and
delivering public services by citing a lack of funds, pressure from citizens
to receive public services sooner and the need make use of private firms’
technological and management expertise (Grimsey and Lewis 2004; Hall
2008). There is little doubt that infrastructure, specifically in transitional
countries such as Russia and Kazakhstan, suffers from underinvestment
(Kabashkin 2010; Varnavskiy et al. 2010; Firsova 2012). Via the extensive
implementation of partnerships, the Kazakhstani and Russian govern-
ments plan to massively upgrade their transportation and housing infra-
structures and to intensely develop utilities, energy (e.g. power generation
and transmission) and the social sector. In both countries, national and
regional governments prepare a large number of PPP projects.
Whilst researchers often explore the positive spillover effects of PPPs,
they discuss their drawbacks and negative externalities far less often.
This chapter investigates the influence of PPPs on social and economic

DOI 10.1057/978-1-137-56952-3_11
conditions from a public economics perspective, namely through the lens

of a market failure that transpires in externalities. The chapter focuses on
three typical negative externalities that partnerships generate in the con-
text of Kazakhstan and Russia:
• Long-term PPP impact on the availability of public services in transi-

tional countries;
• PPP impact on lenders’ perception of the government; and
• Impact on monopolising service provision.
Of course, a certain project may have specific negative as well as posi-

tive externalities; however, the focus is on the principal negative spill-
overs that apply to most, if not all, partnerships. This chapter shows that,
although a government focuses on PPPs’ positive externalities, in reality,
many negative externalities may offset the positive spillover effects. As
a result, the partnerships’ impact on correcting market failures remains
controversial.
The chapter begins by highlighting the details of three projects that
can be used to draw insights into the impact of PPPs on market failures.
It then discusses a theoretical framework for this study—the theory of a
market failure and related externalities—and offers a critical assessment
of three externalities that PPPs generate. The conclusion draws theoreti-
cal insights regarding PPPs as an emerging paradigm for business and for
cooperation between the public and private sectors.
PPP Project Descriptors

The chapter uses examples from three PPPs:
• The construction and operation of 11 kindergartens in the city of

Karaganda, Kazakhstan;
• The construction and operation of two schools and three kindergar-
tens in St Petersburg, Russia; and
• The construction and operation of a toll viaduct in the city of Ryazan,
Russia.
The selection of two projects in the social infrastructure field—one proj-

ect in each country—ensures comparability of observations. Additionally,
the study purposely included one more project—a toll viaduct—because
it highlights an emergent trend in Russia (i.e. PPP proliferation within
transport infrastructure, and the replacement of traditionally free pub-
lic services with toll services) and provides insights into the externalities
that this PPP generates. As of 2016, there is no similar PPP project in
Kazakhstan, although there are a number of toll road projects underway.
The descriptions of the three projects are given below.
The kindergartens’ PPP in Kazakhstan was prepared in 2010–2011,
and the PPP launch was announced in 2011, when the government
signed a contract with a Turkish company called 7 Piramit. The proj-
ect required that the private sector partner constructed 11 kindergar-
tens in the city of Karaganda, equipped them with furniture and items
needed for proper childcare, and provided operation and building main-
tenance during the concession term (www.karaganda-ppp.kz 2011).
Construction began shortly after the contract was signed; however, in
2012, the project was placed on hold, whilst the reasons were never offi-
cially disclosed. Nonetheless, according to the Kazakhstani National PPP
Centre, the government has prepared a number of similar projects aimed
at the construction and operation of kindergartens, as well as other proj-
ects in the social sphere (e.g. the construction and operation of hospi-
tals) (www.kzppp.kz). Furthermore, the Centre posted on its website the
standardised documentation (project proposal with standard terms and
a draft contract) for future concessions related to the construction and
operation of kindergartens. Therefore, the analysis of the Karaganda kin-
dergartens’ project carries value as it can be viewed as the first experience
from which both the government organisations and private investors may
gain useful insights.
A similar PPP project in St Petersburg, Russia, aims at the private sec-
tor partner construction and operation of two kindergartens and three
schools. As in Kazakhstan, the project employs the build–transfer–oper-
ate model: the private company must transfer the property ownership to
the government upon completion of construction.
A toll viaduct project in Russia exclusively uses private financing. In
2010, the Ryazan city government approved a concession where a private
company called Regionalnye Platnye Dorogi (Regional Toll Roads) agreed

to build a viaduct at its own expense, under the condition that a company
would collect a fee from each vehicle that uses the viaduct for a 20-year
period. Upon the project’s completion, the operator must transfer the
facility ownership to the municipal government. Table 11.1 illuminates
details of the three projects.
Table 11.1 Three PPP projects in Kazakhstan and Russia: key project details
Kindergartens in Kindergartens and Toll viaduct in
Descriptor Kazakhstan schools in Russia Russia
Country and city Kazakhstan, Russia, St Russia, Ryazan
Karaganda Petersburg
PPP objective Attract private Attract private Draw private
financial financial funds in order
resources to resources to build to replace an
build 11 two older free
kindergartens kindergartens railroad
and provide and three schools crossing with a
long-term and provide modern toll
maintenance long-term viaduct and
maintenance ensure its
long-term
operation
Capacity 320 children in 110 children in 25,000 cars per
each each day
kindergarten, kindergarten and
totalling 3520 825 children in
places each school
Type of contract A concession A concession A concession
agreement (although
between partners claim
parties that they use a
non-concession
contract)
Implementation Build-transfer- Build-transfer- Build-own-
model operate (BTO) operate (BTO) operate-
transfer (BOOT)
Concession term 14 years, from 10 years, from 2012 20 years, from
2011 2012
Construction cost USD 39.12 million USD 70.9 million USD 8.2 million
Construction 1–2 years 1–2 years 1–2 years
phase
Table 11.1 (continued)
Kindergartens in Kindergartens and Toll viaduct in

Descriptor Kazakhstan schools in Russia Russia
PPP actors Regional St Petersburg city Ryazan municipal
government of government; a government; a
the private investor/ private
Karagandinskaya operator Baltros; operator
oblast’; its SPV Peremena Regional Toll
Karaganda Roads; its SPV
municipal RTR-Ryazan; a
government; a private investor:
private investor/ Norilskiy Nickel
operator pension fund
Financial Private investor Private investor Private investor
structure financing, with financing (mainly financing, with
subsequent bank loans), with subsequent
government subsequent collection of
payments to a government tolls by a
concessionaire, payments to a concessionaire
plus revenue concessionaire;
from childcare customers do not
fees, plus pay any fees to a
potential concessionaire
revenue stream
from non-core
PPP services
Government Land for each Land for each The government
contribution to kindergarten, kindergarten and temporarily
a PPP plus financial school, plus provides land
outlays to a financial outlays for a viaduct.
concessionaire of to a After the
USD 35.84 million concessionaire of project
USD 118.3 million terminates, an
operator
transfers the
facility and land
to the
municipal
government
Theoretical Framework and Approach

From a public economics perspective, governments intervene in the economy
in order to correct a market failure, which is a situation where a private mar-
ket cannot provide public goods or handle externalities (Hyman 2002; Rosen
2002). Scholars argue that a market failure often occurs with either positive or
negative externalities (Stiglitz 2000; Ulbrich 2003). Beckett-Camarata notes:
externalities or spillovers are harmful or beneficial side effects in the pro-

cesses of production, distribution or consumption of certain goods. The
side effects of ordinary economic activity are called external or spillover
benefits when the effects are beneficial and external costs when they are
harmful’ (Beckett-Camarata 2005, 135).
A firm’s positive externality exists when customers, the government and/

or citizens receive an unpaid benefit. A private company bears the cost
of this benefit (often called a spillover effect), and hence, its total costs
increase and supply decreases (Stiglitz 2000).
In the case of a firm’s negative externality, the firm shifts detrimental spill-
over effects, as well as the costs of managing these effects, to somebody else.
Hence, due to the firm’s lower total costs, supply increases (Stiglitz 2000;
Beckett-Camarata 2005). Both types of externalities lead to departures from
equilibrium and, therefore, inefficient resource allocation (Stiglitz 2000).
The approach in this chapter focuses on the assessment of market fail-
ures and externalities prior to and, most importantly, after the PPP for-
mation. Using the theory of market failures and subsequent government
intervention as a response to a market failure (Buchanan 1999; Stiglitz
2000; Hyman 2002; Rosen 2002; Ulbrich 2003), this chapter investi-
gates the principal negative externalities of a PPP.
PPPs may contribute to sustainability if they are instrumental in
addressing market failures. As market failures often manifest themselves
by the persistent shortage of private investment in certain industries, the
possibility to attract private funding by implementing a PPP is one of
the principal drivers for the government in forming partnerships. Hence,
PPPs may be viewed as a government tool to overcome market failures.
Governments form PPPs in order to address actual or perceived market
failures in selected sectors, such as railroad transportation, utilities and
the social sphere, because private firms generally display limited interest
in investing in these sectors. In order to understand the role that PPPs
may play, it is useful to highlight the nature and manifestations of market
failures in these industries.
Private investors usually have little interest in railroad construction
and operation as it is difficult to generate profit in this field, both in
industrialised countries and transitional nations. Private companies also
fail to invest in utilities, such as water treatment and supply, due to gov-
ernment policy (particularly in transitional countries such as Russia and
Kazakhstan) that aims to keep the tariffs at a minimum (Stiglitz 2000;
Eger 2005; Trogen 2005). This restrictive government tariff policy often
erodes incentives to invest, and diverts private firms from utilities to more
profitable business opportunities.
In the social sector, government regulation of prices and fees for
public amenities such as parks, recreational centres and healthcare ser-
vices often serves as a disincentive to invest. In these cases, where the
government provides public services free of charge, a private investor
may recover its expenses through receiving payments only from a pub-
lic agency, as citizens do not pay any fees. An example that illuminates
a market failure in the Kazakhstani and Russian social sphere is gov-
ernment involvement in the construction of kindergartens. Typically,
researchers view childcare as a private, not a public good, because ser-
vice consumption is rival and customers can be excluded if there is a
lack of available places in kindergartens (Stiglitz 2000; Rosen 2002;
Trogen 2005). Additionally, parents are often discouraged because they
cannot afford, or are not willing to pay, market-level childcare fees.
Private firms do not see this as lucrative because profit margins are nar-
row or non-existent, so have declined to invest in the construction of
kindergartens.
In summary, private firms avoid investing in railroad transportation,
utilities and social services in Kazakhstan and Russia, although consumer
demand in these sectors is persistently high. Hence, the governments’
intention to implement PPPs in order to correct a market failure is well
justified, as this intention is in line with theory that emphasises a market
failure as a principal reason for a government’s intervention in the econ-
omy (Stiglitz 2000; Rosen 2002; Ulbrich 2003). There is no evidence to
suggest that a PPP is the best, or the only, tool to address a market failure.
Drawing on the concept of a market failure and using the externalities

perspective, the chapter investigates whether partnerships are instrumen-
tal in solving market problems.
This chapter now turns to the delineation of PPP negative externali-
ties and the appraisal of their impact on society. Each of the following
three sections discusses a specific externality, beginning with the impact
of partnerships on public service availability. This is followed by an analy-
sis of the PPP impact on lenders’ perceptions of the government. Next,
the chapter highlights the PPP impact on expanding monopolistic trends
in service provision.
The PPP Impact on the Availability of Public

