The Director of the PPP Agency participated in the Month of Business Integrity 2021

Published on: 12.11.2021
Category: PPP News

On the 11th of November, the director of the PPP Agency, Niko Gachechyladze, participated in the panel discussion “Compliance in public-private partnership projects”, which was a part of the Month of Business Integrity 2021. The event was organised by the Ukrainian Network of Integrity and Compliance (UNIC).

UNIC was established in 2017, with the support of the Business Ombudsman Council, the European Bank for Reconstruction and Development (EBRD) and the Organization for Economic Cooperation and Development (OECD) to promote the idea of ethical and responsible business practices.

During the discussion, the following issues were covered:

Anti-corruption compliance as a component of PPP projects

Mr Gachechyladze noted that the PPP mechanism has significant potential to stimulate infrastructure development. Corruption, however, impedes the effective participation of the public sector in these processes. Ukraine, as a country that supports the UN Sustainable Development Goals and is interested in effective development programs with the use of the PPP mechanism, should assess corruption based not only on direct losses but also on the potential benefits of successfully fighting corruption. For this reason, it is vital to implement the approach of zero tolerance to this phenomenon in Ukraine.

From a legal point of view, in general, anti-corruption compliance can be understood as compliance with established anti-corruption requirements, restrictions and prohibitions. These are the requirements, prohibitions and restrictions that are set by the state to be adhered to on its territory and with which all of the participants of the PPP process must comply.

Marcos Martínez, the Head of the PPP Advisory Unit at EBRD, has noted that PPP is essentially one of the advanced mechanisms of public procurement. Therefore, the PPP process must comply with the country’s legislation in general. 

It is particularly important for a to have the institutional capacity and regulations to fight corruption. Also, it is important for PPP agreements to include provisions that would prevent unethical conduct on both sides.

Key aspects of anti-corruption compliance

According to Mr Gachechyladze, the following aspects of anti-corruption compliance should be mentioned:

  • Adherence to the laws and principles of ethics

When engaging private investment under the PPP model, the public partner must ensure the predictability of the process and conduct an open and fair selection procedure, evaluating potential private partners in good faith and following high ethical standards at all stages of the process.

At the state level, it is necessary to determine the regulatory norms, benchmarks and expected results for PPP participants from both the public and private sectors, as well as to create a system of legal and ethical control that would ensure applicant trustworthiness and promote mutual trust.

  • Prevention of conflict of interest

Conflicts of interest must be avoided. Meaning that situations must be prevented, when direct or indirect economic, financial or personal interests of a person or a legal entity are incompatible with the principles of impartiality and independence, contradict them or arise as a result of their official position and the PPP project.

  • Information disclosure

Informing the public is an integral part of ensuring the transparency of PPPs and the integrity of public and private sector parties.

  • Consultants/advisors and experts

It is important to clearly define the guiding principles of involving consultants/advisors and experts, the reasons for their employment and the range of tasks assigned to them. Consultants/advisers and experts must be of high integrity and independence, have relevant qualifications, be independent and free from conflict of interest.

  • Reporting violations

It is important to create a system for reporting violations, which can act as a system of checks and balances regarding inappropriate behavior.

Do the laws or bylaws of Ukraine contain provisions to verify the reputation or integrity of participants of a tender that would determine the private partners?

Niko Gachechyladze stated that the integrity criteria should be included in the qualification criteria for a tender that would determine the private partner. These are important conditions that must be met by the party trying to obtain the right to submit a tender proposal for any PPP project. Such criteria are essentially a legal qualification and relate to the legal conditions that a tenderer must meet in order to submit a tender proposal, according to current legislation, particularly regarding

  • their legal capacity, procedural capacity (including the members of the consortium submitting the tender, and/or persons that can exert leverage over the participant or are controlled by the participant),
  • compliance with the requirements of the legislation in the field of PPP/concessions to participants;
  • compliance with anti-corruption legislation;
  • compliance with all tax obligations and requirements of the labor legislation;
  • the absence of a conflict of interest (in particular, it is prohibited for companies that are already involved in the project (for example, companies that act as an advisor to a public partner) to participate in the tender procedure), etc.

In the current PPP legislation, such criteria are defined as requirements to legal entities which can be admitted to participation in a tender that would determine the private partner. Thus, according to the fourth part of Article 12 of the Law of Ukraine “On Concession” (and the second part of Article 14 of the Law of Ukraine “On Public-Private Partnership”), applicants are not allowed to participate in the tender if they:

  1. on the date of submission of the application were declared bankrupt or against which the bankruptcy proceedings have been initiated;
  2. are in the process of liquidation or restructuring;
  3. are controlled by one another, are under joint control or are related parties (if applications are submitted separately by each applicant);
  4. did not provide comprehensive information on persons exercising direct or indirect control over them, including the ultimate beneficial owners (controllers);
  5. are legal entities, owners of 10% or more of shares and/or the ultimate beneficial owner (controller) of which is a resident of a state, identified by the Verkhovna Rada of Ukraine as an aggressor state, or a state, recognized by the Verkhovna Rada of Ukraine as an aggressor state;
  6. are registered in the offshore zones, or entities more than 50% of the shares of which belong directly or indirectly to such entities (the list of such zones is determined by the Cabinet of Ministers of Ukraine), or registered in a country included by the Financial Action Task Force on Money Laundering (FATF) in the list of countries that do not cooperate in the field of combating money laundering;
  7. are entities that are directly or indirectly under the control of entities, the ultimate beneficial owner (controller) of which are persons or entities described by this part, or are related persons/entities of such persons/entities.
  8. are legal entities or entities related to them, registered in a state identified by the Verkhovna Rada of Ukraine as an aggressor state, or against which sanctions have been applied in accordance with the legislation of Ukraine or international law;
  9. are state enterprises, institutions, organizations owned by the state of Ukraine, or communal enterprises, institutions, organizations;
  10. are advisors involved in the preparation of the concession project;
  11. are persons/entities who are directly or indirectly under the control of persons/entities, the ultimate beneficial owner (controller) of which are persons/entities who are directly or indirectly related to the operator of the electronic platform through which the concession tender, competitive dialogue or publication of documents occurs in the procedure of direct negotiations with the lessee of state property subject to concession;
  12. are persons/entities the consultants (individuals, legal entities that provide legal, financial or other consulting services to the applicant) of whom/which directly or indirectly control or are under the control of the operator of the electronic platform, through which the concession tender, competitive dialogue or publication of documents occurs in the procedure of direct negotiations with the lessee of state property subject to concession;

