key: cord-0059498-rdc80ttw
authors: Chikanayev, Shaimerden
title: Public–Private Partnerships in Kazakhstan: Evolution of the Government Policy and Reality of PPP Deployment
date: 2020-06-25
journal: Kazakhstan’s Developmental Journey
DOI: 10.1007/978-981-15-6899-2_6
sha: 83908f810040a6a19ed31e8b1023caa205ee0c0b
doc_id: 59498
cord_uid: rdc80ttw

This chapter examines public–private partnership (PPP) development in Kazakhstan from 1991 to the time of writing and reviews evolution of the PPP legislation and approaches used to create a PPP-enabling environment in order to draw lessons for the country’s future policy. The chapter describes evolution of the PPP concept in the country and provides analysis of gaps and deficiencies in the current PPP policy and legislation. Five stages have been identified in the evolution of the government PPP policy: Stage One—PPP legal framework for foreign investors only (1991–1993); Stage Two—Lack of PPP-specific legal framework and “pilot” projects (1994–2005); Stage Three—The formation of legal and institutional frameworks (2006–2015); Stage Four—Active PPP deployment: the focus being on quantity (2016–2018); and Stage Five—Adjustments to the PPP framework: stricter requirements (2019–present). In addition to discussing what has been accomplished at each stage, the chapter delineates policy goals, provides assessment of progress, and identifies implications for further PPP policy development. The chapter suggests that focusing on the deployment of a larger number of adequately designed infrastructure PPPs at the national level is preferred, while the number of local-level small-scale PPPs should decrease.

inefficient and have often been used to conceal public borrowing. The problems of the PPP mechanism not working properly became so acute that in 2019 the President of Kazakhstan, Mr Kassym-Jomart Tokayev, acknowledged that the whole concept of PPP in Kazakhstan had been discredited (Tokayev 2019) .

However, in 2020, Kazakhstan is facing major economic and social challenges due to the impact of the COVID-19 pandemic and drop in the price of oil to a 20-year low, which has resulted in decreased economic activity, devaluation of local currency (tenge), reduced foreign direct investment, and shrinking state budget. This makes the need to attract investment in deteriorating public infrastructure even more acute, and the government is now under even greater pressure to find answers to hard questions about maintaining the volume and quality of public services. Therefore, Kazakhstan's government needs to take action in the near future to recalibrate the PPP policy and the way it is implemented.

This chapter examines PPP development in Kazakhstan from 1991 to the time of writing and reviews evolution of the PPP legislation and approaches used to develop a PPP-enabling environment in order to draw lessons for the country's future policy. This chapter describes evolution of the PPP concept in the country and provides analysis of gaps and deficiencies in the current PPP policy and legislation.

Since 1991 when Kazakhstan declared its independence, it has had to rely on the deteriorating infrastructure it inherited from the Soviet era. As a result, nearly every element of public infrastructure, such as roads, airports, water networks, and hospitals, required upgrading or expansion. Faced with gloomy growth projections and shrinking budgets after the collapse of the Soviet Union, Kazakhstan's government quickly recognised that it could use an effective method for attracting private investors and financing its growing infrastructure needs: PPPs. As the concept was novel for the country, the PPP definition and the scope of PPP activity has evolved significantly in the nation's legislation and legal literature since 1991. It is, therefore, useful to distinguish the following five stages of the PPP development in Kazakhstan:

• Stage One-PPP legal framework for foreign investors only (1991) (1992) (1993) . • Stage Two-Lack of PPP-specific legal framework and "pilot"

projects (1994) (1995) (1996) (1997) (1998) (1999) (2000) (2001) (2002) (2003) (2004) (2005) .

• Stage Three-The formation of legal and institutional frameworks (2006) (2007) (2008) (2009) (2010) (2011) (2012) (2013) (2014) (2015) . • Stage Four-Active PPP deployment: the focus being on quantity (2016) (2017) (2018) . • Stage Five-Adjustments to the PPP framework: stricter requirements (2019-present) .

Each stage will be discussed in detail, followed by the conclusion.