Services
PPPs are able to provide a service much faster, simply because the fund-
ing originates from private investors whilst the government budget does
not permit project financing. However, there is considerable evidence
to suggest that a PPP project often costs more than government in-
house provision or the cost of contracting-out (Hall 2008; Morallos and
Amekudzi 2008). Several factors drive up the total PPP costs—higher
interest rates for private borrowing; anticipated inflation; risks that a pri-
vate company perceives as important; and a markup, that is, the private
sector partner’s profit (Sadka 2007; Hall 2008; Urio 2010). As a rule, a
private firm must obtain a loan at a much higher interest rate compared
to government financing, because banks associate a project with a num-
ber of risks and add a risk premium to the interest rate. Additionally, the
long-term nature of PPP projects also increases the interest rate because
of the significant inflation risk over a lengthy period, such as 30 years.
For example, in the concession for the construction and operation of
11 kindergartens in the city of Karaganda, Kazakhstan, approved for 14
years, the government assumed the annual inflation rate at 6.2 %, which
is much higher than inflation in industrialised nations (www.karaganda-
ppp.kz 2011). On top of the higher cost of private financing, a PPP’s
total project cost includes a premium for various types of risk deemed
important by the private sector partner. These can range from technical
(construction) risks to the risk of changes in regulatory and legal environ-
ment. In addition, a private firm adds a certain percentage of profit to all
forecasted expenses. Added to the other production and operation costs,
expense items related to risk and inflation significantly increase the total
amount that the government and/or citizens must pay the private sector
partner.
An additional example from Russia illuminates the inflation and risk
premium included in PPP costs. In 2011, the St Petersburg city gov-
ernment approved a partnership with a management company called
Peremena for the construction and operation of two schools and three
kindergartens for a ten-year period. The private sector partner determined
the construction cost of each school at 770.3 million rubles (USD 25.7
million) and each kindergarten at 196.3 million rubles (USD 6.5 mil-
lion) (www.stateinvest.spb.ru). Adding the operator’s maintenance costs,
the government will pay 1284 million rubles (USD 42.8 million) for a
school and 327 million rubles (USD 10.9 million) for a kindergarten
during the partnership term. The total government payment in nominal
prices is USD 118.3 million; this is 67 % higher than the USD 70.9
million construction cost (www.stateinvest.spb.ru). Although the private
operator’s maintenance fee remains undisclosed, the high total govern-
ment payment, predominantly inflated as a result of significant risk and
inflation premiums, raises serious concerns regarding the PPP’s value for
money and how the city government plans to raise the required funds.
The increased future obligations placed upon a government to pay for
an ongoing PPP project (as opposed to the cost of a government’s in-
house provision) places a burden upon citizens, as they may not receive
some services and/or may need to pay more for them in the private mar-
kets. This is because, where the government pays more for a certain PPP
service, less budget is available for other public services. Therefore, a PPP
service cost leads to higher costs for other services, which may then suffer
from underinvestment. For example, a poorly maintained government-
owned clinic (one of many in both Kazakhstan and Russia) encour-
ages patients to use private healthcare because a clinic has not received
budget funding for renovation due to government payments to a PPP.
Another example is an outdated school that essentially forces parents

either to contribute their own money to school renovation, a common
practice in both countries, or to send their children to a private school.
The school remains outdated as the government uses its budget to pay for
a new school constructed under a PPP arrangement. In each example,
customers are required to pay more as a result of public funds’ allocation
to a PPP.
An example of costs can be drawn from the PPP project aimed at the
construction and operation of 11 kindergartens in the city of Karaganda,
Kazakhstan. The government has committed to pay USD 35.84 million
to the partnership over a 14-year period (www.karaganda-ppp.kz 2011).
The government will pay 47 % of the private partner’s revenue during the
project term, whilst parents will pay an additional 39 % in the form of
monthly childcare fees. The private operator is required to raise only 14 %
of the revenue itself from commercial activity (www.karaganda-ppp.kz
2011). In summary, the government guarantees a very large part of the
revenue, and a stable consumer demand essentially guarantees another
large proportion of this, amounting to 86 % of the private operator’s total
revenue. From a financial perspective, the government outlays are dispro-
portionally large compared with the revenue portion that a private firm
must earn without government support.
In this case, the cost to taxpayers appears minimal, as a monthly child-
care fee was set in 2011 at USD 90 (at the 2011 exchange rate), which
was the same as in other public kindergartens. However, the government
shifted costs to the taxpayers in the form of larger future budget outlays
to a PPP, which is equivalent to a reduction in the supplier’s (i.e. private
contractor’s) costs. As a result, supply has increased (or, more accurately,
was scheduled to increase) in the form of a newly created PPP service
or in the form of an additional childcare facility. However, this chapter
argues that one cannot view the ultimate outcome of the government’s
actions—an increased supply of services at the expense of citizens and
the government—as an efficient way to correct a market failure. In other
words, a PPP that was designed to correct a market failure has created
another market failure with its own externalities. The main implication
of a newly created market failure is the smaller future range and vol-
ume of public services that may be available for citizens, due to higher
government expenses. In the case of Karaganda, it remains unclear upon

what future revenue streams the regional and local governments can
count. In the absence of regional and local taxes, the source of funds that
will pay for kindergartens’ PPP is likely to be additional transfers from
the national government.
The PPP Impact on Lenders’ Perception

of the Government
In Kazakhstan and Russia, banks’ motivation to finance PPP projects is
heavily influenced by the government, as they foster PPP development
and are keen to benefit from their services. Banks provide financing for
quasi-private projects that are, in essence, government-initiated and
government-funded projects because, ultimately, the government pays
the bill. For example, in the kindergartens’ PPP in Kazakhstan, parents
will pay a much smaller proportion of the PPP project cost (39 % of
the total), compared with the government’s share (www.karaganda-ppp.
kz 2011). Figure 11.1 highlights three revenue streams and related risk
levels in the kindergartens’ PPP.
Government payments Childcare fees
Risk- Low-
free risk
revenue revenue
47% 39%
High-
risk
revenue
14%
Commercial activity
Fig. 11.1 Revenue structure and risk levels for the private sector partner in
the kindergartens’ PPP, Kazakhstan. Source: Compiled by the authors from
the project description (www.karaganda-ppp.kz 2011)
As Fig. 11.1 shows, the private sector partner has to raise a relatively
small part of the total project revenue, compared to what the government
has agreed to pay. In fact, the government’s share is much larger, as it
also provides land and utilities infrastructure (e.g. water pipelines, sewer,
power lines and phone lines) for each kindergarten. Taking into account
the land’s market value and the infrastructure development costs, the
government’s contribution to the PPP may reach 70–80 %, with cor-
responding decreases in the share of childcare fees and a PPP’s revenue
from commercial activity. The latter is both a unique and a highly con-
troversial feature of this PPP project. The government forecasts the pri-
vate partner’s revenue from commercial activities at USD 845,000 per
year (or almost USD 11 million total during the concession) (www.
karaganda-ppp.kz 2011). However, exactly how the private sector partner
may receive this revenue remains unclear. The government’s suggestion
was that the private partner should run training courses in the evenings,
using the kindergartens’ premises. As this revenue is not guaranteed in
any way, the private partner may simply abandon the idea of organising
training courses in order to avoid further risks and higher costs. Hence,
government payments, complemented with government-regulated child-
care fees, are the main revenue source for a private operator.
However, to finance a project, the private sector partner normally
receives a bank loan, which is not guaranteed by the government. A pri-
vate borrower’s exposure to risk (e.g. financial risk related to a govern-
ment’s potential non-payment or the risk of changes in the regulatory
environment) forces a bank to charge a higher risk premium on top of its
loan interest rate. Ironically, a significant part of the higher risk premium
reflects the bank’s perception of potential government actions that may
adversely affect a partnership project, such as government cancellation
of a PPP or delays with government payments to a PPP. Realising that
the government ultimately bears the PPP costs, commercial banks take
advantage of the government by raising the loans’ interest rate.
In other words, a PPP intended to correct a market failure associated
with high investor costs and low profitability creates another market fail-
ure with its own externality in the form of high investor costs (due to the
high cost of borrowing) and low profitability. It is no surprise that, in
order to overcome a newly created market failure, the government offers

extensive financial support to partnerships.
In Russia, the 2005 Law on Concessionary Agreements has deter-
mined a broad scope of government support that includes:
– Direct government capital investment in a project;
– A subsidy that the government can extend to the private sector part-
ner any time during the project to cover part of the cost;
– Land and buildings that the government may contribute to a part-
nership or sell to a private partner at a below market price;
– A tariff subsidy (in order to keep a service affordable to customers,
whilst the government makes periodic payments to the private sec-
tor partner in order to ensure that it earns a profit);
– Approvals for tariff increases above the predetermined levels in a
PPP contract; and
– Exemptions from fines such as late fees (Federalnyi Zakon
Rossiyskoy Federatsii #115–FZ 2005).
The consequence of extensive financial support is that government
contributions to Russian partnerships range from 20 to 40 % of the total
PPP project cost, which is significantly higher than in other countries
(10 to 20 %). In Kazakhstan, the nature and scope of government support
to partnerships are as comprehensive as in Russia, as per Kazakhstan’s law
on concessions (Zakon Respubliki Kazakhstan 2006), as demonstrated
by the example of the government’s contribution to the kindergartens’
PPP in Karaganda. Although in 2016 new PPP laws came into effect in
both nations, certain forms of government financial support, such as a
subsidy, remain available.
In summary, the extensive support that governments are prepared
to offer PPPs is indicative of the low interest that private companies in
Kazakhstan and Russia exhibit towards investment in failing markets,
such as utilities or railroads (Varnavskiy et al. 2010; Firsova 2012).
Additionally, multiple forms of government support send a strong mes-
sage to private lenders that the government is prepared to pay the PPP
costs one way or another. Although government intervention through
PPP deployment aims at correcting market failures, as supported by
theory, the PPP impact on lenders and lending practices carries signifi-
cant adverse results. As such, the government essentially recreates a mar-
ket failure in a different form.
The PPP Impact on Service Monopoly

With the use of a PPP, the government may create a monopoly for the
long term. It may be a monopoly for the core PPP service and/or for a
related (non-core) service. An example of the latter comes from an ongo-
ing PPP project in Russia. In Ryazan, a city of over 500,000 people,
the local government has launched a PPP that involves construction and
operation of a viaduct—an automobile road overpassing the railroad.
This viaduct will replace an older, free, railroad crossing. A traditional
railroad crossing in Russia is a no-frills facility with a bar that opens and
lets the cars cross the railroad for a few minutes. It then shuts, and typi-
cally cars have to wait a long time before they cross the railroad, whether
there is a train or not, because of the safety requirements. Other details of
this project were highlighted in Chap. 9.
In May 2010, the Ryazan city government approved a concession
where a private company called Regionalnye Platnye Dorogi (Regional
Toll Roads) agreed to build a viaduct at its own expense (250 million
rubles or USD 8.3 million) with the condition that a company would
collect a fee from each vehicle that uses the viaduct, except ambulances,
fire trucks and other government cars, for a 20-year period (Sopryakov
2012). Russia’s federal law on automobile roads requires that an alterna-
tive, free-of-charge facility for crossing the railroad should be available in
close proximity to a toll viaduct (Federalnyi Zakon Rossiyskoy Federatsii
#257–FZ 2007). Because an alternative free railroad crossing is avail-
able in this case, a driver who needs to cross the railroad in Ryazan has a
choice: use a modern toll crossing with no wait, or a free, old-fashioned
crossing with unpredictable waiting time.
Although it seems that the government took care to provide a choice
to consumers, the implications of this ‘choice’ are twofold. First, a newly
built toll viaduct becomes a monopoly as there is no other fast railroad
crossing nearby. After constructing a toll viaduct, there is no incentive
for a private investor or the government to build another viaduct in

