Privately funded public projects will boost growth
Public-private partnerships have been used in Europe for several years and with great success regarding the development of property owned by the state and local authorities. Examples abound, especially in the UK, Spain and Portugal; it is especially worth noting the role of local governments in promoting development, in the framework of large-scale urban renewal projects that attract significant amounts of private capital. The experience in other countries may be heartening for Greece, as it is about to embark on wide-scale public-private partnership projects. We must note, however, that the foreign markets enjoy greater liquidity and capacity to attract foreign capital as the result of more effective tax, legal and urban-planning frameworks. «The draft law on public-private partnerships is obviously a positive step for the Greek market as it shapes the legal framework for activities that are essential for boosting construction and development,» says a top manager at a property development firm. «Any big public projects done in the framework of a public-private partnership (Athens International Airport, the Attiki Odos highway and the Rio-Antirio bridge) had required special legislation in each case, something which led to considerable delays in their implementation. At least the present (draft) law takes care of such things,» he adds. According to Economy and Finance Minister Giorgos Alogoskoufis, the draft law on public-private partnerships will also help fiscal policy since it will ensure accelerated progress in many badly needed infrastructure projects. It will also help free up state resources that can be used for other investments or social welfare policies. At the same time, Alogoskoufis said, projects that the state was unable to finance all by itself could now be implemented. According to the draft law, public-private partnerships can be formed to build roads, airports, schools, tax inspectorates and any other sort of public buildings. Now, such projects will be implemented by private operators who will finance and operate them for a specific period of time. The law exempts projects that have to do with national defense, policing and justice. Thus, no privately operated prisons will be built. For projects budgeted at up to 200 million euros, the process of awarding the contracts will be very simple, while larger projects will require a report by the Interministerial Committee on Public-Private Partnerships. Private builders will recoup their investment either through the final users (i.e. citizens), as in the case of highway tolls, or by the state or local authorities in the form of rent for privately built public buildings. The draft law also provides tax incentives, such as tax breaks, return of VAT and amortization of costs over a 10-year period. It also provides for accelerated procedures for environmental impact assessment studies and permits from archaeological authorities. Both of these must be completed, or issued, within 60 days. Private contractors will be compensated for delays. The UK experience Public-private partnerships have been used with great success in property development projects in the UK, among other countries. In 1998, the Department of Social Security (DSS) transferred the management of its entire property portfolio – comprising 650 office buildings with a total space of 17 million square meters – to Land Securities Trillium (LST), a property development company owned by US investment bank Goldman Sachs. LST leased the portfolio for 20 years, paying 375 million euros for the right to develop it. In the first year alone, DSS gained 74 million euros from the deal. Its gains over the 20-year period of the deal will amount to 840 million euros. Building maintenance costs were reduced by 15 percent. Three years later, in 2001, the Inland Revenue and Customs Service signed a 20-year, 330-million-euro, sale and lease-back contract with the Mapeley Group, partly controlled by financier George Soros. The contract involved 600 buildings with an office space of 14 million square meters. The gains for the public organization amounted to 100 million euros over the first year and will exceed 1 billion over the 20-year period. The public-private partnership model was also followed by the BBC, which contracted out part of its assets (500 buildings, 7.5 million square meters of office space) to LST for 30 years and 383 million euros. This deal reduced the BBC’s borrowing requirements significantly and secured a steady cash flow, also reducing operational costs. most of the extra capital was used for TV productions. Adopting the UK model in Greece could help alleviate the liquidity problems faced by social security funds. According to the latest budget, the value of their property is 717.42 million euros, including several properties with high commercial potential. The Social Security Foundation (IKA) alone has properties valued (objective, not market value) at 223.5 million euros.
