Republic of Croatia

Agency for PublicPrivate Partnership

Program: IPA 2008 FPPRAC

Partner Country: Croatia

Area of Cooperation: Public procurement

TWINNING LIGHT PROJECT FICHE

Further strengthening

of the PublicPrivate Partnership System

in the Republic of Croatia

Project budget: 250.000,00 EUR

STANDARD TWINNING LIGHT PROJECT FICHE

1.Basic Information

1.1Program: IPA 2008 FPPRAC

1.2Twinning Number:

1.3Title: Further Strengthening of the Public Private Partnership System in the Republic of Croatia

1.4Sector: Public Procurement – Public Private Partnership (PPP)

1.5Beneficiarycountry: Republic of Croatia

2.Objectives

2.1Overall Objective:

The overall objective of the project is to further develop a sound and transparent public procurement system in the area of public private partnership in the Republic of Croatia.

2.2Project purpose:

The project purpose is to strengthen administrative capacities of the Agency for Public Private Partnership and other relevant authorities in regardto the management of public private partnership projects’ preparation and implementation.

2.3 ContributiontoAccession Partnership/ Stabilisation and Association Agreement/

Program of the Government of the Republic of Croatia for adoption and implementationof the acquis communautaire:

Accession Partnership

By achieving its results, this twinning light project will contribute to complete key priorities set in Accession Partnership’sChapter 5 – Public procurement, by further development of the Public-Private Partnership model, its usage and media perception in the Republic of Croatia.

Stabilization and Association Agreement (SAA)

This Project is in compliance with overall objectives of the Stabilization and Association Agreement.

Program of the Government of the Republic of Croatia for adoption and implementation of the acquis communautaire for 2012

By achieving its results, this twinning light project will contribute to enhancement of administrative capacity of public service and spreading further knowledge about the public-private partnership models in Republic of Croatia.Also, development of additional methodological tools specified in this twinning light project documentation will provide assistance to all participants in public-private partnership system, regarding public-private partnerships in handling the project implementation process procedures according to the public-private partnership model.

All of the results mentioned above will contribute to implementation of tasks stated in the Program of the Government of the Republic of Croatia for adoption and implementation of the acquis communautaire for 2012, where it is stipulated that thorough educational program is necessary, aimed for both central and local public sector institutions in order to enhance the quality of the public-private partnership projects that are to be proposed and implemented. The educational program is expected to be initialized under this twinning light project, by the end of 2012.

Croatia 2011 Progress Report

In the Chapter 5: Public Procurement, the following is stated:

“The process of strengthening the Agency for Public-Private Partnership (APPP) continued. In December 2010 the Ordinance to set up the PPP Registry was adopted. In addition, a PPP Guide has been drawn up and published in line with the new legislative system. The APPP

staff participated in training courses in the field of concessions and PPP in co-operation with

the other key institutions in the sector.”

"Special attention should be paid to aligning the secondary legislation with the new PP Law, maintaining the co-ordination mechanisms and enhancing the capacities of the institutions in the sector by means of the continuous training and professional development of their staff."The above mentioned is to be continued and further developed through this project by setting advanced financial, technical, legal as well as tools linked with combining EU funds with PPP financial model and shared with all potential parties in local and central contracting authorities and line ministries.

3.Description

3.1Background and justification:

Public private partnership (hereinafter: PPP) is a form of contractual agreement between public authority and private partner, in general, with the aim of carrying out infrastructure projects and/or providing public services. The resources, risks and rewards of both the public and private partner are combined to provide greater efficiency, better access to capital and improved compliance with a range of regulations. The public interests are fully assured through provisions in the contracts that provide ongoing monitoring and oversight of the operation of a service or development of a facility.

According to their financing scheme, PPP projects fall into three following categories:

1)Projects that are designed, built, financed and maintained/operated by the private sector and their cost is repaid directly by the public sector (e.g. hospitals, schools, prisons) – also known as the Private Finance Initiative (PFI) model.

2)Projects in which the cost of capital is shared between the public and the private sector, while the private sector has the total responsibility for the project.

3)Financially free-standing projects, financed by the private sector, the investment of which is repaid by the revenues from the end-users of the project.

There is no specific legal framework for PPPs at European level. Any act whereby a public entity entrusts the provision of an economic activity to a third party must be examined in the light of the rules and principles of the Treaty on the Functioning of the European Union. With regard to the freedom of establishment and the freedom to provide services, these principles encompass transparency, equality of treatment, proportionality and mutual recognition. The Treaty on the Functioning of the European Union thus applies to PPPs. Certain forms of PPPs are subject to European legislation on public procurement procedures (procurement directives:Directive 2004/17/EC of 31 March 2004coordinating the procurement procedures of entities operating in the water, energy, transport andpostal services sectors, and Directive 2004/189/EC of 31 March 2004 on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts). Croatian legislation is fully in line with the EU legal framework.