the vicinity. This is because an additional speedy railroad crossing may
divert traffic and significantly decrease the revenues of the first viaduct.
Secondly, the outdated railroad crossing facility must remain for another
20 years (i.e. the concession term), resulting in a higher cost to citizens in
the form of long waiting times and lack of innovation.
These two negative externalities stem from a PPP that essentially
requires, due to federal law, the continued existence of an alternative
poorly designed and obsolete facility. During the next 20 years, the gov-
ernment has no incentive to implement even cosmetic upgrades to the
older crossing, as it will require a complete overhaul (or at least a major
renovation) in order to bring it up to modern standards after the conces-
sion ends. Thus, a PPP creates a monopoly for its own, hopefully, inno-
vatively delivered service, and also monopolises—although indirectly,
with the use of government regulation—a substituting service: a railroad
crossing that the government will have to maintain in the existing out-
dated form for many years. This evidence demonstrates that a PPP may
operate as a government-protected monopoly that additionally forms or
reinforces monopolistic trends in a related (in this case, a substituting)
service. Researchers and policy makers must increase their focus on the
adverse effects of PPPs on consumers and markets in general, particularly
where a partnership becomes a monopoly and/or generates monopolistic
externalities, such as restricted consumer choice, higher prices and lack of
incentives to innovate (Stiglitz 2000; Hyman 2002; Rosen 2002; Ulbrich
2003).
Conclusion
This chapter has highlighted the negative externalities of PPPs in three
areas. First, with regard to the availability of public services, an increased
service volume that is achieved by a PPP via the use of larger future bud-
get outlays to a partnership, and at the expense of citizens, is an ineffi-
cient means of correcting a market failure. Whilst a PPP aims to correct
one kind of market failure (i.e. a lack of private investment in industrial
and social infrastructure), it creates another market failure with its own
externalities, for example, the smaller future range and volume of pub-
lic services that may be available to citizens due to higher government
expenses.
In the second area—how PPPs shape lenders’ perception of the govern-
ment—the study reveals that government support to PPPs appears to
be so extensive (i.e. the government, rather than users, pays most of the
PPP costs) that lenders take advantage by charging high interest rates
on loans to a partnership knowing that, ultimately, the government will
pay the bills. The PPP impact on lending practices, therefore, carries sig-
nificant adverse results. The government essentially recreates an original
market failure (i.e. limited interest amongst private firms in Kazakhstan
and Russia to invest in sectors such as utilities or railroads) in a different
form, which is a failure of banks to provide loans at interest rates that
would be affordable for private investors.
In the third area—the impact of partnerships on monopolising service
provision—monopolistic trends that PPPs generate have been observed.
A PPP creates a monopoly that the government is motivated to protect,
as a result of the need to ensure a project’s financial viability. Although
a project may be useful and innovative and thereby create high value for
users, its monopolistic delivery severely constrains consumer choice. In
addition, a PPP may form or reinforce monopolistic trends in a related
(e.g. a substituting) service because the government, by supporting a PPP,
lacks incentives to maintain an alternative facility.
The impact of PPPs on sustainability is controversial as negative exter-
nalities can be extensive and should not be overlooked. The principal
PPP negative externalities can offset the positive spillover effects; how-
ever, in other cases, positive externalities may be stronger, deeper and
more significant. The only conclusion regarding what category of PPP
effects may prevail is that one must assess each project on a case-by-case
basis, and the researchers and policy makers’ initial assumption regarding
partnership spillover effects, and/or its value in general, should be neutral
(Hall 2008).
The above notion contributes to a broader concept that calls researchers
and practitioners to abandon the search for an overarching single ‘true’
paradigm of business (Freeman and McVea 2001). Whilst a PPP can be
an effective tool for government collaboration with the private sector, it is
not the only tool, and it is not always an effective tool. Multiple examples
of PPP failures in countries around the world illuminate that a part-
nership may be effective under specific conditions, many of which are
contextual, and other nations cannot mechanically copy them in another
setting. Hence, views of PPPs as a panacea for overcoming government
budget constraints, and as a universal instrument for involving private
companies in the implementation of traditional public sector tasks, dis-
regard the importance of context and lack justification. Partnerships are
not a new paradigm for public–private collaboration; rather, they are one
of many options available for government and businesses. Implementing
the PPP option requires special care, as partnerships often carry signifi-
cant negative externalities.
References
Beckett-Camarata, J. 2005. Voting and representative democracy. In Handbook
of public sector economics, ed. D. Robbins. Boca Raton, FL: CRC Press.
Buchanan, J. 1999. The demand and supply of public goods. Indianapolis: Liberty
Fund.
Eger III, R.J. 2005. Provision and production of public goods. In Handbook of
public sector economics, ed. D. Robbins. Boca Raton, FL: CRC Press.
soglasheniyakh (in Russian). (Federal Law #115–FZ On concessionary agree-
November 2012.
Federalnyi Zakon Rossiyskoy Federatsii #257–FZ. 2007. Ob avtomobil’nykh
dorogax i o dorozhnoy deyatel’nosti v Rossiyskoy Federatsii i o vnesenii izmeneniy
v otdelnye zakonodatel’nye akty Rossiyskoy Federatsii (in Russian) (Federal Law
#257–FZ On automobile roads and on road activity in the Russian Federation
and on amendments to selected laws of the Russian Federation Article 37, Section
1). http://www.rg.ru/2007/11/14/dorogi-dok.html. Accessed 2 September
2012.
Freeman, R.E., and J. McVea. 2001. A stakeholder approach to strategic manage-

ment, working paper. http://papers.ssrn.com/paper.taf?abstract_id=263511.
Accessed 25 August 2012.
Elgar Publishing.
Hall, D. 2008. Public-private partnerships (PPPs). Summary paper. 1–26. http://
www.psiru.org/publicationsindex.asp. Accessed 11 March 2011.
Hyman, D. 2002. Public finance: A contemporary application of theory to policy.
Fort Worth, TX: Harcourt.
Rosen, H. 2002. Public finance. New York: McGraw-Hill.
Sopryakov, V. 2012. Platnoye – ne znachit dorogoe (in Russian) (Toll service
does not have to be expensive). Avtomobilnye Dorogi 4: 123–124.
Stiglitz, J. 2000. Economics of the public sector. New York: W.W. Norton.
Trogen, P.C. 2005. Public goods. In Handbook of public sector economics, ed.
D. Robbins. Boca Raton, FL: CRC Press.
Ulbrich, H.H. 2003. Public finance in theory and practice. Mason, OH:
South-Western.
www.karaganda-ppp.kz. 2011. Stroitel’stvo i ekspluatatsiya kompleksa detskikh
sadov v gorode Karagande: Informatsiya po proektu (in Russian) (Construction
and operation of kindergartens in the city of Karaganda. Project description).
Accessed 14 December 2011.
www.kzppp.kz. Website of Kazakhstan Centre for Public-Private Partnerships.
Accessed 3 April 2016.
www.stateinvest.spb.ru. 2011. GK ‘Baltros’ investiruyet 2.2 milliarda rublei v

shkoly i detskiye sady (in Russian) (Baltros Holding is investing 2.2 billion rou-
bles in schools and kindergartens). Accessed 12 July 2012.
the Republic of Kazakhstan On concessions). www.kzppp.kz. Accessed 17
August 2012.
12
Critical Issues in PPP Development,
an Emerging Policy Paradigm
and the Future of PPPs
Introduction
This concluding chapter offers insights into three areas. First, it highlights
critical issues in PPP development in Kazakhstan and Russia. Second, it
discusses why the current public policy regarding PPP deployment in
Kazakhstan, and to an even greater extent in Russia, can be viewed as a
paradigm. Third, it outlines the future of partnerships, that is, challenges
to further PPP development that Kazakhstan and Russia face, and how
the two nations can meet these challenges.
The chapter emphasises that many developments related to PPPs
can be explained by a policy paradigm that is emerging in Kazakhstan
and Russia. In both countries, policy changes signify a departure from
approaches to partnerships, which prevail in OECD countries, to the
interplay of ideas, institutions and practice that form readily available
patterns of thinking regarding PPPs, descriptions, strategies and solu-
tions, which may be viewed as a paradigm. This chapter examines how
it is constructed and critically appraises the principal dynamics that
contribute to the evolving transition in the set of ideas and standards

DOI 10.1057/978-1-137-56952-3_12
regarding PPP development in the two nations, with a particular empha-

sis on Russia. This is because the number of Russian PPPs in recent years
has increased dramatically: from 23 in 2009 to over 600 in 2016. This
impressive growth requires a detailed exploration, given the poor climate
for investment in the country. In Kazakhstan, the emergent policy para-
digm can be evidenced by policy documents, public statements, institu-
tions, laws and regulations that are similar to those in Russia. However,
the Kazakhstani PPP policy cannot be substantiated by the number of
launched PPPs as they currently remain low, although the National PPP
Centre claims that a large number of partnerships are being prepared
and will commence operations in the near future. Therefore, whilst the
focus of this chapter is on Russia, as the nation’s PPP experience pro-
vides considerable evidence for an emergent policy paradigm, it could
be anticipated the Kazakhstan’s policy will evolve in the same direction,
given that both countries have a similar legal and institutional PPP
environment.
Critical Issues
The investigation of PPP development in Kazakhstan and Russia reveals
the evolution of government PPP policy and practice, including laws,
tools, institutions, sectors and investment options. It also highlights a
large number of areas of various nature, size and scope that need to be
addressed by the government and other PPP actors. Certain challenges
exist in each element of the PPP arrangements; it is imperative that gov-
ernments tackle these and learn from their own experiences to date. The
most salient issues include:
– Incomplete and inconsistent legislation surrounding partnerships;
– Weak institutional development, where newly formed regional
PPP centres lack guidelines, skilled human resources and
funding;
– Virtually non-existent civil participation in the design, approval
process and monitoring of PPPs;
12 Critical Issues in PPP Development, an Emerging... 205
– Underdeveloped financing institutions, channels and schemes that

may secure funding for partnerships (e.g. in Russia a highly
centralised unit focuses on PPP financing, whilst Kazakhstan lacks
well-established financing channels);
– An unclear stance from the government regarding approaches to
PPP project preparation, where the government pushes for stan-
dardised contracts and encourages template solutions for some
projects (e.g. the construction and operation of kindergartens in
Kazakhstan and similar projects in Russia), whilst it engages in non-
standardised contracts for other projects (e.g. Western Speedy
Diameter—a toll road in St Petersburg, Russia—or a railroad con-
cession in Eastern Kazakhstan);
– A lack of PPP-specific governance structures and established proce-
dures for partner interaction, tariff adjustments, dispute resolution,
and other strategic and operational issues;
– An ambiguous government approach towards risk allocation, which
ranges from non-acceptance of any risk in some projects, to
extremely high government financial support to other partnerships,
where government investment reaches 50 % of the project cost or
even higher;
– Excessive government regulation of PPPs where the government
focuses on input (e.g. the salary levels or number of PPP staff),
rather than on output specifications and service quality; and
– A contradictory perception of a policy paradigm, where the latter
serves as an instrument for massive PPP deployment, although the
government commitment to partnerships quickly disappears after a
PPP is launched.
It is likely that this long list is non-exhaustive, and other more context-
specific issues also require the attention of policy makers, regulators and
practitioners. However, in this complex set of PPP problems, the strategic
perspective is critical. At the core of this perspective is the focus on gov-
ernance, that is, on creating an integrated network of actors, institutions,
policies, instruments and regulations that would satisfy a broad range of
PPP stakeholders.
A Trend: An Emerging PPP Policy Paradigm

Defining a Policy Paradigm
A policy paradigm is a complex blend of certain elements. A policy para-

digm is ‘a framework of ideas and standards that specifies not only the
goals of policy and the kind of instruments that can be used to attain
them, but also the very nature of the problems they are meant to be
addressing’ (Hall 1993, 279). A policy paradigm can be viewed as a shared
conceptual framework that includes a generally coherent set of assump-
tions, principles and simplifying metaphors. It defines what the social
issues are and how institutions should resolve them (Carson et al. 2009).
Why do paradigms evolve? A paradigm provides taken-for-granted
descriptions and specifies cause and effect relationships for policy mak-
ers (Campbell 2002). A paradigm appears useful for those involved in
policy making and in policy implementation because many things are
taken for granted and unamenable to scrutiny (Hall 1993). A paradigm
is also useful from the cognitive perspective as it allows to conceptualise
(sometimes) distinctly different issues, interests, goals and tools involved
in policy making (Carson et al. 2009). However, a paradigm has its lim-
itation that diminishes its usefulness. A paradigm offers a constrained
choice of policy actions and tools. More generally, a paradigm limits a
range of policies whilst other policies or certain aspects of policy making
may not be even considered (Menahem 1998; Campbell 2002).
A policy paradigm’s structure includes three principal elements: a
concept, a set of state responsibilities and institutional capacities (Fosler
1992). The understanding of a paradigm’s structure evolved; it can be
viewed as a blend of three broader categories or processes: cognition
and meaning, expression and action, and its institutionalisation (Carson
et al. 2009). Whilst there are varying opinions regarding the paradigm’s
nature, most scholars emphasise, using different terms, the following
three elements:
• The conceptualising component,

• Institutional processes and
• Implementation aspects.
Institutionalisation requires actors (e.g. experts, consultants and opin-

ion leaders), organisations (e.g. think tanks, co-ordinating units and
financing organisations) and established procedures (e.g. an approval
process or a bidding procedure) (Burns and Carson 2009). By imple-
menting tasks assigned to them, organised actors mobilise institutions,
their capacities and processes, and deal with problems in a way that shows
shared understanding of issues, their sources and strategies to overcome
these problems. Table 12.1 summarises the varying approaches to a pol-
icy paradigm.
The Evolving PPP Policy Paradigm: Core Elements
The PPP policy paradigm in Kazakhstan and Russia can be conceptual-

ised as a cognitive-normative tool that includes two major aspects. The
first aspect describes a paradigm as a tool used by the government to
facilitate partnership expansion. The second aspect is cognitive, that is,
consideration of multiple activities related to partnerships through the
paradigm’s prism, which enables deeper comprehension of PPP public
policy in either nation.
Based on the underpinning theoretical framework, the structure
of the emergent PPP policy paradigm in Russia embraces three prin-
cipal elements, namely: ideas, a changing set of government responsi-
bilities and new institutional capacities. Figure 12.1 highlights the PPP
policy paradigm structure in Russia, which also largely applies to the
Kazakhstani context.
The first element—ideas—is the concept that emphasises the need
for long-term collaboration between the public and the private sectors.
The second element refers to a changing set of government responsi-
bilities that imply an increasing provision of traditional public services
(such as childcare or healthcare) by the private sector and a correspond-
ing decrease in government delivery. This means that the total volume
of public services increases, whilst the government share in the delivery
structure decreases. The third element features a developing and expand-
ing set of new institutional capacities designed for the implementation
of amended (and changing) government responsibilities (Fosler 1992).
208
Table 12.1 A policy paradigm: varying meanings and influential authors

