13 July 2010 PPP for Olympic Projects: Dreams Come True?

Svetlana Savina , Senior Associate

Are the Sochi 2014 Olympics a blessing or a curse for the host country? The games might well prove a blessing from the economic viewpoint so long as the financial burden and dividends are wisely distributed among the public sector and private business in a mutually beneficial way. In 1992 in Barcelona and in 1996 in Atlanta, this cooperation pattern did materialize, but can it come true in Russia?

According to official data, about 30 percent of the total budgeted expenses of the Sochi Olympics should come from non-government sources. Since the planned facilities differ in size and complexity, they might require different modes of cooperation between businesses and state-run enterprises.
There are several public-private partnership models in existence, including one known as “BOOT”: build, own, operate, transfer. It implies that at first the investor owns the constructed public infrastructure facilities, such as stadiums, sports palaces, tunnels and so on, then operates them for a certain period before transferring ownership to government entities. The BOOT scheme was employed in developing the Channel Tunnel, Athens International Airport Eleftherios Venizelos, the Alice Springs to Darwin Railway in Australia, and the Budapest to Szeged M5 highway in Hungary.

Other models provide for an investor constructing the facility and then transferring it to a public organization for further operation.

In the U.K., PPP projects traditionally rely on the DBFO model, which stands for design, build, finance, operate. Another, though very similar, PPP scheme known as “DBFM” — or design, build, finance, maintain — is widely used in Canada in situations when the public sector retains ownership of both the developed facility and the underlying land.

What does Russian legislation have in store for this purpose? In Russia, most PPP formats imply long-term funding by the government and cash payments to the investor. Troubles begin when the government refuses to discharge the long-term obligations it has assumed. How can it be brought to justice? Practicing lawyers might have certain recommendations for this, but the issue remains largely unresolved.

Another challenging aspect is the choice of investors for Olympic development purposes. The selection procedure adopted by the Olympstroi corporation provides for three options — open selection process, restricted selection process and competitive dialogue. This procedure is not completely in line with federal laws, so legislative provisions intended to secure the interests of project participants are not observed in practice. For instance, no announcements for potential investors are published, or the announcements fail to disclose the effective selection criteria. Internal regulations of the Olympstroi corporation essentially impede the achievement of objectives set up by the legislator. Could this be for the common good?

Despite all its flaws, the Olympic legislation still permits selecting an investor for a particular project after consideration of all its specifics. At least in this aspect it demonstrates flexibility, and so should be adhered to.

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