Kazakhstan PPP Center: Traditional projects cost 70% more than PPP mechanism

The key obstacle to the development of public-private partnerships (PPP) in Kazakhstan remains the inaccurate comparative assessment of project efficiency, Aidos Kobetov, Deputy Chairman of the Management Board of the Kazakhstan PPP Center, said during the session "Public-Private Partnerships: Unlocking Eurasia's Future Investment Potential" at the Annual Meeting and Business Forum of the Eurasian Development Bank (EDB).

According to Report, Kobetov explained that at the project screening stage-known as the investment proposal stage-project assessments are typically conducted by government officials, who often favor more familiar financing methods. Under Kazakhstan's legislation, alternative implementation models must be compared, but the final decision frequently does not favor the PPP model.

He pointed to a fundamental flaw in the comparison methodology.

"Under the PPP model, costs are assessed over the entire life cycle of a project, including both capital and operating expenditures. In contrast, under traditional budget procurement, until recently only construction costs were taken into account. Moreover, the comparison failed to consider the risk of cost overruns, which under budget financing are borne by the state," Kobetov said.

According to the deputy chairman, Kazakhstan lacked comprehensive statistics on the issue for many years. However, an analysis conducted with the support of consultants from the International Finance Corporation (IFC) in the road sector found that projects implemented through traditional manner is, on average, 70% more than those delivered through the PPP model. By comparison, the global average cost overrun for traditional procurement is around 40%.

"With this kind of data, it becomes clear that PPP is in fact the more efficient option-provided the comparison is carried out correctly," Kobetov concluded.