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A New Partnership In Russia

Earlier this month, Prime Minister Mikhail Fradkov and Transportation Minister Igor Levitan told a cabinet session that a new economic entity, the state-private partnership (GChP), could provide a breakthrough for the Russian economy and, especially, for the transportation sector. To take just one example, according to RBK on 20 October, Russia currently has 890,000 kilometers of roads, but only 36 percent of them meet Transportation Ministry standards. Experts cited by the agency said the country needs at least 1.5 million kilometers of high-quality roads to meet its economic-development goals.

To mention another example, crucial bridges across the Volga River in Ulyanovsk, Saratov Oblast, and Volgograd have been delayed for years now because of funding delays. In Ulyanovsk, there is one bridge across the river that dates from the tsarist era, while the new bridge has been under construction now for more than 12 years and will require another $300 million in financing, "Profil," No. 38, reported. The government sees the GChP as a potentially useful mechanism for building ports, airports, tunnels, pipelines, and railroads as well.

But in a country where the government is better known for "managing" than cooperating and where corruption threatens every aspect of the state, the idea has been greeted with resounding skepticism. "Profil" editorialized that the best-known example of "state-private partnership" in Russia at present is the Yukos affair and recalled the unfortunate experience of the high-speed rail line between Moscow and St. Petersburg, in which "not a single train ever set off, but the money allocated to the project zoomed away at such high speeds that to this day no one knows where it went."

Although the legislative framework for the GChP in Russia has not yet been developed, Fradkov and others seem to envisage it as similar to the so-called public-private partnership that has been widely and often successfully used in the West for projects from transportation, to health care, education, prisons, and more. That model is designed to create mechanisms to realize long-term, socially important projects that require large initial outlays of capital.

But analysts in Russia have been speculating that the GChP is primarily about achieving the government's goals and controlling the economy than it is about private-sector profits or development. The proposal has been developed under the auspices of the new state Council on Competitiveness and Entrepreneurship, which is headed by Fradkov. At the council's first session in June, the topic of conversation was President Vladimir Putin's call for the business to be more "socially responsible." The council's second session, just days before the cabinet session at which GChPs were discussed, was devoted to the new partnerships. "It is very important that state-private partnership not be turned into a synonym for social responsibility," Industrial Investors Chairman Sergei Generalov told "Ekspert," No. 39, "because these are fundamentally different concepts."

The Russian Union of Industrialists and Entrepreneurs (RSPP) on 21 October held a conference devoted to the theme of "social responsibility," on the first anniversary of President Putin's initial appeal to business on the subject. RSPP Vice President Viktor Dombrovskii told "Nezavisimaya gazeta" on 22 October that so far most results in this area can be characterized as "voluntary-compulsory charity." The weekly commented that it remains to be seen whether the GChP becomes "a new form of divvying up promising markets or a civilized mechanism for leveraging the resources of the state and private business."

Regardless of the state's intentions, the real threat to the success of GChPs is most likely corruption. "Ekspert" noted that even in the late 19th century, the government had to abandon a similar model in the railroad-construction sector because of massive corruption in assigning state concessions. The current government's track record in the area of competitive tenders likewise inspires little confidence. "At first the state should invite foreign companies that professional organize tenders to act as its agents," Generalov told "Ekspert." However, Levitan announced on 10 October that the Economic Development and Trade Ministry "has agreed to fulfill the functions of the federal organ reviewing proposals for GChP-based infrastructure projects," RIA-Novosti reported.

Opora business association head Sergei Borisov told "Finansovye izvestiya" on 6 October that he fears the GChP could become nothing more than a mechanism for eliminating competition with the help of government bureaucrats. He noted that the Moscow city government recently handed over 200 plots of land to Sibir Enerdzhi for the construction of gas stations.

Nonetheless, the daily reported that a draft law on GChP concessions could be adopted as early as February and the first major GChP-based projects could be announced in the spring. "Any activity, including state activity, creates many dangers. Including the danger of corruption," Institute of Globalization President Mikhail Delyagin, former economics adviser to Prime Minister Mikhail Kasyanov, told "Profil," No. 38. "We have to fight against corruption, but it is better to undertake a necessary project badly than not at all."