For all that ties and cooperation have historically been so close between the Baltic states of Lithuania, Latvia and Estonia, there exists a remarkable disparity over how successful the three countries have been in the procurement of public-private partnerships.
While Estonia and Latvia have struggled to varying extents, Lithuania is now streets ahead of its Baltic neighbours, with several completed projects and numerous more under tender.
One explanation for this discrepancy is the development of the Lithuanian economy since independence and its reaction to the global financial crisis. An OECD report earlier this year described its economy as “volatile but also resilient to shocks”. In stark contrast, the effects of the crisis caused the Latvian government to suspend its fledgling PPP programme, leading to the cancellation of the €350 million Riga Bypass, a project that was set to be the country's first road PPP. The scheme was reopened in 2012 with updated laws.
While Latvia's PPP programme remained suspended and Estonia's stagnant, 2009 saw Lithuania issue a call for proposals for the country's first central government-level infrastructure PPPs. A series of five were shortlisted and the €36 million Palanga Bypass became the country's first major PPP project to hit financial close in 2013. A number of PPP projects are now under development or in procurement, including a concession for Lithuania's three airports.
One key aspect of Lithuania's success was the creation of Invest Lithuania in 2010, a government-owned body designed to attract investment to the country.
“Invest Lithuania usually starts with helping public authorities at an early stage to determine whether a PPP is a suitable model for their planned infrastructure investments,” Tadas Jagminas, director of project management, explains. “If a PPP project is large enough to potentially attract foreign investors, Invest Lithuania will use its international channels to inform and invite relevant market players regarding this opportunity. There is an extra focus on foreign companies.”
Jagminas also notes that Lithuania's PPP successes come from conforming to international PPP standards. Indeed, a report in September from the World Bank ranked Lithuania's preparation of PPP projects at 96 out of 100, the joint highest of any country alongside the UK and South Africa.
“Strong political will to develop the PPP market has contributed to Lithuania's accelerated progress,” he adds. “A lot has been done to adopt the best international practices at project and at regulatory levels.”
While dwarfed by Lithuania's success, there has been some progression in the Latvian market. The Kekava bypass, which was one of the projects in the pipeline before the Latvian PPP process was temporarily shelved, is in the midst of being revived and could receive support from the European Fund for Strategic Investments. Meanwhile, the Latvian government said last month it would pursue the construction of a €100 million concert hall through a PPP.
Estonia, though, faces more difficulties. The government is looking at ways to stimulate its PPP market and while there have been some municipal successes, the central government has lacked major procurement. Furthermore, a damning report from Estonia's National Audit Office in 2012 discovered a lack of transparency in municipal PPPs, a misunderstanding of the concept by some authorities and a tendency to select partners based on financial might rather than competency.
However, the region's PPP market received a significant boost earlier this year when Lithuania-based fund manager Lords LB launched the Baltic's first infrastructure fund. The Baltic Energy and Infrastructure Fund is expecting to close in the first quarter of next year and has a hard-cap of €250 million. It has already made one PPP investment in Lithuania and is targeting further transport and renewable energy PPP investments in the other states. Managed by former Lithuanian energy minister Jaroslav Neverovic, the fund combines expertise and private finance for a market in need.