Kazakhstan 2017 | ECONOMY | FOCUS: PPPS

Following a 2015 law on PPPs, Kazakhstan has started to develop new interest in PPPs to implement important social infrastructure projects across the country and attract private investment.

The large size of Kazakhstan, coupled with the need to integrate remote areas and upgrade disintegrating infrastructure, where existent, has long meant it will take time for the country to improve its public services. In addition, given Kazakhstan's declining oil revenues due to plummeting commodity prices, the government has realized that part of the financing for such projects will need to come from the private sector, and it has subsequently turned to PPPs to realize its infrastructural plans. PPPs have long been recognized, especially in Western economies, as one of the best ways to mobilize private capital and develop the basic public projects that society should have access to. Apart from sharing project risk, the main benefit of PPPs is that, being profit driven, a private company is incentivized to bring its technology and innovation in order to improve operational efficiencies. Throughout the 1990s and the 2000s, Kazakhstan implemented a number, although small, of PPP concessions, and in 2006 even adopted a Law on Concessions that enabled the implementation of several projects concerning airport terminals, gas plants, and railways. However, the poor structuring of such projects, the inefficient sharing of risks, and excessive bureaucracy prevented the country from fully exploiting the potential of PPPs.

In November 2015, however, President Nazarbayev signed the new Law on Public-Private Partnerships, which seeks to enhance the investment prospects and attractiveness of PPPs. The new law increases the role of the private sector in initiating and preparing PPP projects and removes many of the bureaucratic burdens. In December 2016, Prime Minister Sagintayev stated that the development of PPPs in the country is under special control of the head of state and that it is important to continue to work in this direction, particularly with regards to reducing the number of administrative barriers. In addition to making the process for PPPs smoother, under the new act PPP projects can now be structured not only in the form of concessions and can be implemented in any sector of the economy and not just in priority sectors. Furthermore, each region can independently prepare and implement its projects. The law also increases the range of participants in PPP projects and introduces new types of contracts.

Now, with a solid legal framework for PPPs, the government has stated it will implement at least five projects in each region of the country per year. The Development Bank of Kazakhstan has also announced it readiness to finance PPP projects in water supply. In 2017, the Kazakhstan PPP Centre plans to launch 170 PPP projects, including the Big Almaty Ring Road, set to be launched in 2017, as well as hospitals in Aktau and Ust-Kamenogorsk and kindergartens in the north of the country. One area that presents particularly high potential for PPPs is healthcare, and Kazakhstan's Ministry of Health has said it is thoroughly looking into PPPs, which would solve the government's issue of a tight budget and simultaneously generate consistent cash flows to the private sector, leading to a more efficient provision of healthcare services.

Kazakhstan's growing interest in the PPP mechanism was confirmed by Sholpan Sapargali, the Deputy Chairman of the Board of the Kazakhstan PPP Centre, who explained that projects are mainly developed in socially important spheres such as preschools, hospitals and outpatient clinics, and cultural and sports facilities. She stated this was made possible as a result of the continuous improvement to the mechanism for PPPs, particularly from a legislative point of view, and a year after the implementation of the new PPP law she felt that, “this form of cooperation between the state and entrepreneurs has established itself as an effective tool for the infrastructure development of the country and for attracting private investment."

PPPs are increasingly seen as the tool for solving the issue of the “social good," as the private sector has the incentives, capital, and technology to provide crucial goods that citizens should have access to. Kazakhstan's revived enthusiasm toward PPPs in many sectors of its economy, particularly through the recently issued law, is a further effort of the government to liberalize its economy, and together with the many other pro-development reforms it is set to enhance social welfare and whet private investors' appetite for the country's opportunities.