PPP Can Significantly Improve the Quality and Price of Public Services

The afternoon part of the conference ‘The Future of Public Enterprises’ focused on public-private partnerships (PPP) and the restructuring of public enterprises. Professor Dejan Kružić from the Faculty of Economics in Split spoke on the topic of PPP – management reform and an innovative tool that can enhance the provision of public services, emphasizing at the outset that the experiences of numerous countries show that the limitations of resources in central and local units can be overcome by introducing the private sector into arrangements with the public sector.

-This allows the public partner to define the public service and  the standards of its delivery, while the private partner  takes on financing, construction risks, and by managing the project for many years, realizes benefits – the main features of PPP presented by Kružić.

He also added that PPP represents a cooperation between the public and private sectors with synergistic effects, offers a long-term sustainable approach to improving public services and public infrastructure, contributes to better market valuation of public assets, and leads to greater value for taxpayers and the economy as a whole.

-PPP is not the same as privatization. Privatization represents the transfer of public ownership and responsibility to the private sector as a whole, while PPP involves the introduction of the private sector into the construction, modernization, financing, and management of public services under long-term contracts where the public sector retains control and responsibility for the functioning of the system – explained Kružić, emphasizing that PPP is based on the sharing of risks, costs, and benefits among partners.

The advantages of PPP, he continued, are the long-term nature of contracts, relief from the current borrowing of public authorities, the public partner does not have to secure significant financial resources for the realization of the investment, and receives quality for the paid service. The limitations, however, are the lengthy process of selecting partners and the existence of distrust and misunderstanding among partners.

He cited some examples of PPP from the USA, Canada, and the effects of PPP in Croatia, which is highly ranked due to its well-developed legal and regulatory infrastructure, placing it among the top countries in Eastern Europe, where 7.7 million kuna of PPP projects have been realized.

For a successful PPP, emphasized Kružić, political will and leadership are needed, as well as a supportive legal framework. It is also essential to involve the public, continuously monitor project performance, and most importantly; it is crucial to choose the right partner for PPP.

-PPP is not a miraculous solution for the public sector, but it can significantly improve the quality and price of public services. Not all problems of resource shortages and budget constraints in the public sector can be solved through PPP, but it can ensure a greater number of constructed public infrastructures. It is also possible to generate new activities, new jobs, and increased revenues through PPP – some of Kružić’s recommendations that laid a solid foundation for discussion on the same topic.

The roundtable discussion included Deputy Governor of the Dubrovnik-Neretva County Davorko Obuljen, Goran Bulić from the Municipality of Medulin, Vesna Trnokop Tanta from PwC Croatia, Director of the Agency for Investments and Competitiveness Damir Juričić, and Bahrija Umihanić from the Faculty of Economics in Tuzla. The discussion focused on the potentials of local and regional communities in engaging in PPP projects, budget constraints, financing and risk management, the use of consultants, and particularly emphasized the importance of transparency in communication with the public.

After PPP, the topic of restructuring was introduced by Tomislav Vuić, CEO of HPB, discussing reorganization, recapitalization, and the results of the largest bank in Croatian ownership, HPB. He reflected on the previous year in which the bank was recapitalized in agreement with the EC through a public offering of 550 million kuna, of which 55 percent were private investors. Concurrently, the bank was reorganized and achieved the best financial result in HPB’s history, becoming the best bank in terms of return on equity at 9.4 percent.

-This is my sixth transformation in which I have participated in 20 years in banking. None have been the same, but some rules have appeared in all of them: decisions must be made and implemented quickly, delays or compromises cost more in the future, all changes come from the top, and sometimes the seemingly impossible can be achieved – emphasized Vuić, also presenting the business results for 2015 in which HPB exceeded its plan, but also his dilemmas regarding the state of the bank when taking over the position of CEO.

He emphasized that motivation, knowledge, and courage are essential for any restructuring, while the main enemies are lack of motivation, ignorance, fear, habits and laziness, as well as ego and insecurity.

-You always need to balance in the restructuring process. Development and revenue growth are necessary, cost reduction is essential, and another important balance is structural solutions that bring long-term benefits to the company – emphasized Vuić, adding that this year will be better than the previous one.

The discussion on the organizational restructuring of public companies continued at the most dynamic roundtable of the conference, where, alongside Vuić, Aziz Šunje (Faculty of Economics Sarajevo), Katarina Djulić (FEFA Belgrade), Davorin Pavelić (UN and WB consultant), Saša Divjak (Divjak, Topić & Bahtijarević), and Professor Vinko Belak (Faculty of Economics Zagreb) participated. Experiences from other countries, such as Serbia and companies like NIS and Air Serbia, were shared, discussing the differences in reorganization in the private and public sectors, specifics in the legal framework, financial restructuring, the need for social enterprises, and the discussion particularly heated around layoffs in the public sector and the consequences of decisions in the public sector on the private sector.