Municipal private partnership: definition, agreement, law

FZ №244 "On public-private partnership, municipal-private partnership" dated July 13, 2015 is aimed at creating conditions for increasing the investment attractiveness of the domestic economy, the quality of services, products and works, the provision of which is under the jurisdiction of state authorities and local structures. The document defines the key aspects of the legal regulation of the relevant relations, the authority of responsible institutions. The Law "On Municipal Private Partnership" establishes guarantees for the realization of the interests of the parties to transactions. Let's consider further the key aspects of the normative act.

Regulation on municipal private partnership

MoDs conclude contracts for the supply of products, the production of works and the provision of services for their needs. The order of their conclusion is determined by the normative acts of the Russian Federation. Contracts financed exclusively by local budget funds are not municipal-private partnership contracts. This is due to the fact that they, in fact, contain only a one-sided obligation to provide a service, perform work or deliver products at a specific time for the agreed price. Municipal private partnership is a relationship in which co-financing of contracts from the business side is envisaged and corresponding obligations for the Ministry of Defense are established. In domestic practice, such transactions are treated as investment.

Lease relations

What kind of municipal private partnership can there be? This relationship is based on different transactions. For example, an enterprise can use the property on the right of lease. Meanwhile, not every such transaction will act as a municipal private partnership. An example can be given here. The enterprise leases a building, uses it for production needs. Municipality, passing the building of the company, aims to replenish the local budget due to payment for operation. Such relations do not act as a municipal private partnership. The definition of the institution in question contains an indication of co-financing the realization of the needs of the Defense Ministry. In other words, the enterprise takes an object on lease on specific conditions for solving socially important tasks. In the contract, some privileges for the company may be prescribed. Municipal private partnership, based on leasing relationships, can be used to solve problems of socio-economic development of the territory. It can be improvement of the sphere of servicing of citizens, expansion of medium and small business, social support for some segments of the population, the formation of new jobs and so on.

Municipal private partnership: provision

By signing the contract, the parties stipulate their duties and rights, guided by the Civil Code. One of the advantages of such relations is the availability of regulatory support, the preservation of control over the exploitation of property by the owner. Accordingly, the municipal private partnership allows the owner to monitor the proper fulfillment of contract terms. MO in this case is relatively low risk, does not spend budget funds, if transferred to use existing facilities. The provision on municipal private partnership provides for the possibility to invest in the property that the tenant uses.

Concessions

This form of cooperation is considered today the most popular. Within the concession contract various projects of municipal-private partnership are being implemented. The most relevant are the contracts in the field of public transport, housing and communal services, waste collection and disposal. In Russia there is a separate law regulating concluding concession contracts.

Participation in capital

Municipal private partnership in Russia can be realized as a result of privatization of enterprises or the formation of an economic society. So, a unitary organization can be corporatized, then the share of securities can be sold. Normative regulation is carried out in this case in accordance with the Federal Law "On Privatization of Municipal and State Property".

Another option is the establishment of an economic society. It will have a mixed form of ownership. In it, parts or shares of securities will belong to the MO, and the rest to investors. Economic activity in this case is carried out at the expense of participants. They, respectively, are private investors and the municipality. They manage the created society together. Such a municipal private partnership assumes a proportional distribution of risks in accordance with the size of the share of participants in the capital. The balance of interests will be determined by those who own the blocking and control packages. Unlike other forms, municipal private partnership of this type assumes the constant participation of representatives of the authorities in the economic activities of society. Accordingly, business has less autonomy and freedom in making managerial decisions.

Mixed forms

Public-private, municipal partnerships are not delineated in normative acts. In this regard, in practice, various mixed forms of cooperation can be implemented. In addition, there may exist projects that are difficult to attribute to any of the above options for partnership.

Advantages for MO

Municipal private partnership can exist only on condition of mutual benefit for the participants. Its presence acts as a necessary condition for cooperation. At the same time, the benefits for the parties can have different, and in some cases also opposite, grounds. In this regard, in order to correctly formulate the terms of cooperation, it is necessary to understand the nature of the benefits for each participant individually. Advantages for the MO are as follows:

1. Involvement of investments in the sphere of social and economic development. Receipt of funds contributes to improving the efficiency of the MoD's own finances.
2. Reducing the timing of the implementation of development programs.
3. Reduction of own costs.
4. Improving the quality of services, reducing their cost.
5. Involving technologies that were previously inaccessible.
6. Animation effect.
7. Attraction of skilled workers.

Meanwhile, it would be wrong to say that these benefits appear on their own and always accompany the relationship. These advantages must first be found, to convince in their reality of persons who make managerial decisions.

Benefits for business

What are the advantages of the agreement? Municipal private partnership can provide the enterprise with:

1. High guarantees in achieving the calculated indicators of profitability, return on investment, extraction of the planned income.
2. Getting a number of benefits that allow you to reduce costs and improve the economic performance of entrepreneurial activities.
3. Availability of a certain range of consumers or a guaranteed market for marketing.
4. Higher availability of credit.
5. Guaranteed financing, if the terms of the transaction involve the participation of MO funds.
6. The possibility of signing contracts with a joint responsibility for certain risks.
7. Getting a number of competitive, including reputational, advantages due to the availability of stable and long-term income, through participation in projects of great social significance.

