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Frequently Asked Questions

Why does Law 3389/2005 also cater for projects that are not repaid by the State?

One of reasons for the ratification of Law 3389/2005 was the settlement of many issues that caused problems in the financing and implementation of PPP projects co-financed in Greece. The effort to overcome problems in implementing projects co-financed by Private Entities led to the ratification by the Parliament of special regulations for each contractual agreement. Law 3389/2005 deals with issues such as licenses, archaeological findings, expropriations as well as tax incentives, creating the conditions for the successful and unhindered wider implementation of PPP projects in Greece.

Is there lower limit as to the size of a project that can be implemented as PPPs?

Law 3389/2005 does not define a minimum limit for the implementation of PPP projects, since the Government, via this new legal framework, aims at the implementation of PPP projects, which will strengthen the regional development and the social cohesion. Even if the majority of projects implemented by Local Authorities are of a lower budget, these projects still constitute important infrastructure necessary to the citizens of these regions. Therefore, on no occasion should the proposals for low budget PPP projects be excluded a priori, but they should be examined in terms of their viability. However, based on the international experience, it has been proven that the State benefits from PPP projects with a significant budget, since the cost of the invitation to tender is considerable because of the involvement of external advisors and of the inelasticity of their total budget. The cost for the invitation to tender of one school is exactly the same as that of 25 schools, since the tender documents and the contract award procedures are the same in both cases. For this reason, it's to the State's interest to group similar projects and launch a single Invitation to Tender.

What happens if in a project where the end-user pays a fee directly to the private partner the revenues are less than the budget

In cases of projects where the end user pays a fee directly to the private partner, the Special Purpose Vehicle (Private Entity) has undertaken both the responsibility for constructing the project infrastructure and the demand risk. In case that the fees paid by the end users are not sufficient enough to cover the cost of the project, the SPV cannot sustain the forecasted contractual revenues. This issue also concerns the banks that provide big long-term loans to the SPV and expect to be paid off from the project's revenues. In case the Private Entity cannot deal with this problem, it might be substituted by another Private Entity indicated by the banks. In cases of projects with a social character, the Public Sector is always safeguarded for their smooth operation.

How do Private Entities benefit by implementing projects where the public sector reimburses them directly?

There are partnerships where the private partner constructs the project and upon its completion has the right to collect fees (e.g. tolls) from the end-users for the services provided. There are also other types of partnership with a social character, where the end-users are not directly charged and their cost must be covered by the State, such as the construction of schools. The State pays availability payments (payments to the private partners for the availability of infrastructure, so that the State can provide its services to the citizens) to the private partners that undertake projects reimbursed directly by the Public Sector. Services, such as education, health and a number of others, are still provided to citizens for free, although the private partner constructs the infrastructure and caters for the efficient operation and proper maintenance of the project. As in the case of traditional procurements, the profit of the Private Entities is included in the availability payments paid by the State.

How can budget overruns and delays in the implementation of PPPs be avoided?

The Private Entities that undertake the implementation of a PPP project also bear the construction, availability and / or demand risks. In this way, the State avoids possible budget overruns that could result from problems and delays during the construction phase and which could lead to budget overruns. On signing the Partnership Contract, the annual payments of the Private Entity for the implementation of the project are arranged. The repayment of PPP projects by the State or by the end users begins once the project is operational. This means that the Private Entities are motivated to deliver the project to the public sector in time and with no delays, so as to start receiving the availability payments.

What role do banks play?

The role of banks in the implementation of PPPs is important. The obligation of Private Entities to secure the financing of the projects, in whole or in part, leads them inevitably to bank loans, as proven internationally. Indicatively, the usual ratio of equity and bank loans for financing PPP projects ranges from 10-20 to 90-80. The involvement of banks in PPP projects contributes to their prompt implementation, as banks will monitor Private Entities which have undertaken their implementation. This monitoring keeps the cost of the project low and helps to meet the deadlines set in the Contract. Moreover, the monitoring continues throughout the Contract (25 years for instance). In this way the quality of the offered services according to pre-determined output specifications is ensured. Private Entities have to be consistent with their contractual obligations in order to get repaid by the Public Authorities and pay off their bank loans.

Will the payment of projects where the public sector reimburses directly the private sector result in suspending the Public Inve

PPPs will not cover additional needs of the Public Authorities. Via PPPs, the existing needs for additional infrastructure and services, already included in the strategic planning of each Authority, can be implemented more rapidly. Let's take for example the schools project. We are all aware of the need for new school buildings in Greece. The total cost of the implementation of this project amounts to 2.5 billions. The School Building Organisation receives from the Public Investments Programme about 150 - 200 million euros each year. If the needed school buildings are procured in the traditional way, it will take 15 - 20 years to build them. Through PPPs, we can shorten this period and construct more school buildings without extra direct cost by using private funds. However the State must be careful. We cannot approve the implementation of such a great number of school buildings, the repayment of which would suspend the future planning of the School Buildings Organisation. Our aim should be that PPP projects cover 15-20% of the annual budget of OSB, like in other countries. Therefore, the future payments for school projects should not exceed this percentage. By using public and private funds, we can abolish double shifts, replace leased schools and upgrade school buildings in a faster way.