Public Private Partnerships go local in Russia

June is here, and it’s officially the start of summer.  It is also the start of my new series of blog posts in which I will share with you my experience in working with various local governments in Russia and the process I am taking to establish our latest venture – PPP Local. Hopefully this insight will prove not only useful at a business level, but also in understanding how to work and interact in the Russian regions.

First, what is PPP Local? Well the PPP part stands for Public Private Partnerships and the Local bit is meant to highlight our focus on those partnerships in local areas and at a local government level. We first conceptualized the idea in June last year, and it started out as a very different animal. We originally wanted to focus on business news and reporting at a local level and at the time the project was codenamed LocalRussia. After extensive research and analysis we realized that the extensions and additional services we were adding could be quite valuable and the whole idea mushroomed into what it is now:

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PPPLocal is an online multilingual platform that facilitates investment and trade links between public and private sector organizations in emerging markets and advanced economies.

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The idea of PPP is not new, but it is relatively new to Russia. We obtained various research materials from one of our Moscow-based partners, and according to the Moscow Office of Herbet Smith LLP (a leading law firm in Europe and Asia); the concept of PPP in Russia is still quite young; active development began only in 2005 – 2006. The focus has generally been on large federal/regional PPP projects, with some municipalities creating their own framework to attract investors. One example is the regional PPP legislation law of St. Petersburg passed in December 2006.

Research from Freshfields Bruckhaus Deringer, another international law firm, echoes similar analysis and outlines that PPPs present an attractive option to investors looking for established methods of entering emerging markets to shelter from the credit crunch. They go on to outline that the Russian PPP market is potentially enormous. One of the current PPP roads in Russia, the Orlovsky Tunnel in St. Petersburg, at a cost of around $1 billion is still substantially bigger than the largest road PPP in relatively mature markets such as Germany – the A1, at $672 million. That said, investment in Russia is still affected by concerns over sovereign risk and revenue security, and by the perception that its commercial banks carry political risk. The research document concludes that despite the recent volatility of its economy, the long term outlook for foreign investment in Russian infrastructure remains positive and that Russia’s needs to improve its infrastructure have led to a concerted move to embrace Public Private Partnerships (PPPs).

So that’s a little snapshot about PPP in Russia. How does PPP Local come in? Well, our focus is on the Local part. Our firm focuses on start0up and SME projects. In local areas, these projects are often invisible to foreign investors unless they physically visit the location. Our platform makes these opportunities more visible and helps facilitate trade and investment links. How we do this and what it looks like will be revealed in roughly three months time when the beta platform comes out of development. In the meantime, I will discuss how I am setting up the appropriate links with the local governments. The first link is in a town that I have affectionately come to call my home, The town of Chistopol. I'll describe more about the development there in my next blog post.

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