Stage One---PPP Legal Framework for Foreign Investors Only (1991) (1992) (1993) 

Just seven days after it declared its independence, Kazakhstan adopted the law on concessions, which was the first PPP-related law in the country. The new legal framework has been proofed and applied in at least four infrastructure projects financed by the Development Bank of Kazakhstan and three concession projects supported by the national government.

The principal peculiarity of the first law on concessions was that at this initial stage of the PPP development a concession was viewed as an exclusive right or authorisation (i.e. de facto a licence) issued by the government to a concessionaire to engage in certain business activities. In other words, a concession agreement was some kind of an "administrative contract" (Popondopulo and Shevelyova 2015) that should not even be treated as a civil law agreement between equal parties because de facto it was a unilateral government authorisation (i.e. a licence) based on the provisions of public law (Moroz 2006) .

Although the law on concessions was not industry-specific, it has been designed mainly for implementation of projects related to utilisation of natural resources. As at that time oil and gas were viewed as the only possible drivers of the national economy, it was well justified that the law was tailor-made for the oil and gas projects.

Importantly, the law on concessions could be used only by foreign investors as the law stipulated that a concession could be granted only to foreign legal entities and/or citizens. When the Soviet Union disintegrated, there was no market economy in Kazakhstan and no local businesspeople who could act as concessionaires. It is, therefore, natural that at the dawn of Kazakhstan's independence, attracting foreign direct investment was the main PPP policy goal aiming at bringing in money and technology for exploration and extraction of the country's oil and gas reserves.

The scope of the PPP concept during Stage One was limited to the concession form. It was understood narrowly as an exclusive right to be awarded to an investor (in some countries, a concession is understood in the same way as exclusive right, although in others it is viewed as one of many types of a PPP agreement; see, for example, Tuktarov and Dubinchina 2016). Stage One represents a time when the government was not yet ready for any partnership with business on equal terms and, therefore, the whole PPP model (i.e. a licensed-type concession agreement based on public law provisions) was designed to enable the state to dictate its terms of partnership to the business. It is no surprise, therefore, that just a handful of projects had been implemented under this novel legal framework. The first law on concessions was already deemed invalid by April 1993.

Rapid transition to a market economy in the 1990s exposed deficiencies of the licensed-type concession agreement under the law on concessions, which proved to be a hindrance for attracting private investment. The government learned its lesson and all new types of PPP-related agreements it introduced thereafter have been based on private law and not public law provisions. Instead of the power-subordinate relationship that existed under the first law, all PPP-related types of agreements introduced in Kazakhstan after 1993 have been based on the "equality of parties" principle.

Another lesson Kazakhstan learned from this stage is that PPP-related laws should be tailor-made for developing public infrastructure (economic infrastructure and social infrastructure-see Yescombe and Farquharson 2018) and not for the subsoil utilisation projects. This materialised in 2006 when a new Concession Law specifically excluded subsoil use operations from its application (Law of the Republic of Kazakhstan 2006) . From 2006, the legal term "a concession agreement" could not be applied to any type of the subsoil use contracts (Bassin et al. 2004) , whereas the Law on Public-private partnership (the PPP Law) (Law of the Republic of Kazakhstan 2015) adopted in 2015 includes the provision that the term may be applicable to projects involving subsoil use but only in conjunction with the provisions of the Subsoil Use Code.

Finally, unlike the first law on concessions, all PPP-related laws thereafter have been applicable to both domestic and foreign investors, as the government realised the importance of treating all investors equally.

Stage Two---Lack of PPP-Specific Legal Framework and "Pilot" Projects (1994-2005) 

From 1993, when the first law on concessions stopped working, to 2006, when a new law on concessions came into effect (i.e. for about 13 years), there was no PPP-specific legislation in Kazakhstan. Despite the absence of any specific laws on PPPs or concessions, a number of agreements have been executed during this time between public law entities (i.e. the Republic of Kazakhstan, its regions or cities) and investors, based on PPP principles and relying solely on the general principle of freedom of contract in Kazakhstan's civil law.