Risks to power

Municipal private partnership is always accompanied by a probability of loss. For the government, the potential risks can be as follows:

1. The need to provide additional funding if it is provided for by the terms of the contract or there is a delay in the implementation of the program until it is completely abandoned. The latter is likely if there is an error in the economic justification of the project or when the market conditions change.
2. Delaying the implementation of the contractor.
3. Increase in the amount of own expenses.
4. Decrease in the quality of services or increase in their cost with low preparedness or bad faith of the partner.
5. Reputational losses in the failure of the project or failure to achieve the goals.

Potential losses for the enterprise

Business risks may include:

1. Adjustment of the terms of the activity under the terms of the agreement due to changes in certain political factors (regulatory regulation, priorities of power structures, and so on).
2. Impossibility of achieving the calculated indicators of profitability or a decrease in its level. Such a situation can arise due to the action of market, economic, political factors.
3. Changing the preferences of consumers.
4. Reduction of the estimated income in the course of the fulfillment of the terms of the agreement.
5. Failure to comply with the contract of joint and several liability.
6. Reputational losses in the failure of the project or failure to achieve goals.

Investments

Despite the fact that municipalities receive stable non-tax and tax revenues, they have a fairly large amount of expenditure. As practice shows, costs only in rare cases can be covered entirely by the profit of the Defense Ministry. Usually most of the expenses are paid off from the revenues from the budgets of higher levels. At the same time, MoDs are substantially limited in their ability to cover the deficit through borrowing. The way out of the situation may be a municipal private partnership. The law allows partial or full financing of the implementation of tasks from the business side, transfer of a part of the property to the enterprises. At the same time, the funds invested by third-party companies can pay off at the expense of consumers, or this process will be extended in time if the purchaser of services is local government.

In practice, the Ministry of Defense is compelled to attract additional resources to solve urgent problems of the social and economic development of the territory. As for business, the law "On Municipal Private Partnership" provides for a number of guarantees for enterprises. First of all, they concern the procedure for the return of the invested funds, as well as the extraction of the calculated income. However, it should be borne in mind that there are always potential risks. The larger the project, the higher they will be.

Use of property

Projects of municipal-private partnership, based on leasing and concession relations, suggest the transfer of certain objects owned by local authorities to commercial enterprises. In this case, the MO is exempted from the obligation to maintain property, and business, in turn, saves money to create it. Despite the obvious benefits, with the implementation of specific projects, the benefits may not be as clear. Objects, especially those related to the housing and utilities sector, are often in a dilapidated state. In this regard, assess the risk associated with the need for reconstruction or overhaul, it is difficult. After the end of the concession period or the lease, the user must return the object to the municipality. In this case, there is also a risk of wear and the need to carry out the restoration of fixed assets.

Efficiency of management

In the theory of market economy, there is the thesis that private entrepreneurship is more effective than public management. Meanwhile, this opinion is valid for competitive business conditions, developed civil law institutions and regulatory relations, as well as a high management culture. Only with a combination of these factors, the interest of commercial companies in reducing costs and in generating profits is reborn as an increased responsibility to buyers. Accordingly, enterprises strive to improve the quality of services and products, apply new technologies, constantly improve production. For this, within the framework of a municipal-private partnership, such conditions should be established under which the management of activities will be carried out by competent persons. At the same time, they can be representatives of both the authorities and the enterprises themselves.

conclusions

Municipal-private partnership in its essence and legal content practically does not differ from the state one. The difference is only in the scope of transactions and the volume of tasks being implemented. Usually the state takes part in the implementation of major projects for the development of individual regions or sectors of the national economic complex. MO are interested in smaller programs.

Meanwhile, these differences do not change the principles of preparation and subsequent implementation of projects. From the scale of the programs will only depend on the choice of model or form of implementation. The state, being an interested party in large transactions, in their implementation in a number of cases can not do without the participation of municipalities in them. This is due to the fact that in some situations it is necessary to coordinate with the local authorities documents on territorial planning, land allocation, the granting of permits for the construction of facilities and other issues related to the competence of self-government. In this regard, almost all major programs of public-private partnership are implemented in close cooperation with representatives of municipalities.

It should also be noted that in many cases the local authorities show great interest in attracting investments to their territory. However, municipalities are substantially limited in their capabilities in comparison with the state. Accordingly, they can only use some tools to motivate commercial societies. This, in turn, points to the need for the formation of a certain policy to attract financial resources in relation not only to business representatives, but also to the state authorities of the region.

Conclusion

Municipal private, as well as public-private, partnership aims to improve the attractiveness of the economy for representatives of the business community. The current regulatory framework allows the implementation of both large and small development programs. At the same time, public-private partnership, attracting investors, seeks to address larger problems related to the region or the sector of the economy. At the same time, government agencies authorized to contract are often unable to do without the participation of local authorities. Municipalities, in turn, conclude agreements with private partners to address the most pressing issues of territorial importance. As a rule, cooperation is carried out in the sphere of consumer services, housing and communal services. Of particular importance is the participation of private investors in the field of transport services and social support for needy categories of citizens.