Paradigm’s core A paradigm is a set A framework A paradigm A paradigm is a shared A paradigm is a
of ideas, actions of ideas and forms ideas conceptual complex of
and institutional standards and specifies framework; it is a set concepts,
strategies cause and of assumptions and principles and
effect principles, interpretive models that
relationships and explanatory capture
for policy discourses interactions
makers between ideas,
institutions and
organised actors
Paradigm’s Includes a concept, Specifies Offers taken-for- Includes three types of Defines problems
N. Mouraviev and N.K. Kakabadse
structure: key a new set of problems to granted processes: cognition and their
components state be addressed, descriptions and meaning, sources and
responsibilities goals and and solutions expression and action, identifies
and new instruments and its strategies and
institutional institutionalisation resources to
capacities deal with these
problems
Influential Fosler (1992) Anderson Menahem Carson et al. (2009) Burns and Carson
authors (1978); Hall (1998); (2009)
(1993) Campbell
(2002)
Source: Adapted by the authors from Mouraviev and Kakabadse (2014)
The concept:
The need for long-
term collaboration
between the public
and private sectors
New
Changing set of institutional
government capacities:
responsibilities national laws;
responsibilities PPP centres
Fig. 12.1 The PPP policy paradigm in Russia and Kazakhstan: core elements.
New institutional capacities include PPP laws and regulations devised

in Kazakhstan and Russia for the national level in 2005–2006 and also
in 2015, and regional and municipal legislation approved by selected
regional and city governments since 2005. Additionally, institutional
capacities incorporate national and regional government PPP centres that
are responsible for partnership development and investment channels for
PPP financing that the central government has established, or aims to
establish, in each country.
What Factors Contribute to an Evolving

PPP Policy Paradigm?
The transformation of the PPP debate into the policy paradigm has been
evolving since the early 2000s. Three principal factors contribute to the
paradigm formation. They include:
– The broader government treatment of a contractual PPP’s meaning
as opposed to that in OECD countries;
– Unjustifiably extensive government financial support to PPPs that
private investors and the government itself deem necessary (Firsova
2012); and
– An unbalanced government approach to perceived PPP benefits.
Factors that contribute to an emerging PPP policy paradigm can be

categorised as principal and secondary. They are shown in Table 12.2.
The first factor that drives the paradigm formation is the broader treat-
ment of a contractual PPP in Kazakhstan and Russia compared with
OECD countries. This explains, at least in part, the large number of
PPPs that local governments in Russia formed during a very short period
Table 12.2 Factors that drive the PPP policy paradigm formation
No. Contributing factors Comments
Principal factors
1 Government employs the Government reports a large number of
broader treatment of the contractual partnerships some of which
meaning of a contractual lack essential PPP features
PPP compared to OECD
countries
2 Government provides Government often assumes the role of a
extensive financial support partnership guarantor and of an essential
to PPPs source of funds, inputs and various
benefits to a PPP. This increasingly creates
the “guarantee culture” among private
investors
3 Government approach to PPP costs are not a major concern for
perceived PPP benefits is government. Theoretical underpinnings
unbalanced, that is, the for PPP employment are replaced with a
focus is on benefits, whilst project’s “social significance” as the
costs are of lesser principal criterion for the PPP formation
importance
Secondary drivers
4 PPP approval process lacks Guidelines vary across regions and
clear guidelines and municipalities; approval procedures are
consistency inconsistent among sub-national
governments
5 Government tends to inflate Government unjustifiably considers
positive PPP externalities technological and other kinds of
and downplay negative innovation intrinsic to a PPP
externalities
6 Inconsistent government The public sector partner tends to accept
approach to risk allocation: excessive and/or unnecessary risks
at least some risk should
transfer to the private
sector partner(s)
of time. ‘Broader treatment’ means that, whilst an arrangement in Russia

may qualify as a partnership, OECD countries normally would not cat-
egorise the entity as a PPP. For example, in a specific project such as
a leasing contract, the government rents out an asset—a building, an
office, a production facility or equipment—to a private company and
receives a rental fee. However, this arrangement, although long term,
lacks essential PPP features such as joint contribution of resources for
a common goal, asset construction by a private party which then uses
this asset in order to provide public services, and shared risk allocation
between parties (Grimsey and Lewis 2002; Asenova and Beck 2003).
To summarise, although public–private arrangements such as a leasing
contract or production-sharing agreement are contractual, they are not
PPPs from the OECD perspective, as they do not possess essential PPP
characteristics.
The second factor that advances the PPP policy paradigm evolvement
is the extensive financial support to partnerships deemed necessary by
the government. This is because the literature in both countries argues
that, for private investors, PPPs are often unattractive because they can-
not generate profit (Pankratov 2010, Firsova 2012). In line with this, the
governments have passed laws and regulations that permit various forms
of government financial contribution to a PPP. They are summarised in
Table 12.3.
In Russia, contributions to partnerships result in government financial
support ranging from 20 to 40 % of the total PPP project cost, which is
significantly higher than in any other country (10 to 20 %), according to
KPMG data (Shabashevich 2011, 3–4).
As the list of possible forms of government support to a partnership
is relatively extensive, it promotes rising expectations amongst private
investors regarding what government payments and other kinds of direct
and indirect financial benefits they may expect from public agencies. In
addition to elevated government costs, this increasingly creates a guar-
antee culture among private investors (which was discussed in detail in
Chap. 7) who may consider the government as the source of their finan-
cial gain, regardless of the project context.
The third principal driver of a PPP paradigm is the government
approach to perceived partnership benefits, which appears unbalanced.
Table 12.3 Forms and methods of government financial support to PPPs

Forms and methods of
No. government support Comments
1 Government direct E.g. at the construction phase a public
financial investment in a agency may pay a predetermined
project percentage of capital investment directly to
material and equipment suppliers
2 A subsidy that the Normally this takes the form of a payment to
government can extend a private sector partner
at any time during the
project to cover part of
the cost
3 Government may provide Part of the assets may be the government’s
physical assets, such as contribution to a partnership, whilst
land, buildings and another part may be sold to a private
equipment partner at a market price or below market
price
4 A tariff subsidy E.g. a tariff may be set low in order to keep
the service affordable to customers, whilst
the government makes periodic payments
to the private sector partner in order to
ensure that it recovers its investment and
reaps a profit
5 Availability payments The government pays a periodic fee to a
private partner to ensure that a minimally
acceptable volume of service is always
available for users
6 Government guarantees A private investor may not be able to secure
for private partner loans funds without government support
from commercial banks
7 Government-issued In this way, the government may support
licences and permits for additional revenue-generating private
private partner activities sector partner activities and prevent prices
unrelated to the main for public services from rising
partnership service
8 Approvals for tariff The government may adopt a liberal
increases above the levels approach to considering frequent
predetermined in a PPP applications for tariff increases
contract
9 Exemptions from fines E.g. the government may exempt a private
and/or fees; exemptions party from paying a late fee for not
from certain taxes meeting the deadline for completion of a
specific construction phase
This factor applies to both Russia and Kazakhstan. The government

focuses on obtaining benefits from a partnership project in the form of
improved service delivery, attraction of private funds and the use of private
technology and expertise. However, partnership efficiency is not a major
government concern. In other words, the government may approve a
PPP with a total cost higher than that of traditional government procure-
ment or the cost of in-house service provision. The literature and govern-
ment policy documents in both nations are silent as to PPP efficiency,
and academics and policy makers have not compared PPP costs with the
cost of the public sector in-house service provision.
The literature in both nations is also silent regarding TCE and PPP
value-for-money, as their governments do not use these concepts as
a basis for deciding whether or not to form a partnership. This is in
sharp contrast to Western literature, which emphasises that a govern-
ment should employ a PPP if and when a partnership incurs a lower cost
when compared with the cost of the government’s in-house provision
(Hall 2008; Morallos and Amekudzi 2008). According to KPMG data,
the costs of contracting-out in Russia are approximately 6 % less than
PPP costs (Shabashevich 2011, 3–4). This is indicative of an evolving
paradigm that provides taken-for-granted PPP acceptance, regardless of
their costs.
A Paradigm as a Tool for the Rapid PPP Deployment
As a government’s tool, a paradigm assigns selected features to a partner-

ship and disregards others. Once the paradigm is in place, the discussion
of whether a PPP is a useful form for implementing the public sector task
is largely replaced by accepted approaches, institutional processes and
instruments that the government deems undisputed.
The PPP policy paradigm can be viewed as a government tool for the
rapid expansion of partnership deployment. The policy paradigm, once
set, does not require extensive justification of why a partnership may
be necessary for the implementation of a specific project. Most impor-
tantly, after the PPP policy paradigm becomes established, it legitimises
a partnership as a commonly employed form of public and private sector
collaboration without questioning whether a partnership is an efficient

and effective tool for this collaboration. In Russia, the paradigm has
already significantly embedded itself in policy making, resulting in mas-
sive PPP deployment: in 2016, the number of launched partnerships
exceeds 600.
In contrast to Russia, Kazakhstan has adopted a more focused mean-
ing of a PPP as a project that results from a certain contract between
the government and the private sector partner(s), with a specified length,
set financial obligations and output specifications. Although this under-
standing is generally aligned with the practice in OECD nations, many
other factors that drive PPP policy paradigm formation can be observed in
Kazakhstan, supporting the argument that a policy paradigm is emerging.
Future research needs to investigate how, and in what directions, the
behaviour of PPP stakeholders develops, given that their behaviour is
guided by an evolving policy paradigm. It would also be useful to study
whether the signs of a paradigm shift from the currently evolving para-
digm have emerged after a period of time. If so, studies need to identify
which factors drive a shift and delineate the trajectories of change.
The Future of PPPs: Outlook

Although the future is difficult to predict, from the insights gained
through the study, this section aims to delineate the principal dimensions
along which PPP development in the two nations is likely to continue.
Drawing on the analysis presented throughout the book, the challenges
that will shape the PPP policy and implementation for years to come
can be highlighted. What challenges to further PPP development do
Kazakhstan and Russia face?
• The legislative framework needs to be consistent and free from ambiguity.

Governments need to avoid the use of ‘PPP’ as a language game in
which ‘a partnership’ means different things to different people. Since
2005, after over ten years of PPP experience, the governments in
Kazakhstan and Russia remain undecided about the meaning of a
PPP. Kazakhstan has been more consistent, as it has focused mostly on
contractual project-based partnerships and largely avoided