Volodymyr Yaremko, an Advisor at Sayenko Kharenko Law Firm, has said that the aforementioned criteria could describe the previous experience of potential private partners in successfully conducting and completing PPP projects. For example, in the concession projects of the ports of “Olvia” and “Kherson”, there was a requirement for experience in cargo handling or construction of relevant facilities. Another criterion may be the requirements for the reputation of the bank, which will be willing to provide credit to a potential private partner for the purposes of the project, as banks also have tools to verify the integrity of their creditees. 

Should norms such as integrity verification be introduced into regulations, given the complexity of the PPP mechanism?

In general, PPP projects can be more reliably protected from corruption than traditional public procurement, as well-prepared and structured PPP projects entail more thorough control, detailed analysis and supervision at the pre-tender stage than conventional public procurement.

The reliability of PPPs can also be facilitated by well-thought-out agreements based on detailed structuring, consultations with the private sector and credit institutions, and adapted to the peculiarities of the project risk-sharing and incentive system.

In this context, it is also important to mention the available effective approaches and tools, currently used in Ukraine, developed by international institutions to facilitate the high-quality preparation and structuring of PPP projects.

Ukraine already has a foundation for implementing the UNECE People-first PPPs model, which is pivotal for the realization of economically feasible PPP projects, combining the potential results of private funding of infrastructure with the expected value for society and the environment. An important aspect of one of the key parameters of UNECE People-first PPPs model effectiveness, namely the parameter of economic effectiveness including fiscal sustainability, is transparency corruption prevention.

As corruption is one of the biggest challenges to achieving the goals of People-first PPPs, the UNECE has developed the UNECE Standard on a Zero Tolerance Approach to Corruption in PPP Procurement, which contains anti-corruption principles and recommendations specifically focused on PPP mechanism. The realisation of this standard in Ukraine will help implement procedures and processes to reduce the risk of corruption, thereby strengthening the trust of all stakeholders involved in the project.

During the evaluation and preparation of the feasibility study of a project in Ukraine, the UNECE People-first PPP Evaluation Methodology for the Sustainable Development Goals, People-first Infrastructure Evaluation and Rating System (PIERS) will be used. The methodology helps to identify projects that align with the Build Back Better concept and comprises 22 benchmarks within 5 main outcomes. Those outcomes are access and equity; economic effectiveness and fiscal sustainability; environmental sustainability and resilience; replicability; stakeholder engagement. 

The PPP Agency is also supported by the Public-Private Infrastructure Advisory Facility (PPIAF) in the realisation of PPP projects that facilitate Climate Resilience & Environmental Sustainability Technical Advisory (CREST), by implementing Aligned Indicators for Sustainability in Infrastructure (AISI) in Ukraine. This set of indicators was developed by some of the world’s leading experts in the field of sustainable development. It encompasses criteria that should be taken into consideration when assessing potential sustainable infrastructure projects. 

This level of control, identification of a large number of risks notwithstanding, can reduce the likelihood of certain types of corruption, including the signing of unnecessary or overvalued subcontracts and contractor dishonesty, which affect the results and requirements of the project.

The role of a consultant / independent integrity expert during the tender proceedings that would determine the private partner

During the tender proceedings, it is important to ensure transparency and fairness of the process, including:

  • Engaging consultants/independent integrity experts to participate in a conference for participants organized to provide them with information on the key aspects of the PPP project;
  • Executing control by the tender commission and engaging consultants/independent experts on integrity issues in the process of visiting the objects by the tender participants;
  • Managing any data warehouse through which information is provided to tender participants (such as a data room) by the tender commission. Clear protocols for access and use of the data room (including non-disclosure agreements) are required, the terms of which must be agreed on by the tender participants.

In general, integrity consultants/independent experts can be engaged at all stages to identify and minimize any real or potential conflicts of interest to ensure that:

– organizations operate honestly and objectively,

– suppliers are on equal terms,

– consistent and transparent processes are applied,

– intellectual property remains confidential,

– measures are taken to prevent conflicts of interest (both external and internal, for example in the tender commission),

– competition processes correspond to opportunities.

Anti-corruption compliance during the PPP contract management stage

The key issues of anti-corruption compliance at the PPP contract management stage, (construction and operation stages), are those of changes to/variations in the contract. Changes in services and/or workloads are particularly challenging in this context. Such changes can be initiated by public partners, for example, due to the influence of COVID-19 on healthcare projects.

If changes to a PPP contract, that are not provided for (which is often due to the significant duration of PPP projects), become necessary, public and private partners must agree on and adhere to processes and procedures.

Video recording of the event is available on the Facebook page of the Ukrainian Network of Integrity and Compliance at the link below: