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Public-Private Partnerships for Agribusiness
The agricultural sector is a goldmine of Ukrainian economics, the results of which however are heavily dependent upon effective management, financing and innovations.
Currently, the agriculture sector is facing huge political and economic challenges, but the collaborative efforts of public authorities and private organizations may help to achieve successful results for Ukraine, which has been one of the most dominant agricultural centers of Europe for centuries.
Clearly, private companies are often more efficient and better run in agribusiness than bureaucratic public authorities. The latter in their turn are holders of important resources but suffer from lack of financing. The synergy effect stipulated mainly by the unique character of this business happening on the cross-roads of opportunities, resources and interests of each player on the agrimarket.
Most of the cooperation between public authorities (central or local) and private entities tends to be referred to as a public-private partnership (PPP). PPP is a mechanism in which public and private sectors share resources, knowledge and risks in order to achieve more efficiency in the production and delivery of products and services.
Taking into account its important synergistic role in the agricultural sector of Ukraine, PPP may be used in following areas: wholesale agricultural commodities markets, elevators and warehouses construction, machine and tractor station, agricultural research, agricultural education, seed production, fertilizer production, export promotion, public procurement, amelioration projects, irrigation infrastructure projects, biofuel and biotechnology.
Currently, there is no specific legal framework for PPP in Ukraine. Regulatory acts are scattered among various laws, and cooperation of public authorities with the private sector is usually formalized through different legal instruments (e.g., concession agreements, investment agreements, joint activity agreements).
It is worth noting that some states institute rigorous legal standards for their PPP and agriculture PPP in particular. Legislative acts (among which there area is specific) are similar in its nature and include clear statement of the scope, principles and goals of the PPP, the identification of main implementation issues, including PPP project structuring, managing and timing, provisions for control and monitoring of PPP projects. Often states establish specific industry PPP agencies main function of which is to control PPP projects.
At European level PPP is governed by the EC Treaty, the Public Procurement Directives (e.g. Directive 2004/18/EC of the European Parliament and of the Council of 31 March 2004 On the Coordination of Procedures for the Award of Public Works Contracts, Public Supply Contracts and Public Service Contracts and Directive 2004/17/EC of the European Parliament and of the Council of 31 March 2004 Coordinating the Procurement Procedures of Entities Operating in the Water, Energy, Transport and Postal Services Sectors) and the relevant case law of the European Court of Justice. The European Commission issued legal guidance clarifying the application of the most PPP rules. Commission Interpretative communication on the application of Community law on Public Procurement and Concessions to institutionalized PPP C(2007)6661 of 5 February 2008, Communication on Public-Private Partnerships and Community Law on Public Procurement and Concessions, COM(2005) 569 of 15 November 2005 and Green Paper on public-private partnerships and Community law on public contracts and concessions, COM(2004) 327 of 30 April 2004.
It is important to have a clear legal framework for regulation of PPP in the agricultural sector. The PPP requires a proactive regulatory framework, with appropriate checks and balances.
On 16 October 2009 the Draft Act On Public Private Partnership No.5239 (the Draft) was presented to the Verhovna Rada and passed on its first reading on 4 November 2009. Now it is being prepared for a second reading in more or less balanced version aiming first of all at ensuring more effective use of the state property.
The Draft sets up a general legal framework for PPP, regulates issues related to preparation, performance and termination of agreements executed within the public-private cooperation framework, establish guarantees of adherence to the rights and basic interests of the parties of the agreement. The Draft does not stipulate a separate type of agreement on public private cooperation, but generalizes the practice of public private partnerships in Ukraine. The Draft is not perfect. Nevertheless, it sets legal prerequisites for successful PPPs implementation.
In agribusiness the specific form of the PPP mainly depends on the features of specific goals to be reached by the PPP The PPP models vary from complex PPP arrangements, such as concession contract, to simple management contracts. For instance, for infrastructure projects, like reconstruction/construction and exploitation of irrigation systems, it is reasonable for participants of the PPP to use a concession scheme. The legal status of concessions is governed by the On Concessions Act of Ukraine of 16 July 1999, No.997-XIV. Under concession the concessionaire is awarded to construct/reconstruct and/or manage the concession object on a paid basis and for a specific period. The concession is the most pertinent PPP construction for agriculture infrastructure projects.
Another way to PPP in agriculture sector is a joint activity agreement. The legal basis for this PPP model is provided by Articles 1130-1143 of the Civil Code of Ukraine of 16 January 2003, No.435-IV. Civil and tax law vests this type of PPPs with big potential and practical flexibility as applied to the projects related to agricultural products, research, education. Management contracts typically involve the operation of public assets by a private partner. Management contracts allow private sector skills and knowhow agriculture knowledge to be brought into service delivery or commodities production.
Each PPP model provides different kinds of benefits to both public and private parties and carries various levels of risk. A variety of models and differences between them require deciding which is appropriate. The public project owner must go through various considerations before deciding what PPP form will best fit the project.
Successful agricultural PPPs over the world demonstrate the efficiency of a cross-sectoral approach to develop agriculture. The objectives of all parties can be met within various PPP models. Improving the regulatory/ legal environment and PPP implementation will boost the agricultural sector of Ukraine.