The PPP Cycle

Public-private partnership (PPP) projects are long-term public-private partnership projects where the private sector assumes construction and financing risks as well as maintenance or demand. In the final delivery of public building according to the PPP model, not only are construction costs taken into account, but also its whole life costs, which in addition to construction costs also include costs of maintenance and replacement of used materials as well as financing and income from potential commercial activity, i.e., income from third parties.

The decision in selecting a PPP model over a traditional (budget) model is based on a calculation of savings achieved from using a particular PPP model. In other words, application of the PPP model is deemed justified if total life costs of the PPP option are less than the traditional (budget) option expressed as the present value. In such cases, the selection of a particular public-private partnership model leads to achieving the principle of value for money for taxpayers. However, beside whole life costs, financing costs must also be included in the feasibility calculation. To provide a transparent and comprehensive statement of total business proceedings, the financial model is created.

The preparation of any public project, regardless of the model for finalizing the project, should begin with development of a public investment program for a medium-term period of, for example, 3 – 5 years. This program, depending on its maturity, identifies specific projects ready for realization.

  1. The first (informal) step in the PPP project implementation process is submission of Information on the Intention to Implement the Project by a Public Body to the Ministry of Economy. The Ministry of Economy publishes this information on its website with the aim of informing economic entities from the private sector – possible private partners about a potential PPP project.
  2. After publishing the information, the public body commences preparing and drafting the PPP project proposal, which consists of the Public Sector Cost Comparator and the PPP contract proposal, including other documentation as stipulated in the PPP Project Implementation Regulation. The prepared PPP project proposal is submitted to the Ministry of Economy for approval but only by a public body in two copies, where one of the copies is submitted by the Ministry of Economy to the Ministry of Finance for preliminary approval.
  3. If the Ministry of Finance gives the proposal a positive evaluation, it will issues preliminary consent for the PPP project proposal in relation to compliance with envisaged direct financial obligations of the public body in terms of budget plans and projections, all within 30 days of receiving the PPP project proposal.
  4. The Ministry of Economy will approve the PPP project proposal for which it has assessed as meeting criteria for approval of project proposal and for which preliminary consent from the Ministry of Finance was obtained. The Ministry of Economy issues the approval within 10 days of receiving the preliminary consent from the Ministry of Finance. This means that the entire process of reviewing, evaluating and approving PPP project proposals in the Republic of Croatia takes no more than 40 days.
  5. After receiving approval from the Ministry, i.e., once the proposed project has received PPP project status, the public body can commence the public procurement procedure for selecting a private partner.
  6. After running the public procurement procedure, the selected economic operator or consortium of economic operators, while taking into account the fact that PPP projects are generally based on the project financing technique, must establish a special purpose vehicle (SPV) before signing the contract, i.e., a special subsidiary company established for purpose of concluding the PPP contract and undertaking the PPP project.
  7. Once the PPP contract has come into force (usually after concluding – signing all financing contracts), the period of exploitation begins, i.e., project implementation which includes financing, construction, maintenance and management of public building, and ending in the free-of-charge transfer of public buildings to the public partner based on the PPP contract.

One of the most important competencies of the Ministry of Economy after concluding a PPP contract is monitoring the implementation of a PPP project previously entered into the Register of PPP Contracts, pursuant to the provisions of the Ordinance on the Structure and Maintenance of the Register of Public-Private Partnership Contracts. Activities related to monitoring the implementation of a PPP project are performed throughout the entire project duration, and are based on the PPP project implementation report, submitted to the Ministry of Economy by the public partner.