Revised in 2004, this legislation introduced a new procedure for awarding contracts: the competitive dialogue. PPPs may be involved in works or services concessions. Also, the Commission adopted the Green Paper on Public Private Partnerships and Community Law on Public Contracts and Concessions (the PPP Green Paper)on 30 April 2004.

First public private partnership projects in Croatia were applied almost twenty years ago in the field of the road infrastructure (the Istrian ‘Y’ motorway). Since then, not only similar highway projects of concession PPP model, but also schools, sport halls, public buildings and similar projects, based on PFI model, have been successfully launched. Government of the Republic of Croatia, during its session on the 8 June 2006, accepted the “Guidelines for the implementation of models of Public Private Partnership (PPP)” (Official Gazette, 98/2006) and thus gave its support to the development of projects following the PPP model. Guidelines for PPP were also supported by the Croatian Parliament which demonstrated a strong political will to further develop and implement PPP model for the growth and infrastructure building in the Republic of Croatia.

Furthermore, „Regulation on issuing a pre-approval for public private partnership contracts, following the model of private financial initiative (PFI)” was adopted by Government of the Republic of Croatia in February 2007 (Official Gazette 20/2007). This Regulation defined obligatory content of the application to be submitted for issuing a pre-approval of PPP contracts, following the model of private initiative for projects of local and regional self-government, institutions founded by local and regional units and companies whose majority owners are units of local and regional self-government, obligatory enclosures and the method of reporting on the signed contracts. This regulation has inaugurated an obligation for the public partner to be provided with positive opinion of the Trade and Investment Promotion Agency’s (TIPA) PPP Sector (first ever governmental body to be related to PPPs in Croatia) concerning a final draft of the PFI contract before it’s signing, as a precondition of the final approval from the Ministry of Finance to have the contract signed and to accept related fiscal obligations.

To facilitate the implementation of PPP projects and encourage private sector to invest into infrastructure construction, renovation, management or maintenance, or the provision of services through PPP, the legal framework needed to be further developed. At that time, in areas on which successful PPPs depend, the legal framework was constraining the application of PPPs. So, it was necessary toimprove the legislation prior to the widespread use of PPPs in delivery of new infrastructure.

The law needed to assure specific legal rules in respect of the implementation of PPP projects for supervising, monitoring and facilitating the selection and contracting of such projects, and for monitoring the performance and fulfillment of contractual obligations, and thus such matters were closely discussed with other institutions of Public Procurement sector[1], during the preparation of the Strategy of the Public Procurement System Development and its Action Plan that the Government of the Republic of Croatia adopted in June 2008. Strategy and its Action Plan laid out basic principles and objectives of public private partnership development in the Republic of Croatia.

The Croatian Parliament adopted on 24October 2008 the Act on Public Private Partnership (Official Gazette No 129/08), which entered into force on 15November 2008.Secondary legislation was adopted in spring 2009, and consists of the following regulations:

  • Regulation on the Criteria for the PPP Project Assessment and Approval OG 56/09
  • Regulation on the PPP Contracts Content OG 56/09
  • Regulation on the PPP Projects Implementation Supervision OG 56/09
  • Regulation on the Training of the Participants in Procedures for the Preparation and Implementation PPP Projects OG 56/09

Furthermore, in line with the Act on Public Private Partnership, the Agency for Public Private Partnership (APPP) was registered in the Register of the legal entities on 21 November 2008.At the beginning of 2009, the TIPA PPP Sector staff became APPP staff.

The Agency is responsible for evaluating and approving PPP project proposals, tender documents, and the final draft contracts pursuant to the provisions of PPP Law, for publishing of notifications on the approved PPP projects, organizing and keeping the Register of signed contracts, monitoring the implementation of PPP projects under the provisions of the PPP Law, proposing draft proposals for subordinate acts and giving implementing instructions pursuant to the provisions of PPP Law. The APPP is organizing and implementing training and education of the participants in the preparation and implementation of PPP projects, and in cooperation with other competent bodies organizes specialist training programs for public bodies in line with the program and criteria that are specified by the Government in the Regulation on the training of participants in the preparation and implementation of PPP projects. APPP is studying the national and foreign PPP cases and promotes the implementation of the best practices in co-operation with foreign state bodies entitled to apply PPP models and implement PPP projects, and with the international organizations and institutions for the purpose of advancing the national PPP model theory and implementing and performing other tasks in accordance with the provisions of PPP Law and the Statute of the Agency.

On 17December 2008 (Official Gazette No 146/08) the Government of Republic of Croatia passed a Conclusion cancelling further use of the “Guidelines for the Implementation of Contractual Forms of Public Private Partnership” published in the Official Gazette No. 98/2006, with a reference to the application of the new Act on Public Private Partnership, enforced in the meantime.