contradictions between national laws and regional regulations. In con-
trast, Russia created massive confusion when many regionally adopted
PPP regulations contradicted federal laws. Furthermore, the lack of a
consistent PPP definition and other critical terminology has allowed
the regions to understand partnerships differently, and therefore, the
data about the actual number of partnerships and their nature may be
inaccurate. In addition, the varied understanding of the nature of a
PPP among federal policy makers, federal ministries, regional govern-
ments, PPP centres, municipal authorities and investors has diluted
and weakened overall efforts to deploy partnerships.
This vividly highlights the need to design a clear PPP legislative
framework that has been lacking in the country since the inception of
its PPP policy. The same applies to Kazakhstan, which also would ben-
efit from clearer and more comprehensive PPP laws. The international
experience demonstrates that governments in nations around the globe
(e.g. the UK, USA or Australia) focus on contractual PPPs and create
laws and regulations for them. Other terminology regarding public–
private collaboration still may be used, although beyond the PPP legis-
lative framework. In 2015, both nations adopted PPP laws, which were
a positive step in addressing certain ambiguities, although there is still
significant scope for increasing the clarity and consistency of the PPP-
governing laws. The governments should understand and appreciate
the investors’ perspective on the legislative framework: if investors view
PPP laws as ambiguous and inconsistent, they are less likely to invest.
• Government and society at large need to deal with newly emerging PPP
drivers. These are a poor economic outlook, due to the low and rapidly
fluctuating oil price and Russia’s growing isolation.
It is likely that internal PPP drivers in Kazakhstan and Russia will
continue to exert pressure on governments for a lengthy period of
time. In particular, the need for massive overhaul of worn-out housing
and utilities infrastructure will remain, due to the enormity of the task
and the very high levels of investment required. Therefore, govern-
ments will continue to seek private investment in this sector.
However, new PPP drivers have emerged—Russia’s growing isola-
tion and related sanctions imposed by the Western nations, and a low
oil price, which has resulted in a lack of funds in the Russian banking
system. Cash-strapped Russian banks may be increasingly unwilling to
extend long-term loans to partnership projects, particularly when the
government does not provide loan guarantees. Furthermore, in the
current poor economic climate in Russia, with decreasing incomes and
massive closure of businesses, lending has become increasingly risky.
This has led to a higher risk premium that banks may charge for their
loans, and created a challenge for the government: how to increase
financing for partnerships whilst there is much less money in the bud-
get? Kazakhstan faces a similar challenge because low oil prices have
led to a considerable decrease in budget revenues, whilst the cost of
loans is very high. In particular, in May 2016, the base rate of
Kazakhstan’s National Bank was 15 %, a decrease from the 17 % rate,
which means that commercial banks’ rates are in the range of 18 to
25 %. Although Kazakhstan does not face any political or economic
isolation, since 2014–2015, its economy has experienced a severe eco-
nomic downturn.
• Governments face a dilemma: either increase their financial support to
PPPs, which will therefore make private investment smaller and decrease
value-for-money, or slow down PPP proliferation.
The conflict between the need to increase government financial sup-
port and slowing down PPP expansion due to a lack of available budget
does not have a clear solution. An option that the governments might
entertain involves launching PPPs that require smaller investment and
are limited in size and scope. However, this is unlikely to increase the
volume of public services that are much needed in both nations.
• Governments need to re-think their own role in the ways in which they
support PPPs. Providing investors with a choice of PPP forms and models
was a positive change and a much-awaited legislative improvement.
However, it is not crucial for further development.
The issue regarding PPP forms and models (i.e. that both coun-
tries until 2016 used exclusively a concession and the build-transfer-
operate model) seems to be inflated in the discussion among PPP
actors in Kazakhstan and Russia. Naturally, PPP partners should
have a choice, rather than be constrained by just one form or model.
However, for a private firm, being able to choose a form or a model
will not automatically create the motivation to invest in a PPP, and

the availability of funds for investment will remain unchanged.
Whilst the issue with limited models and forms vanished after the
adoption of new laws in 2015, governments now need to focus their
attention on the design of financing channels and schemes for PPPs.
These may include bonds, investments in equity, introduction of
special long-term financial instruments that may be purchased by
government-owned corporations and banks, the use of pension
funds, and significantly more active investments by citizens. The
experience of both nations shows that extending a subsidy to pay
part of the project cost is an ineffective instrument for supporting
PPPs. Operators may mismanage the money whilst SPVs shield
investors from losses and minimise their responsibility for a project,
or certain risks may materialise and lead to the depletion of funds.
Instead of giving subsidies, the governments in Kazakhstan and
Russia need to re-think their role and methods of providing support
to partnerships. Ideally, the governments’ focus should be on creat-
ing, together with the private sector partners, robust financing
schemes for a PPP and setting powerful incentives for a PPP operator
to meet the construction deadlines, achieve predetermined service
standards and improve performance.
• Governments need to increase PPPs’ value to society.
Do partnerships create value by contributing to social, economic
and environmental sustainability? If so, how? What are the areas that
PPPs sustain and the sectors that PPPs develop? Do partnerships have
a certain impact on job creation, income generation and the develop-
ment of entrepreneurship? Once policy makers, practitioners and
scholars answer these questions, governments may be able to empha-
sise the role of PPPs as value creators, which may justify higher, than
in OECD nations, budgetary allocations to partnerships. In addition,
the PPP body of knowledge will benefit from answers of these ques-
tions. Whilst investors in a PPP may often enjoy a partnership’s
monopolistic position and government protection from competition
(e.g. a railroad), they might use these advantages for exercising a more
socially responsible approach to the creation of social value, for exam-
ple, by contributing to the development of local community.
Towards Effective PPP Governance: Citizens’

Engagement
In Kazakhstan and Russia, governments aim to create effective frame-
works and processes that would support rapid PPP implementation across
many sectors of the economy. Whilst doing this, governments under-
standably need to justify and promote their own policies and policy tools,
and this is when and how governments facilitate the euphoria regarding
PPPs. By disregarding or downplaying partnerships’ drawbacks, govern-
ments often present PPPs as a panacea for many projects requiring pri-
vate investment, and that governments are unable to efficiently finance
and carry out themselves.
Ideally, efficient project implementation has to create value to soci-
ety in a manner where marginal revenue (from service delivery) equals
or exceeds the marginal cost of providing the public service. As this
is rarely the case (i.e. costs are often high, whilst revenue may be very
low or replaced by a subsidy), at the present time, governments tend to
transform PPP debate into a policy paradigm that provides readily avail-
able answers, standardised solutions and—more generally—a universal
acceptance of PPPs regardless of the context. This is particularly true in
Kazakhstan and Russia where projects’ high costs undermine the core of
PPP development.
In contrast to the paradigm application, the need to assess a proposed
PPP project, both from the value-for-money perspective and from the
social value perspective, becomes increasingly evident. This would enable
the government to make a realistic assessment of the future PPP’s costs
and benefits and identify areas that require adjustment. Importantly,
citizens’ participation, particularly at the time of project approval (e.g.
in the identification of needs and service standards), is crucial for suc-
cessful PPP deployment. However, in those nations where civil society
is underdeveloped, citizens’ participation in PPP design may be a chal-
lenging task or simply unwelcomed by governments, although, ironically,
a partnership delivers public services to satisfy citizens’ needs. Whilst
currently lacking civil society, both Kazakhstan and Russia may signifi-
cantly benefit from the active engagement of citizens, interest groups,
community associations and entrepreneurs’ fora in PPP governance at
any stage—from project design, to monitoring service quality, to asset

transfer. This may form the system of checks and balances that is much
needed for long-term public–private contracts in which large amounts
of taxpayers’ money and benefits are at stake. If effective, this system of
checks and balances may also enhance social cohesion in the two nations.
References
Anderson, C. 1978. The logic of public problems: Evaluation in comparative
policy research. In Comparing public policies, ed. D. Ashford, 19–41. Beverly
Hills: Sage.
Asenova, D., and M. Beck. 2003. The U.K. financial sector and risk
management in PFI projects: A survey. Public Money and Management 23:
195–203.
Burns, T.R., and M. Carson. 2009. Public policy paradigm theory: Paradigm
shifts in the EU – social and related policies. In 9th Conference of European
Sociological Association on European Society or European Societies? http://esa.
abstractbook.net/abstract.php?aID=3485. Accessed 24 May 2012.
Campbell, J.L. 2002. Ideas, politics, and public policy. Annual Review of
Sociology 28: 21–38.
Carson, M., T.R. Burns, and D. Calvo (eds.). 2009. Paradigms in public policy:
Theory and practice of paradigm shifts in the EU. Frankfurt am Main: Peter
Lang.
Fosler, S. 1992. State economic policy: The emerging paradigm. Economic
Development Quarterly 6(1): 3–13.
Hall, D. 2008. Public-private partnerships (PPPs). Summary paper. 1–26. http://
www.psiru.org/publicationsindex.asp. Accessed 11 March 2011.
Hall, P. 1993. Policy paradigms, social learning, and the state: The case of eco-
nomic policymaking in Britain. Comparative Politics 25(3): 275–296.
Menahem, G. 1998. Policy paradigms, policy networks and water policy in
Israel. Journal of Public Policy 18(3): 283–310.
Mouraviev, N., and N. Kakabadse. 2014. Public-private partnerships in Russia:
Dynamics contributing to an emerging policy paradigm. Policy Studies 35(1):
79–96.
Shabashevich, M. 2011. Effektivnost’ realizatsii infrastrukturnykh proektov
GChP v Rossii (in Russian) (Efficiency of PPP project implementation in
infrastructure in Russia). In Annual Meeting of the PPP Centre and
Representatives of Regions of the Russian Federation Regarding Implementation of
PPP Projects. Moscow, 26–27 January: 1–16. http://www.pppinrussia.ru/
main/publications/articles. Accessed 3 June 2011.
Conclusion
Critical Issues
The investigation of PPP development in Kazakhstan and Russia reveals
the evolution of government PPP policy and practice, including laws,
tools, institutions, sectors and investment options. It also highlights a
large number of areas of various nature, size and scope that need to be
addressed by the government and other PPP actors. Certain challenges
exist in each element of the PPP arrangements; it is imperative that gov-
ernments tackle these and learn from their own experiences to date. The
most salient issues include:
– Incomplete and inconsistent legislation surrounding partnerships;
– Weak institutional development, where newly formed regional PPP
centres lack guidelines, skilled human resources and funding;
– Virtually non-existent civil participation in the design, approval
process and monitoring of PPPs;
– Underdeveloped financing institutions, channels and schemes that
may secure funding for partnerships (e.g. in Russia a highly
centralised unit focuses on PPP financing, whilst Kazakhstan lacks
well-established financing channels);

DOI 10.1057/978-1-137-56952-3
222 Conclusion
– An unclear stance from the government regarding approaches to

PPP project preparation, where the government pushes for
standardised contracts and encourages template solutions for some
projects (e.g. the construction and operation of kindergartens in
Kazakhstan and similar projects in Russia), whilst it engages in non-
standardised contracts for other projects (e.g. Western Speedy
Diameter—a toll road in St Petersburg, Russia—or a railroad con-
cession in Eastern Kazakhstan);
– A lack of PPP-specific governance structures and established proce-
dures for partner interaction, tariff adjustments, dispute resolution,
and other strategic and operational issues;
– An ambiguous government approach towards risk allocation, which
ranges from non-acceptance of any risk in some projects, to extremely
high government financial support to other partnerships, where gov-
ernment investment reaches 50 % of the project cost or even higher;
– excessive government regulation of PPPs where the government
focuses on input (e.g. the salary levels or number of PPP staff),
rather than on output specifications and service quality; and
– A contradictory perception of a policy paradigm, where the latter
serves as an instrument for massive PPP deployment, although the
government commitment to partnerships quickly disappears after a
PPP is launched.
It is likely that this long list is non-exhaustive, and other more context-
specific issues also require the attention of policy makers, regulators and
practitioners. However, in this complex set of PPP problems, the strategic
perspective is critical. At the core of this perspective is the focus on gov-
ernance, that is, on creating an integrated network of actors, institutions,
policies, instruments and regulations that would satisfy a broad range of
PPP stakeholders.
The Future of PPPs: Outlook

Although the future is difficult to predict, from the insights gained
through the study, this section aims to delineate the principal dimensions
along which PPP development in the two nations is likely to continue.
Conclusion 223
Drawing on the analysis presented throughout the book, the challenges

that will shape the PPP policy and implementation for years to come
can be highlighted. What challenges to further PPP development do
Kazakhstan and Russia face?
• The legislative framework needs to be consistent and free from ambiguity.