Privatisation of the country's electrical power and heating infrastructure using the PPP mechanism, in the second half of the 1990s in particular, triggered interest amongst foreign investors. In 1997, the Belgian company Tractebel obtained the "concession" for the electricity, heating, and gas supply in the city of Almaty (the nation's then capital), as well as the licence for the construction and operation of gas pipelines. The American company AES also received concessions for the provision of electricity and heating in the same year and invested in some of the country's largest power plants, including the 4000 MW Ekibastuz-1 coal-fired power station. However, the foreign investors quickly faced high-profile disputes with the government. Disagreements regarding tariffs and a corruption scandal resulted in the early termination by Tractebel of its investment in the beginning of the 2000s. Similarly, amid regulatory disputes with the government, AES sued Kazakhstan before investment arbitration and divested its largest energy assets in the country in order to gradually close down its Kazakhstan-based business (Boute 2019) .

Nonetheless, the other two infrastructure projects were launched as concession agreements in 2005, despite the absence of a specific legal framework. These projects are usually viewed by the government as pilot PPP projects (although they were not the first ones as there were others, as discussed above):

1. Construction and operation of the inter-regional power transmission line "North Kazakhstan -Aktobe Region" in the Aktobe region (a concession for 25 years with a concessionaire Batys Transit). 2. Construction and operation of the railway line "Shar Station -Ust-Kamenogorsk" in East Kazakhstan region (a concession for 23 years with a concessionaire Doszhan Temir Zholy) (for details of this project, see Eurasian Economic Commission 2018).

Both concessions performed below expectations and could hardly be viewed as successful PPP projects. In part, this was caused by poor structuring of these projects. In addition, there was apparent lack of proper balance of risk sharing between an investor and the state. For example, the railway has seen less freight than expected, which had a serious negative impact on the project's revenue. In the power transmission project, although several enterprises were expected to use the power line, they were not working or operating below full capacity. Both concession projects managed to raise debt financing on the domestic stock exchange by issuing infrastructure bonds secured by the state sureties. These state sureties issued their guarantees under Kazakhstan's law. However, their guarantees proved to be unreliable means of security in practice. Doszhan Temir Zholy (the operator of the "Shar Station -Ust-Kamenogorsk" railway line project) declared default on its infrastructure bonds in 2008, and many of Kazakhstan's pension funds that acquired these bonds failed to enforce their claims against the Republic of Kazakhstan as a surety. After some time, however, in the light of looming loan defaults and risk of bankruptcies of the companies involved, the government stepped in and rescued both pilot PPP projects by purchasing part of the shares from private investors.

Foreign participation in the privatisation of electrical power and heating generation and supply was an important component of the government's successful policy to address a severe debt crisis that hit Kazakhstan's energy sector at the end of the 1990s (Boute 2019). The government expected that attracting foreign investors by way of PPPs and privatisation would (i) facilitate the restructuring of the debts accumulated by the state-owned operators of utilities, (ii) bring in much-needed capital and technology for the modernisation of the energy sector and (iii) reduce the budget expense on the power and heating generation. In addition to upgrading public infrastructure, the government also hoped to use PPPs for developing the domestic capital market by introducing a new financial instrument-infrastructure bonds-that were expected to become a lucrative and, importantly, secure asset for investment by the nation's pension funds, insurance companies, and other large firms.

Stage Two captures government-business relations in Kazakhstan at a time when the government tried to use PPPs and privatisation in the most flexible and unregulated manner to do much-needed reforms in the energy and utilities sectors and swiftly attract foreign and domestic investment. Yet, the government learned the hard way that there are not really any shortcuts to forge a lasting partnership with the private sector.

