In 2007, the Lithuanian government repeated history by failing to complete efforts to restart a stadium project that was first abandoned 20 years before. The estimated cost at the time: $120 million (U.S.). But after spending only $40 million of the budget, the government said it had run out of money. Everything suddenly went silent in and around the stadium in Vilnius; overgrown grass, trees and bushes quickly overtook the place. As expected, no one assumed responsibility for the renewed mess.
There’s a lesson in all of this. Governments may be willing to take on risk, but sometimes a project proves too difficult for them to complete on their own. A private company, by contrast, wouldn’t allow itself to do such a thing, because it would be blamed for cheating people out of money. In general, a private company is better at estimating risks: If the project is not worth doing, it isn’t done. “We already know how to manage construction risks, but it is better to give it to experts,” says Aleksandras Abišala, a former prime minister of Lithuania and now the director of a private consulting company, referring to private companies as those experts.
In other words, governments (or businesses) should do what they are best at. “Government is not very good at building roads, but private companies are,” says Tim Pearse, a senior policy adviser at the British government’s Cabinet Office, echoing Abišala. That is essentially the principle of the private-public partnership (PPP) strategy, which is for carrying out important projects that are too expensive for the state. PPP is known worldwide, but apparently not in Lithuania—at least not yet. Last month, the government approved a PPP proposal to resume construction of the stadium.
The United Kingdom was a pioneer with PPP, which is how Pearse knows it can be a trendy way to develop a country’s infrastructure without having a penny in your fiscal pocket.
“In some cases it worked very well,” he acknowledges. But the key for such a partnership remains its “risk transfer,” he adds. You have to agree who is taking on a risk if something happens to go wrong. “Who holds the risk? What happens if [there’s] an earthquake?” he asks. Or what if a company doesn’t finish a stadium in time (again and again)?
Stadiums aren’t the only thing needing a helping hand in Lithuania. Roads and bridges, still in poor condition since the early years of the Soviet Union, are among the many projects the indebted country cannot find sufficient money to repair.
At the moment, public procurement laws (and the overall practice of project handling) in Lithuania are based on the principle “the cheaper, the better.” But that also translates to “no money, no quality.” This is how projects are being carried out regionally, and the state of the country’s infrastructure decreases dramatically every year as a result. A PPP approach could certainly help.
But there’s a reason why, despite the need for PPP, Lithuania has been slow in adopting its benefits. “The political level of regional municipalities is very low, and they don’t care about PPP,” explained Jonas Dumašius Hidrostatyba, chairmain of Lithuanian construction company Hidrostatyba. “Experimental projects will probably be talked [about] a lot, though now the costs are at the low level and it is time to act.”
However, it must be remembered that “PPP is an effective tool but not a panacea,” Abišala points out.
Still, governments have every right to be excited about the benefits from developing public-private partnerships and may try to attain some experience with them. In Lithuania, the approach is new, so there’s room to experiment: estimating, then choosing, which cases call for a PPP approach. Considering that Lithuania is a less developed country than European Union countries, it may get up to 85 percent of its financing for strategically important projects from the EU anyway, which makes the pursuit of PPP a no-brainer.
As Abišala puts it, “If I [were] king of Lithuania … I would send these projects into life immediately.” The state of Lithuania’s National Stadium, and more, depends on it.
Featured image courtesy of PublicDomainPictues/Pixabay.