Governments need to avoid the use of ‘PPP’ as a language game in
which ‘a partnership’ means different things to different people. Since
2005, after over ten years of PPP experience, the governments in
Kazakhstan and Russia remain undecided about the meaning of a
PPP. Kazakhstan has been more consistent, as it has focused mostly on
contractual project-based partnerships and largely avoided contradic-
tions between national laws and regional regulations. In contrast,
Russia created massive confusion when many regionally adopted PPP
regulations contradicted federal laws. Furthermore, the lack of a con-
sistent PPP definition and other critical terminology has allowed the
regions to understand partnerships differently and, therefore, the data
about the actual number of partnerships and their nature may be inac-
curate. In addition, the varied understanding of the nature of a PPP
amongst federal policy makers, federal ministries, regional govern-
ments, PPP centres, municipal authorities and investors has diluted
and weakened overall efforts to deploy partnerships.
This vividly highlights the need to design a clear PPP legislative
framework that has been lacking in the country since the inception of
its PPP policy. The same applies to Kazakhstan, which also would ben-
efit from clearer and more comprehensive PPP laws. The international
experience demonstrates that governments in nations around the globe
(e.g. the UK, US or Australia) focus on contractual PPPs and create
laws and regulations for them. Other terminology regarding public–
private collaboration still may be used, although beyond the PPP legis-
lative framework. In 2015, both nations adopted PPP laws, which were
a positive step in addressing certain ambiguities, although there is still
significant scope for increasing the clarity and consistency of the PPP-
governing laws. The governments should understand and appreciate
the investors’ perspective on the legislative framework: if investors view
PPP laws as ambiguous and inconsistent, they are less likely to invest.
224 Conclusion
• Government and society at large need to deal with newly emerging PPP
drivers. These are a poor economic outlook, due to the low and rapidly
fluctuating oil price and Russia’s growing isolation.
It is likely that internal PPP drivers in Kazakhstan and Russia will
continue to exert pressure on governments for a lengthy period of
time. In particular, the need for massive overhaul of worn-out housing
and utilities infrastructure will remain, due to the enormity of the task
and the very high levels of investment required. Therefore, govern-
ments will continue to seek private investment in this sector.
However, new PPP drivers have emerged—Russia’s growing isola-
tion and related sanctions imposed by the Western nations, and a low
oil price, which has resulted in a lack of funds in the Russian banking
system. Cash-strapped Russian banks may be increasingly unwilling to
extend long-term loans to partnership projects, particularly when the
government does not provide loan guarantees. Furthermore, in the
current poor economic climate in Russia, with decreasing incomes and
massive closure of businesses, lending has become increasingly risky.
This has led to a higher risk premium that banks may charge for their
loans, and created a challenge for the government: how to increase
financing for partnerships whilst there is much less money in the bud-
get? Kazakhstan faces a similar challenge because low oil prices have
led to a considerable decrease in budget revenues, whilst the cost of
loans is very high. In particular, in May 2016, the base rate of
Kazakhstan’s National Bank was 15 %, a decrease from the 17 % rate,
which means that commercial banks’ rates are in the range of 18–25 %.
Although Kazakhstan does not face any political or economic isolation,
since 2014–2015, its economy has experienced a severe economic
downturn.
• Governments face a dilemma: either increase their financial support to
PPPs, which will therefore make private investment smaller and decrease
value-for-money, or slow down PPP proliferation.
The conflict between the need to increase government financial sup-
port and slowing down PPP expansion due to a lack of available bud-
get does not have a clear solution. An option that the governments
might entertain involves launching PPPs that require smaller invest-
ment and are limited in size and scope. However, this is unlikely to
Conclusion 225
increase the volume of public services that are much needed in both
nations.
• Governments need to re-think their own role in the ways in which they
support PPPs. Providing investors with a choice of PPP forms and models
was a positive change and a much-awaited legislative improvement.
However, it is not crucial for further development.
The issue regarding PPP forms and models (i.e. that both countries
until 2016 used exclusively a concession and the build-transfer-operate
model) seems to be inflated in the discussion among PPP actors in
Kazakhstan and Russia. Naturally, PPP partners should have a choice,
rather than be constrained by just one form or model. However, for a
private firm, being able to choose a form or a model will not automati-
cally create the motivation to invest in a PPP, and the availability of
funds for investment will remain unchanged. Whilst the issue with
limited models and forms vanished after the adoption of new laws in
2015, governments now need to focus their attention on the design of
financing channels and schemes for PPPs. These may include bonds,
investments in equity, introduction of special long-term financial
instruments that may be purchased by government-owned corpora-
tions and banks, the use of pension funds, and significantly more
active investments by citizens. The experience of both nations shows
that extending a subsidy to pay part of the project cost is an ineffective
instrument for supporting PPPs. Operators may mismanage the
money whilst SPVs shield investors from losses and minimise their
responsibility for a project, or certain risks may materialise and lead to
the depletion of funds. Instead of giving subsidies, the governments in
Kazakhstan and Russia need to re-think their role and methods of
providing support to partnerships. Ideally, the governments’ focus
should be on creating, together with the private sector partners, robust
financing schemes for a PPP and setting powerful incentives for a PPP
operator to meet the construction deadlines, achieve pre-determined
service standards and improve performance.
• Governments need to increase PPPs’ value to society.
Do partnerships create value by contributing to social, economic
and environmental sustainability? If so, how? What are the areas that
PPPs sustain and the sectors that PPPs develop? Do partnerships have
226 Conclusion
a certain impact on job creation, income generation and the develop-

ment of entrepreneurship? Once policymakers, practitioners and
scholars answer these questions, governments may be able to empha-
sise the role of PPPs as value creators, which may justify higher, than
in OECD nations, budgetary allocations to partnerships. In addition,
the PPP body of knowledge will benefit from answers of these ques-
tions. Whilst investors in a PPP may often enjoy a partnership’s
monopolistic position and government protection from competition
(e.g. a railroad), they might use these advantages for exercising a more
socially responsible approach to the creation of social value, for exam-
ple, by contributing to the development of local community.
Towards Effective PPP Governance: Citizens’

Engagement
In Kazakhstan and Russia, governments aim to create effective frame-
works and processes that would support rapid PPP implementation
across many sectors of the economy. Whilst doing this, governments
understandably need to justify and promote their own policies and pol-
icy tools, and this is when and how governments facilitate the euphoria
regarding PPPs. By disregarding or downplaying partnerships’ draw-
backs, governments often present PPPs as a panacea for many projects
requiring private investment, and that governments are unable to effi-
ciently finance and carry out themselves.
Ideally, efficient project implementation has to create value to society
in a manner where the marginal revenue (from service delivery) equals
or exceeds the marginal cost of providing the public service. As this
is rarely the case (i.e. costs are often high, whilst revenue may be very
low or replaced by a subsidy), at the present time, governments tend to
transform PPP debate into a policy paradigm that provides readily avail-
able answers, standardised solutions and—more generally—a universal
acceptance of PPPs regardless of the context. This is particularly true in
Kazakhstan and Russia where projects’ high costs undermine the core of
PPP development.
Conclusion 227
In contrast to the paradigm application, the need to assess a proposed

PPP project, both from the value-for-money perspective and from the
social value perspective, becomes increasingly evident. This would enable
the government to make a realistic assessment of the future PPP’s costs
and benefits and identify areas that require adjustment. Importantly, citi-
zens’ participation, particularly at the time of project approval (e.g. in the
identification of needs and service standards), is crucial for successful PPP
deployment. However, in those nations where civil society is underdevel-
oped, citizens’ participation in PPP design may be a challenging task or
simply unwelcomed by governments, although, ironically, a partnership
delivers public services to satisfy citizens’ needs. Whilst currently lacking
civil society, both Kazakhstan and Russia may significantly benefit from
the active engagement of citizens, interest groups, community associa-
tions and entrepreneurs’ fora in PPP governance at any stage—from proj-
ect design, to monitoring service quality, to asset transfer. This may form
the system of checks and balances that is much needed for long-term
public–private contracts in which large amounts of taxpayers’ money and
benefits are at stake. If effective, this system of checks and balances may
also enhance social cohesion in the two nations.
Index
A Andersen, O.J., 4, 9
abstract concepts, 156, 162, 163 anti-monopoly agency, 97, 122, 141,
accountability, 111 142, 147
active experimentation, 156, 162, 163 appointed PPP, 12
actors, xv, xvi, 91, 93–6, 98, 99, 101, Asenova, D., 7, 11, 211
104, 106–10, 116–19, 121, Asian Development Bank (ADB),
123, 126, 129, 141, 161–3, 30–1, 135
166–8, 171, 173, 204, 205, asset
207, 216, 221, 222, 225 ownership, 11, 85, 148
Adams, J., 117 transfer, 219, 227
adaptation, xiv, 166 asset life-cycle contract, 10, 11, 52,
Akintoye, A., 57, 125 73, 138
Aktau, city of, 31, 66 asset maintenance, 10, 74
Alpatov, A., 13, 25, 26, 29, 32, 60, availability of public
68, 92 services, 184, 190–3,
Amekudzi, A., 7, 11, 20, 21, 140, 197
190, 213 Azizov, A., 41, 80, 87

DOI 10.1057/978-1-137-56952-3
230 Index
B Central Asia, xiii, xiv

barriers challenge, xiv, xv, xvi, 30, 45, 79,
legal, 62 141, 167, 174, 203, 204,
regulatory, xi, 133–49 214, 216, 221, 223, 224
Bazhenov, A., Chan, A.P.C., 135, 140
Beaumont, P., 89 childcare, xv, 28, 55, 119, 123,
Beckett-Camarata, J., 188 125, 177, 185, 189, 192,
Beck, M., 7, 11, 211 194, 207
best practice, xvi, 2, 45, 46, 76, 77, citizens’ engagement, 161, 218–19,
130. See also international 226–7
best practice civil participation, 204, 221. See also
bids’ assessment criteria, 176 citizens’ engagement
Boardman, A., 7, 18, 21, 22, 90 Clarkson, B.E., 176
Board of Directors, 97, 99, 106–8 collaboration, 2–5, 7, 25, 26, 31, 33,
Borchert, H., 19, 21, 24, 144, 171 39, 41, 46–8, 60, 79, 81, 89,
Bovaird, T., 3, 10, 11, 23, 121 90, 92–4, 159, 161, 198,
Broadbent, J., 57 199, 207, 214, 215, 223
Buchanan, J., 188 Colman, J., 19, 144
Buchholtz, A.K., 176 commitment, xiii, 3, 24, 110, 120,
budget, 21, 22, 33, 37, 44, 57, 78, 79, 121, 126, 137–9, 149,
82, 83, 122, 137, 140, 164, 205, 222
180, 190–2, 197, 216, 224 communication, 8, 93, 100, 108,
budgetary constraints, 77, 180, 199 110, 159
budget deficit, 77, 78 concession, xiv, 10, 11, 25, 31, 32,
budget funds, 58, 64, 79, 119, 191 44, 47, 49, 51, 52, 58,
budget revenues, 79, 83, 216 60–7, 73–85, 87, 119, 120,
built environment, 173 122, 123, 133, 134, 136,
Bult-Spiering, M., 9, 80, 89, 134, 137, 153–6, 158, 159, 165,
139, 140 166, 185, 190, 194–7, 205,
bureaucracy, 44, 68, 95, 104, 135, 216, 222, 225
161, 164, 165 concessionaire, 10, 58, 74–6, 83, 84,
Burns, T.R., 207 92, 119, 155, 165
concrete experience, 156, 157,
161–3, 165, 167
C construction, 4, 5, 8, 9, 11, 12, 17,
Campbell, J.L., 206 21, 29, 31, 42–4, 58–60, 62,
capacity building, 172–4, 178, 179 64–6, 75, 76, 80, 85, 91, 95,
Carroll, A.B., 175, 176 97, 101, 118–20, 124, 126,
Carson, M., 206, 207 128, 139, 140, 155, 159,
case-by-case approach, 145 160, 163, 167, 179, 184,
Index 231
185, 189–92, 196, 205, 211, disaster risk management, xii,

217, 222, 225 171–81
contract, xiii, 2–4, 7, 8, 10, 11, 13, disincentives, 148, 149, 189
17, 24, 31, 48, 49, 52, 56, dispute resolution, xiv, 106–9, 111,
62, 65, 66, 73, 74, 76, 80, 205, 222
81, 84, 87, 90, 101, 120, dominance, xiv, 51, 57, 64, 85, 88,
135, 137, 138, 145, 155, 97, 98, 110, 148
158, 161, 164, 176, 177, Donaldson, T., 176, 177
180, 185, 195, 205, 211, Dorée, A., 139
214, 219, 222, 227 Dunfee, T.W., 177
incomplete, 7
contracting-out, 18, 21, 40, 56, 90,
139, 190, 213 E
contractor, 94, 106, 124, 126, 145, economic contract, 177
192. See also private economic crisis, 77–9
contractor effectiveness, 19, 24, 104, 107,
contractual arrangement, 3, 8, 125, 130, 143, 160,
139, 155 173, 176
contractual PPP, 3, 13, 51, 58, 209, efficiency, 6, 19, 20, 24, 30, 39–41,
210, 215, 223 46, 56, 80, 81, 117, 133,
co-operation, 13 143, 148, 149, 153, 171,
co-production, 57, 148 177, 213
core PPP service, 119, 196 Egan, J., 139
corruption, 80, 108 Eger III, R.J., 189
cost-benefit analysis, 174 energy sector, xiii, 9, 27, 43, 66
costs of borrowing, 23, 40, 46, 194 environment
customers, 4, 8, 10, 23, 24, 40, 43, economic, xiv, 130, 135
76, 88, 107, 117, 141, 142, political, xiv, 135
144, 147, 178, 179, 188, social, xiv, 130, 135, 166
189, 192, 195 Eurasian Economic Union, 77
Customs Union, 77 exchange rate risk, 52, 82
experiential learning, 153–68
experiential learning theory (ELT),
D 154, 156–8, 163, 165–8
decentralisation, 148 exposure to risk, 124, 126, 128, 194
demand risk, 118, 121–5. See also external cost, 188
revenue risk externalities
Dewulf, G., 9, 80, 89, 124, 134, negative, 21, 183, 184, 188, 190,
139, 140 197–9
disaster risk, 61, 172–4, 178–80 positive, 21, 184, 188, 198
232 Index
F 166, 177, 195, 205, 209,