The second stage, therefore, presents particular interest for legal research because any form of cooperation between the government and business was, de facto, recognised as PPP and all projects implemented as such during this time have been structured and launched in the absence of a PPP-specific legal framework. The absence of specific legislation means that the legality and enforceability of the so-called concession agreements remain questionable. De jure these agreements could not be qualified as concession agreements as provided by the 2006 Concession Law but should be qualified as so-called innominate contracts (contractus innominati). In particular, one of the grey areas is the legal capacity of public law entities (i.e. the Republic of Kazakhstan, its regions, and certain cities) to enter commercial contracts, if such commercial contracts are not specifically provided by Kazakhstan's law (i.e. if they are not socalled nominate contracts from Kazakhstan's civil law perspective) and if Kazakhstan's law does not specifically authorise relevant state bodies to sign such contracts on behalf of the respective public law entity. In the absence of such specific regulation, transparency of the process related to selecting investors, as well as legal the authority of relevant state bodies (i.e. the national government or regional and local executive bodies) who signed concession agreements on behalf of relevant public law entities, also remains an open issue.

The lack of a transparent private partner selection procedure and the absence of a solid legal framework for structuring PPPs during Stage Two of PPP development in Kazakhstan, unsurprisingly, left too much room for the discretion of government officials and opportunities for corrupt practice. During this stage, many PPP tenders were rigged and lacked competition, being largely controlled by favoured insiders with political connections to the government bodies. It is of no surprise, therefore, that most litigations and corruption scandals surrounding PPP projects occurred during this time (e.g. a dispute between CCL Oil Ltd and Kazakhstan's government in relation to concession agreement executed in 1997 with regards to the Pavlodar oil refinery is just one more example, in addition to AES and Tractebel cases discussed in this section).

The principal lesson from Stage Two is that in order to attract investors on a long-term basis, specific PPP legislation should be adopted to make sure that the private partner selection process is transparent and efficient, whereas authorities of the relevant state bodies should be clearly stipulated in legislation.

The government also realised that the exceptionally low tariffs that were used in the utilities and energy sectors did not enable the utilities companies to recover their costs and attract foreign investors and did not allow viable PPP projects to be launched without additional payments from the state budget. Raising the tariffs for utilities is typically considered a politically unpopular action; it is a sensitive issue that could trigger social unrest. Therefore, the government has been, and still is, reluctant to attract foreign investors and initiate any PPP projects in the utilities sector. This calls for a fundamental reform of the tariff-setting methodology used by the natural monopolies in general and in utilities in particular.

Private investors always seek clarity about the government's commitment to adopt a tariff-setting policy that would ensure the financial viability of the contract, although a project often has to be accompanied by the transparent subsidies if the government decides that not all consumers can afford to pay cost-recovery tariffs.

Stage Two also showed that Kazakhstan needs more effective PPP policy instruments for the implementation of projects in the utilities sector. For example, it might be a PPP model, specifically provided by law, that allows payments to a private company by both the government and final users or allows shadow tolls (i.e. when the government pays the tolls in place of the final user) to guarantee certain revenue to a private party for a pre-specified volume of public services (Mouraviev and Kakabadse 2017) .

Finally, because many pension funds burned their fingers on infrastructure bonds during this stage of PPP development, this type of bonds-used as a mechanism for raising debt financing for PPPs-has not been used in Kazakhstan ever since. It shows that the government largely lost interest in the domestic capital market as a source of financing for PPPs and instead opted to attract the necessary funding mainly from international institutions.

Stage Three---the Formation of Legal and Institutional Frameworks (2006-2015) 

Although Kazakhstan received some experience of PPP-based projects during stages one and two, successful deployment of new partnership projects would not be effective without comprehensive statutory legislative package on PPP procurement. During Stage Three, Kazakhstan managed to put in place well-structured legal and institutional frameworks for launching PPPs at both the national and regional levels (European Bank for Reconstruction and Development (EBRD) 2018; Rivadeneira and Garin 2019).

