Ambitious Plans

Tadas Jagminas, director, project management department, Invest Lithuania

Lithuania, like many countries in the region, faces a growing demand for public infrastructure and services. Hence, like many central and eastern European governments, Lithuania is looking at PPP projects to stimulate the economy and deliver the investments needed to close the infrastructure gap.

Over the past five years, a lot has been done to promote and facilitate PPP projects: Lithuania has developed public sector skills and expertise, established experienced and competent centralised support structures, and set up long-term sectoral plans. This has facilitated the signing of three PFI-type contracts, and the tendering of four more PPPs in the transport and public order and security sectors.

Given the continuing support for PPPs from the government, we believe that up to 10 potential projects for social infrastructure are being worked on at the moment.

One of the PPP projects that is currently in the pipeline is the Vilnius-Utena Road Reconstruction project, initiated by the Lithuanian Road Administration. The purpose is to reconstruct poor quality sections of the main Vilnius-Utena road (58.1km) and to ensure regular maintenance. After implementing the project, the road will be at the right standard to cope with current and forecasted transport flows. The project will enable an increase in the average speed of vehicles using the road and traffic safety will be improved. The anticipated cost of the project is almost €175m, covering initial investment, as well as all maintenance and financing costs.

The project has already been approved by the government and awaits approval by Parliament, which is expected by the end of this year. The tender is expected to be launched soon after it has been approved, in the first half of 2015. In 2013, one of the pilot PPP projects, the Palanga bypass, was successfully financed, with a consortium made from Kauno Tiltai and Siauliu Plentas selected to design, build, operate, and finance the Palanga bypass contract, worth €36m over 25 years.

Looking ahead to other PPPs that will be initiated in the transport sector, the Ministry of Transport is also considering the implementation of a concession-type PPP project for the Inland Cargo Port in Kaunas. The private operator will be responsible for the development of the port’s infrastructure and for operation of the port for 25 years. The implementation of this project is expected to accelerate the development of cargo shipping on the Nemunas river, thus shifting transportation volumes off the main Lithuanian highways. Preliminary estimates of cargo shipping volumes suggest 0.8 million tons per year could be transported using Kaunas Cargo Port. For now, the project has been approved and tender documents are under preparation. A tender announcement is anticipated in the first half of 2015.

Outside transport, at least one PPP project in the public order and security sector is planned for 2015. The Prison Department of Lithuania is initiating a PPP project for the construction of Vilnius Detention Facility. The new detention facility would house 1,620 inmates. The project includes the design, construction, maintenance and financing of the facility. Based on preliminary estimates, the total contract value should be approximately €300m. A feasibility study of the project has been prepared and hopefully the project will be approved by Parliament during the 2014 autumn session. The procurement process for the project is expected to be launched in the second half of 2015.

The Construction of Vilnius Detention Facility is only one of four PPP projects set out in the Prison Modernisation Programme for 2014-22. Three more PPP projects for the construction of greenfield detention facilities are to be implemented in Siauliai, Panavezys, and Klaipeda by 2022.

Investors are already showing interest in the four PPP projects included in the modernisation programme. Experienced foreign bidders are expected to play a key role; they can bring best practice and know-how and ensure proper competition during the tenders. Furthermore, alongside financing detention facilities constructed on a PPP basis, the programme also allocates an estimated budget of over €34m for the reconstruction of other detention facilities around Lithuania.

Invest Lithuania, together with law firm Raidla, Lejins & Norcous and the Lithuanian Confederation of Industrialists, has initiated the first ever Infrastructure Investment Forum. The aim is to facilitate an improved understanding of the needs of private partners, encourage a positive and proactive approach to PPP, and promote investment in public infrastructure projects. The first meeting of the forum, held on 23 October 2014, discussed the question ‘Is public-private partnership likely to see a breakthrough?’

The forum will address the implementation of PPP projects – which are gaining increased importance in Lithuania – and cooperation between the public and private sectors. Topics covered include future prospects for PPP, financing issues, and attracting private initiatives for project implementation. The forum will work on the principle that it is only possible to encourage private investments in public infrastructure projects through an open dialogue between the key participants – developers, public entities and providers of financing.

The forum will give them an opportunity to share their concerns, views and expectations about the process, and hopefully facilitate the implementation of ambitious plans in PPP project development in Lithuania.