Fassin, Y., 176 211, 212, 216, 222, 224
financial risk, 82, 115–30, 194 guarantees, 28, 68, 92, 117, 124,
financial support, xiv, 28, 40, 41, 46, 125, 192
62, 64, 68, 69, 82, 91–3, in-house service
121, 126–8, 155, 156, provision, 213
158, 159, 164–6, 177, 195, intervention, 188, 195
205, 209, 211, 212, 216, policy, xi, xii, 26, 33, 43, 46,
222, 224 47, 56, 75, 76, 79, 189,
financing cost, 115, 117, 118 213, 221
Firsova, A., 39, 40, 68, 87, 92, 183, regulation, 52, 83, 93, 96, 134,
195, 209, 211 139–45, 147, 149, 189,
Fischbacher, M., 89 197, 205, 222
flexibility, 12, 51, 52, 97, 98, 105–7, government-owned corporation, 64,
111, 140, 143–5, 148, 217, 225
149, 180 Greve, C., 5, 9, 62, 117, 171
Flyvbjerg, B.B., 125 Grimsey, D., 4, 5, 9, 11, 39, 56,
Fosler, S., 206, 207 57, 115, 117, 118, 121,
Freeman, R.E., 175, 176, 198 135, 138, 145, 171,
Friedman, J., 125 183, 211
guarantee culture, 92, 93, 115–30,
211
G Gupta, A., 140
globalisation, 25, 29, 32–3, Gupta, M.C., 140
45, 77 Gusev, I., 87
Glumov, E., 87
governance structures, 13, 99,
106–9, 111, 205, 222 H
governance theory, 7 Hall, D., 8–10, 23, 74, 117, 183,
government 190, 198, 213
agency, 5, 8, 95, 142 Hall, P., 206
commitment, xiii, 110, 120, hazard, 117, 173
121, 126, 137–9, 149, healthcare, xv, 9, 17, 27, 28, 41,
205, 222 44, 56, 66, 181, 189,
delivery, 40, 171, 207 191, 207
dominance, xiv, 57, 85, 148 Hodge, G., 5, 9, 62, 117, 171
failure, 178 Hofmeister, A., 19, 21, 24,
financial support, 28, 40, 41, 46, 144, 171
62, 64, 68, 82, 91, 92, 126, Hulst, R., 148
155, 156, 158, 159, 165, Hyman, D., 147, 188, 197
Index 233
I J
impediments to PPP development, Jacobson, C., 140
52, 133 Jefferies, M., 135
incentive, xv, 6, 47, 69, 125, 141, jointly formed project company,
143, 189, 196–8, 217, 225 99–100
industrialised economies, xv, 180 joint venture, 7, 8, 105, 106
inefficiency, 148 Jones, T.M., 176
inflation, 143, 190, 191
infrastructure, xii, 4, 9, 17, 18, 21,
27, 28, 30, 33, 43, 58, K
60–2, 68, 117, 124, 125, Kabashkin, V., 25, 27, 41, 46, 68,
130, 171–81, 183, 185, 88, 183
194, 197, 215, 224 Kakabadse, N.K., 7, 10, 19, 23, 24,
in-house service provision, 213 65, 176, 177
innovation, 3, 6, 7, 33, 38, 39, 42, Karaganda, 31, 41, 44, 65, 125, 184,
153, 171, 197 185, 190, 192–5
input specification, 5, 140 Kazakhstan, xi–xvi, 1, 10, 12, 13,
institutional capacities, 206, 207, 209 17–33, 37–52, 55–69,
institutional framework, xii, 37, 59, 73–85, 87–90, 92, 95,
134–9, 145 97–9, 101, 106, 109,
institutionalisation, 206, 207 115–30, 133–49, 174, 175,
institutional PPP (IPPP), 7–8, 12, 177–80, 183–6, 189–93,
136, 204 195, 198, 203–5, 207, 209,
types of, 8 210, 213–18, 221–7
international best practice, 45, 46, 77 Kelly, C., 156
international organisations, 25, Klijn, E.-H., 3, 5, 7, 9, 117, 121,
29–31, 45, 117 135, 139, 140, 144, 148
investment channels, 59, 209 Kolb, D., 156–8, 161, 163, 167
Investment Fund of the Russian
Federation, 47
investors L
foreign Laughlin, R., 57
private, xi, xiv, 8, 9, 12, 28, 33, law on concessions, 49, 58, 62, 73,
43, 49, 51, 62, 69, 92, 93, 75, 78, 82, 133, 134, 136,
116, 117, 122, 126, 128, 137, 154, 155, 158,
130, 133, 138, 149, 160, 164–6, 195
161, 163–5, 177, 185, 189, learning cycle, 156, 158, 161, 163,
190, 197, 198, 209, 211 165, 167
IPPP. See institutional PPP (IPPP) stages, 160–3
Ismail, S., 135, 138 leasing contract, 48, 211
234 Index
legal/legislative framework, xiv, 4, 5, municipal government, 51, 93, 101,

52, 75, 135–9, 158, 214, 122, 139, 154, 155, 158,
215, 223 164, 186
lender, 2, 184, 190, 193–6, 198 mutuality, 3, 49, 81, 121
Lewis, M.K., 4, 5, 9, 11, 39, 56, 57,
115, 117, 121, 135, 138,
145, 171, 183, 211 N
Li, B., 135 national government, 12, 31, 44, 78,
loan, 21, 23, 28, 40, 59, 65, 68, 137–9, 193
79, 82, 84, 85, 92, 93, natural monopoly, 106, 161
117, 159, 190, 194, 198, neo-liberal agenda, 57
216, 224 New Economic Policy (NEP),
loan guarantees, 59, 82, 85, 216, 224 New Public Management (NPM),
56, 57
non-concessionary
M approach, 162
maintenance, 3–5, 10, 61, 74, 80, dilemma, 156
81, 85, 118, 140, 174, 178, framework, 158
185, 191 option, 156, 162, 163
management structure, 101–4 non-core PPP services, 118, 119
market failure, xii, 56, 147, 180, Northern Capital Gateway, 31, 58
183–99
marketisation of the public sector, 57
McVea, J., 198 O
Menahem, G., 206 obligation, 2, 11, 23, 80, 139, 149,
Mitchell, R., 176 176, 191, 214
monopolising, 184, 198 oil, 13, 48, 79, 83, 139
monopolistic pricing, 142 oil price, 45, 79, 83, 215–16, 224
monopolistic trends, 143, 190, operator, xv, 6, 28, 31, 39, 58, 80,
197, 198 81, 83, 93–102, 104–8,
monopoly, 143, 147, 196–8 111, 118–26, 129, 134,
Morallos, D., 7, 11, 20, 21, 140, 140–5, 147–9, 159, 161,
190, 213 163, 164, 175, 180, 186,
Moscow, 76, 83, 85, 104, 154, 191, 192, 194, 217, 225.
158, 174 See also private operator
motivation, 39, 56, 77, 85, 93, 143, opportunism, 89, 127
193, 217, 225 opportunistic behaviour, 89, 90,
Mouraviev, N., 60, 65, 125, 174, 127, 147
176, 177 organisational form, 52, 87–111
Index 235
Organisation for Economic PPP centres

Co-operation and national, 29, 59, 62, 65, 66, 106,
Development’s (OECD), 136, 142, 185, 204
xvi, 13, 18, 38, 41, 46, 58, regional, xv, 29, 30, 59, 66, 106,
75, 76, 85, 203, 209–11, 133, 136, 141, 144, 161,
214, 217, 226 166, 204, 221
Osborne, S.P., 5, 62, 117, 138, 171, PPP drivers
172, 180 external, 17–33, 38, 45, 51
output specification, 5, 20, 81, 84, internal, 17–33, 38, 43, 51,
140, 205, 214, 222 , 224
overregulation, 148, 149 PPP models
ownership, 8, 11, 12, 48, 79, 80, 85, build-operate-transfer (BOT),
99, 116, 148, 154, 185, 186 11, 80
build-own-operate-transfer
(BOOT), 11, 80
P design-build-finance-operate-
Pankratov, A., 25, 28, 29, 39–41, 68, transfer (DBFOT), 11
88, 92, 211 design-build-own-operate-
paradigm shift, 214 maintain-transfer
Parker, D., 172 (DBFOOMT), 11
partner dominance, 88, 98, 110 practice or praxis, xi, xiii, xiv, xvi, 37,
partnering, reasons for, 18–22 46, 51, 57, 77, 79, 84, 85,
partner interaction, xi, xiii, 4, 5, 7, 9, 88, 109, 144, 148, 149,
22, 87–111, 116, 130, 147, 154, 166, 192, 196, 198,
205, 222 203, 204, 214, 221
partner relations, 98–104 pressure, 25, 29, 31, 45, 61, 95, 97,
partner rights, 88 161, 174, 180, 183, 215,
Peters, G., 89, 140 224
Philips, R., 175, 176 Preston, L.E., 176, 177
Pierre, J., 89, 140 price-setting, 139, 143
policy paradigm, xii, 33, 46, 85, 128, principal-agent relations, 139
203–19, 222, 226 private borrowing, 46, 82, 190
Pongsiri, N., 90, 134 private contractor, 94, 106, 126,
power, 9, 12, 17, 42, 43, 60, 61, 75, 192. See also contractor
101, 106, 144, 157, 166, private expertise, 20, 116
174, 175, 177–9, 181, private finance initiative (PFI), 10,
183, 194 11, 74
power arrangements, 105, 157, 158, private financing, 27, 33, 43,
162, 166, 168 185, 190
236 Index
private funds, 10, 11, 20, 21, 33, 43, public acceptance risk, 121, 159
45, 65, 74, 78, 82, 83, 116, public agency, 4, 8, 10–12, 20, 23,
154, 171, 178, 188, 213 24, 27, 74, 94, 189
private investment, 27, 28, 43, 61, public economics perspective,
62, 154, 167, 171, 173, 184, 188
178, 188, 197, 215, 216, public goods, 20, 188, 189
218, 224, 226 public interest, 12
private investors, xi, xiv, 8, 9, 12, 28, public management, 40, 56, 65, 79
43, 49, 51, 62, 69, 92, 93, public partner, 64, 88
116, 117, 122, 126, 128, public policy, 5, 25, 31, 38, 40, 42,
130, 133, 138, 149, 160, 61, 65, 203, 207
161, 163–5, 177, 185, 189, public-private corporations, 48,
190, 197, 198, 209, 211 49, 79
private operator, 6, 39, 81, 94–6, 98, public-private partnership (PPP)
102, 105, 107, 122, 124–6, actor, 108, 119, 123, 161
140, 142, 145, 147–9, 164, advantages, 22, 38, 46, 89, 143
180, 191, 192, 194 benefits, 209
private partner, 4, 5, 8, 10, 11, 21, centre, xv, 29, 30, 59, 62, 65, 66,
24, 28, 39, 40, 65, 68, 69, 101, 106, 133, 134, 138,
74, 76, 80–2, 84, 85, 88, 158, 161, 165, 168, 204,
91, 92, 94, 97, 116, 125, 209, 215, 223
126, 140–4, 192, 194, 195 characteristics, 3, 166, 211
privatisation, 5, 148, 180 consortium, 10, 31
procurement, 3, 17, 19, 48, 49, 90, contract, 2, 11, 13, 31, 87, 101,
127, 135, 148, 180, 213, 137, 158, 164, 180, 195
217, 222 costs, xv, 39, 40, 46, 68, 69, 76,
production-sharing agreements, 48, 118, 126, 130, 144, 190,
49, 79 191, 194, 195, 198, 213
profit, 6, 22, 39, 43, 92, 93, 116, definition, 56, 215, 223
142–4, 153, 180, 189–91, deployment, xii–xv, 26, 27, 29,
194, 195, 211 37, 41, 43, 45, 52, 57–62,
project-based PPP, 8, 215, 223 64–6, 75, 77, 116, 130,
project financing, 12, 23, 59, 91–5, 133, 134, 147, 173–5,
97, 115, 118, 190 178–80, 195, 203, 205,
project implementation, xv, xvi, 2, 4, 213–14, 218, 222, 227
11, 68, 89, 90, 99, 101, development, xii–xvi, 1, 18, 25,
126, 218, 226 30, 32, 33, 45, 46, 55–67,
project launch, 89, 90 88, 89, 115, 133–6,
public acceptance, xv, 121, 161 138, 139, 153, 166, 174,
Index 237
175, 180, 193, 203–19, shortfalls, 18, 22–4, 87