During the late 2009 and beginning of 2010, APPP took very important international initiatives: APPP become member of European PPP Expertise Center (EPEC) as well as initial Secretariat of South-East Europe PPP Network that was established by Regional Co-operational Council. With EPEC relation established, APPP was introduced to experiences of combining EU funds with PPP financial models and hereby needs to analyze best solution applicable for Croatia.

In the first half of the year 2010 APPP successfully implemented IPA 2007 TAF Twinning Light Project Strengthening of the Administrative Capacity of the Agency for the Public – Private Partnership in the Republic of Croatia in Relation to the Implementation of the New Public private Partnership Legislation. This project enabled the APPP to rapidly gain tools needed and used in familiar PPP departments in EU, as well as tobecome aware of the other possibilities for the institutional development. The trainingsthat were delivered at local and central level under the project not only improved quality for APPP everyday business, but also provided much needed promotion of the PPP model. What is very important for the future PPP projects is that lack of knowledge of the local institutions in preparing PPP project proposals was minimized and their attention and interest was raised.

In order to continue strengthening Croatian PPP system, as well as to strengthen the capacities of the potential stakeholders in preparing PPP project proposals, this project aims first to provide APPP with more thorough technical, financialand legalknowledge, as well as knowledge on combining PPPs with EU funds to be transferred to the local authorities in order to promote the PPP model, increase its usage and improve the documentation quality. The base of this knowledge-gathering will be case studies from EU member states, containing best practices and other relevant examples.

The major result of this project will be the elaboration of a Guidebook containing parts on financial, technical and legal aspects of PPP and it will be for internal APPP use. Special focus will be given to MS recommendations on combining PPP financial model with EU funds. APPP staff will be trained through train-the-trainers workshops. In addition, APPP staff would be able to benefit from on-the-spot knowledge gained and experiences exchanged during the study visit envisaged under the project. The received knowledge is planned to be disseminated to the local and central government staff involved in PPP through local trainings. Furthermore, APPP’s website will be analyzed for eventual improvements, and a Public Awareness campaign program will be elaborated together with two-year Action Plan. Finally, a brochure on PPP for wider public will be designed and a workshop for journalists will be organized and it will contribute to improving the knowledge of media representatives dealing with PPP issues.

TheConcessions Act, adopted in the end of 2008, regulates the procedures for the award and termination of concessions, legal protection in these procedures, as well as other issues related to concessions. The Act defines concessions in three possible types:

- Concession for the right to exploit common good or other goodsis contractually regulated legal relationship that defines the exploitation of a common or other good which is legally defined as interest to the Republic of Croatia.

- Public works concessionis a contractually regulated legal relationship that defines the performance of works or works and design, and which relates to the activities laid down by a law regulating a specific concession or is listed in Annex I of the legislation regulating public procurement, if the consideration for the works to be carried out consists either solely of the right to exploit the work or of this right together with payment.

- Public service concessionis a contractually regulated legal relationship that defines the performance of services which are in general interest and which are laid down in a law regulating a specific concession or are listed in Annex II of the legislation regulating public procurement, if the consideration for the provision of services consists either solely of the right to exploit the service or of this right together with payment.

The new Public Procurement Act entered in force on 1 January 2012.It regulates procedures for the award of public contracts and framework agreements for the procurement of supplies, works or services, legal protection in relation to those procedures and the competences of the central state administration body dealing with public procurement system.

Finally, it is important to explain the relationship between the PP, Concessions and PPP Acts. Procedure of selecting a private partner is a public procurement procedure regulated in the PP Act or a concession award procedure regulated in the Concessions Act. Public private partnership contracts in Croatiaare thus concluded either as public procurement contracts or as concession contracts.

Namely, if a PPP project is based on the award of a concession, in the part relating to the procedure of selecting a private partner (concessionaire), the relevant concession award procedure stipulated in the Concessions Act is applied. If the concession being awarded has mostly the characteristics of a public works concession, the relevant sector-regulating law connected with the procedure of selecting a private partner (concessionaire) will refer to the relevant provisions of the Public Procurement Act. Similarly, if the concession being awarded has mostly the characteristics of a services concession, the procedure of selecting a private partner (concessionaire) will be carried out according to the rules and procedures laid down in the sector-regulating law.

Similarly, now looking at the institutional setup and procedures, APPP has the central decisive role in the whole project proposal approving process, while the Ministry of Finance has the role of assessing the financial and fiscal affordability of each project received from the APPP.

3.2Linked activities

PHARE 2005 Twinning Light Project“Preparing and strengthening of the Public Procurement Office in its co-ordination role in establishing coherent Public Procurement System”

  • twinning number:HR/2005/IB/FI07TL
  • twinning partner country: Republic of Hungary

The project’s purpose was to enhance administrative capacity of the Public Procurement Office (now - Directorate for Public Procurement System at the Ministry of Economy) and other stakeholders for implementation of the new public procurement legal framework in Croatia through a comprehensive training program and updating of manuals for procuring entities and tenderers.