221–3, 226 success, 89
disadvantages, 22 success factors, 136
drawbacks, 24 tools, xiv
drivers, 17–33, 38, 42–6, 51, value-for-money, xv, 213
215, 224 public procurement, 3, 17, 135, 180
formation, xi, xvi, 12–13, 18, 28, public sector, xi, 2, 4, 5, 9, 12,
41, 46, 57, 66, 87, 88, 128, 19–21, 23–5, 28, 40, 41,
134, 138, 157, 158, 160–4, 44, 57, 64, 65, 81, 83, 85,
166, 167, 173, 178, 188 88, 97–100, 106, 110, 120,
forms, 1, 9–12, 20, 25, 32, 38, 122, 140, 143, 148, 159,
47, 48, 51, 52, 73, 75, 80, 167, 171, 199, 213
85, 216, 225 public service provision, 19, 21,
governance, xi, xii, xiv, xvi, 22, 89
88–91, 106, 109–11, 115, public services, xii, xv, 3, 7–9, 11,
133–49, 218–19, 226–7 17, 18, 21–3, 37, 41–3, 49,
implementation, 2, 29, 52, 85, 55–8, 61, 68, 79, 81–3, 85,
87, 133–5, 145, 218, 226 94, 95, 98, 116, 129, 140,
innovation, 24, 38, 39 142–5, 147, 149, 153, 167,
law, xiii, 51, 58, 73, 78, 80, 92, 171, 174, 175, 177–9,
135, 137, 138, 145, 164, 183–5, 189–93, 197, 198,
195, 209, 215, 223 207, 211, 216, 218, 225–7
management, xi, xii, xiv, xvi, public value, 172, 180
8, 88, 90, 107, 134,
139–45, 148
meaning, 1–14 Q
models, xiv, 11, 85, 159, 179 Qiao, L., 135, 136
operations, 9, 60, 133, 145 quality, 19–25, 57, 77, 79, 81, 88, 98,
operator, xv, 6, 94, 96, 97, 100, 111, 140, 147, 176, 177,
106–8, 118, 134, 141–4, 179, 205, 219, 222, 227
147, 148, 163, 217, 225
organisational form, 87–111
performance, 5, 135, 140, 141 R
policy, xii, xiii, 46, 51, 75, 84, 87, railroad, 9, 17, 27, 28, 43, 62, 64,
180, 204, 206–15, 221, 223 66, 75, 79, 92, 96, 100,
(see also policy paradigm) 119–22, 124, 126, 142,
proliferation, 43, 46, 56, 128, 147, 154, 158, 160, 161,
166, 179, 185, 216, 224 188, 189, 195–8, 205, 217,
shortcomings, 22, 23 222, 226
238 Index
reflective observation, 156, 160–3, premium, 118, 190, 191, 194,

167 216, 224
regional development, 28 sharing, 117
regional government, xiv, 29, 44, 48, transfer, 125, 155, 167
59, 88, 101, 104, 108, 137, risk-averse behaviour, 116, 124–6
138, 148, 159, 160, 164, road, xiv, 10, 30, 42, 44, 74, 76, 83,
165, 183, 209, 215, 223 85, 147, 154, 185, 196,
regional integration, 77 205, 222
regulation, xiv, 8, 12, 30, 44, 48, 52, Rosen, H., 188, 189, 197
74, 80, 83–5, 87, 92, 93, Russia, xi–xvi, 1, 10, 12, 13, 17–33,
96, 97, 106, 134, 135, 37–52, 55–69, 73–85,
138–45, 147–9, 164, 189, 87–90, 92, 93, 96, 98, 99,
197, 204, 205, 209, 211, 101, 104, 106, 109,
215, 222, 223 115–30, 153–68, 174, 175,
relations 177–80, 183–7, 189, 191,
formal, 108 193, 195, 196, 198, 203–5,
informal, 108, 111 207, 209–11, 213–18,
relationship quality, 88 221–7
reporting requirements, 101, 105
resilient infrastructure, 172, 173
resource allocation, 6, 188 S
revenue risk, 115–30. See also Sadka, E., 7, 10, 11, 23, 74, 116,
demand risk 127, 190
revenue stream, 52, 115, 117, 118, Sadran, P., 9–11, 175
124, 125, 128, 193 sanctions, 32, 59, 79, 215, 224
risk Savas, E.S., 172, 180
allocation, xv, 5, 7, 13, 49, 65, 66, Sedjari, A., 3, 9–12, 20, 89
82, 89, 115, 117, 125, 130, self-interest, 147
205, 211, 222 Sendai Framework, 172
allocation principles, 115, service contract, 48, 52, 73
117, 118 service quality, 20, 57, 81, 98, 111,
distribution, 115, 116 140, 205, 219, 222, 227
governance, 117, 130 Sfakianakis, E., 180
management, xii, 2, 13, 88, 91, Shabashevich, M., 211, 213
115–30, 171–81 shadow tolls, 10, 74
mitigation, 13, 33, 119, 121–3, shared responsibility, 9, 94, 121, 175
127 shared risk, 49, 211
mitigation tools, 119, 121, 122, shared values, 45
126, 129, 130 Siemiatycki, M., 125
Index 239
social contract, 177 subsidy, 28, 40, 48, 81, 82, 84, 85,
social costs, 21, 22, 89, 90 92, 117, 128, 195, 217,
social environment, xiv, 166 218, 225, 226
social infrastructure, 30, 58, 171, sustainability, xv, 7, 56, 172, 188,
185, 197 198, 217, 225
socially significant project, 38, 41 synergy, 20, 39–41
social or societal benefits, 77, 153
social sector, xiii, 64–6, 124,
183, 189 T
social significance of a project, 38, tariff, 2, 24, 28, 40, 95–7, 107, 122,
41–2 129, 140–3, 147–9, 161,
social sphere, 65, 66, 185, 189 189, 195, 205, 222
social value, 7, 174, 178–80, 217, tariff-setting, 91, 95–7, 145, 147–9
218, 226, 227 tax incentives, 47
societal experience, 161–3, 166, 167 Teisman, G.R., 3, 5, 7, 9, 121, 135,
society, xv, 7, 9, 25, 40, 115, 117, 139, 140, 148
118, 157, 161, 172, 173, Tilebaldinov, K., 41, 75
177, 178, 190, 215, 217, Tiong, R.L.K., 140
218, 224–7 toll road, xv, 42, 66, 83, 85, 147,
solidarity, 3, 121 154, 155, 157, 158, 164,
Sopryakov, V., 154, 196 167, 185, 186, 196,
special economic zones, 3, 13, 47–9, 205, 222
60, 79 Toonen, T.A.J., 148
special purpose vehicle (SPV), 99, total cost, 41, 76, 117, 188, 213
101–5, 217, 225 transaction cost economics (TCE),
spillover, 184, 188 21, 22, 40, 46, 89, 90, 127,
spillover effect, 183, 184, 188, 198 175, 176, 179, 213
stakeholder, xii, 43, 88, 130, 160, transaction costs, 21, 177
161, 175–7, 205, 214, transitional countries, xvi, 13,
222 14, 18, 24, 31, 84,
stakeholder engagement, 160, 161 124, 134, 168, 183,
stakeholder theory, 175–9 184, 189
standards, 41, 57, 65, 66, 76, 79–81, transitional nations, 178, 180, 189
85, 98, 139, 144, 176, 177, transparency, 20, 93
179, 197, 203, 206, 217, transportation, xiii, 9, 44, 66, 80,
218, 225, 227 85, 124, 147, 161, 183,
Stiglitz, J., 147, 188, 189, 197 188, 189
St Petersburg, 31, 58, 83, 104, 184, Trogen, P.C., 189
185, 191, 205, 222 trust, 25, 52, 88
240 Index
U Vince, R., 157

Ulbrich, H.H., 188, 189, 197 Vining, A., 7, 17, 18, 21, 22, 90,
uncertainty, 90, 111, 115, 117, 129 127
underinvestment, 183, 191 Vnesheconombank, 29, 59, 158,
uninterruptible supply, 178, 179 161, 165
unitary state, 44, 148
United Nations Development
Program, 29, 30 W
Urio, P., 56, 57, 124, 134, 136, 190 wage rate, 140, 141, 144, 145, 149
user charges, 4, 23, 74 Wettenhall, R.A., 56, 57, 145
user fee, 10, 24, 74, 83, 155, 158, 179 Whitfield, D., 117
utilities, 17, 27, 28, 33, 43, 58, 60, 61, whole-of-life costs, 19
174, 178–80, 183, 188, 189, Williamson, O., 177
194, 195, 198, 215, 224 Williams, T., 10, 11, 74, 145
utilities and housing infrastructure,
27, 28, 33, 43, 58, 61, 174,
178–80 Y
Yescombe, E.R., 56, 176, 177
V
Varnavskiy, V., 25, 28, 29, 39–41, Z
47, 48, 60, 75–7, 88, 92, Zhang, X.Q., 140
183, 195 Zusman, E., 40, 41, 80, 87, 88

Mouraviev 2017

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Mouraviev 2017

Uploaded by

Copyright:

Available Formats

NIKOLAI MOURAVIEV

ISBN 978-1-137-56951-6 ISBN 978-1-137-56952-3 (eBook)

Library of Congress Control Number: 2016958208

© The Editor(s) (if applicable) and The Author(s) 2017

Printed on acid-free paper

This Palgrave Macmillan imprint is published by Springer Nature

1 PPP Meanings and Forms: A Critical Appraisal 1

2 Internal and External PPP Drivers in Kazakhstan

3 Why Partnerships? The Approaches in Kazakhstan

4 PPPs in Kazakhstan and Russia: The Nature and Scope

5 Concessions: PPP Pathﬁnder 73

6 Partner Interaction Dynamics and PPP

7 PPP Risk Management: Management of Financial

8 Legal and Regulatory Barriers to Eﬀective PPP

9 Case Study: How Experiential Learning Facilitates

10 The Role of PPPs in Disaster Risk Management

11 PPP Impact on Market Failures and Externalities 183

12 Critical Issues in PPP Development, an Emerging

Table 1.1 PPP fields of study and underpinning theories 6

Public–private partnerships (PPPs) continue to draw considerable atten-

of partnerships in disaster risk management in infrastructure and the

ensuring fast PPP deployment in the nation. More fundamental prob-

• What is the meaning assigned to the term ‘PPP’? There is no doubt

decreases PPP value-for-money and creates distorted risk allocation

contexts. Although Kazakhstan and Russia’s environment is unique, prac-

Dundee, UK Nikolai Mouraviev

© The Editor(s) (if applicable) and The Author(s) 2017 1

A better, more coherent and useful way of looking at a PPP is to iden-

• Solidarity between the public and private partners (Sedjari 2004).

In sub-contracting, the parties involved normally do not expect fea-

explain how, exactly, collaboration in a partnership happens and for

(a) An agreement between a public agency and a private partner must

Tangible PPP elements—legal long-term contracts, asset construction

The Underpinning Theories

Table 1.1 PPP fields of study and underpinning theories

Other studies focus on a PPP as an organisational and financial

Contractual Versus Institutional PPPs: Principal

compete for a formally tendered contract; in other words, where a service

A Summary of Approaches to the Meaning

From an organisational perspective, PPPs may take specific forms such

The asset’s private ownership appears to be temporary (although long

Who Initiates PPP Formation?

2012). The existing partnerships in Russia and Kazakhstan clearly illus-

position adopted by some authors and governments regarding a specific

© The Editor(s) (if applicable) and The Author(s) 2017 17

Bulgaria, Croatia, Kazakhstan and Russia are only just beginning

Reasons for Partnering

The literature thoroughly explores numerous reasons for partnering.

‘Value for money is defined as the optimum combination of whole-of-life

also the quality of goods or a service, rendering the output specification

– Improvement of management capabilities of the public sector

project, even if they do not appear in the project’s budget. In addition,

effects of PPPs (Haque 2004). This section focuses on the identification

Other PPP shortfalls can include personal and organisational differ-

Internal and External PPP Drivers

Internal PPP Drivers External PPP Drivers

PPP as a direction and priority of the public policy

Internal PPP Drivers

the Conception for Development of Public–Private Partnerships for

A Need to Obtain Private Financing for Utilities

As Fig. 2.1 shows, one internal factor is a commonly shared assumption

A Need to Increase Attractiveness of Selected

Another internal PPP driver of a country-specific nature, and which applied