In 2006, the new Concession Law was adopted, which already in 2007 enabled execution of the now specifically recognised concessions (i.e. a concession agreement now became a nominate contract from Kazakhstan's civil law perspective). These were concession agreements on construction and operation of the passenger terminal of the International Airport in the city of Aktau; the Yeraliyevo-Kuryk railway line (construction and operation); and electrification of the Makat-Kandyagash railway line. This was followed by execution in 2008 of the concession agreements on construction and operation of the gas turbine plant in the city of Kandyagash (in Aktobe region) and the railway line Korgas-Zhetygen (Mouraviev et al. 2012 ). However, the then largest PPP project that was expected to pave the way for more partnerships with foreign investors and lenders was the Big Almaty Ring Motor Road concession project (a toll road around Almaty), also known as BAKAD. The Ministry of Industry and Infrastructure Development with assistance of the International Finance Corporation as its advisor put the BAKAD project out to tender under the Concession Law framework at the beginning of 2015, although this long-delayed project was first conceived as early as 2008. The BAKAD 20-year, build-transfer-operate (BTO) concession agreement has been signed in February 2018 by a consortium (comprising South Korea's SK E&C, Korea Expressway Corp and Turkey's Alarko and Makyol) acting as a concessionaire. The project offers an enticing risk/reward combination. While construction cost amounts to USD 540 million, the total project cost is estimated at USD 750 million. While Kazakhstan's government agreed to assume all traffic risk, toll revenue will be collected by the concessionaire and transferred to the government straight away. In turn, the government will be making a front-loaded availability payment to cover investors' capital expenditure, plus will be paying interest during the first 10 years of operation to mimic the debt repayment schedule. At the same time, the investors' operating expenses, replacement capital expenditure, taxes, cost of capital and other costs will be covered throughout the whole operation period, to the end of the project. The government will also mitigate currency fluctuation risk and compensate for any depreciation of tenge (Kazakhstan's national currency) against the US dollar above 5%. Even though the BAKAD concession agreement was signed back in February 2018, it took another two years to reach financial close when all relevant stakeholders, including EBRD, managed finally to agree, in February 2020, on project financing (Newsworld 2020) . There is high expectation for success of this project because if BAKAD will not be implemented for any reason, foreign investors, lenders and international financial institutions (IFIs), that so far supported Kazakhstan's government PPP initiatives, may lose trust in government's commitment to engage foreign partners in any PPPs. Importantly, as of April 2020, out of all above-mentioned concessions only one has been working successfully (i.e. a facility has been constructed and is already functioning)-the passenger terminal of the Aktau airport. It means that the law on concessions is in effect already for 14 years, although only one concession project has been successful under its legal framework (Kazakhstan Public-Private Partnership Centre 2020).

Concessions lack popularity partly owing to excessive regulation by the relevant legislation and because the process for granting a concession in Kazakhstan is bureaucratic and time-consuming. To address this issue, the government throughout Stage Three tried to improve the Concession Law by introducing numerous changes. For example, upon its adoption in 2006 the law allowed concessions to be structured only as either BTO or design-build-transfer-operate (DBTO) projects (i.e. upon completion of the construction phase, ownership of the relevant concession facilities was required to be transferred to the government). This statutory limitation proved to be an unnecessary obstacle for concession projects, and investors often required greater flexibility. The Concession Law, therefore, later has been amended to allow all possible PPP models. Nowadays, a concession agreement may include an option for a private partner to keep ownership of the concession facility upon project completion. Currently, all available PPP schemes may be structured.

In addition to the Concession Law, Kazakhstan also adopted the Project Finance Law in 2012 when the project finance concept was introduced into national legislation. There is now a solid basis for the structuring of PPP schemes on the principles of project finance. So far, however, project finance in the strict sense of the term (i.e. where financing is based on the performance of the project itself) under the Project Finance Law has not yet been tested in Kazakhstan.

In addition to the legal framework, during Stage Three, the government managed to form quite a sophisticated institutional framework for PPPs (Rivadeneira and Garin 2019). For the national-level concession projects in their sector (e.g. the Ministry of Healthcare for hospital projects), the line ministries perform the role of a contracting authority (de facto on behalf of the Republic of Kazakhstan). The line ministries decide on the delivery mode for investment projects and develop documentation for PPPs. Local governing bodies (akimats ) perform the role of a contracting authority (de facto on behalf of a respective region or a city) for all local-level concession projects. The state body that is procuring the PPP (i.e. a contracting authority) is the institution ultimately responsible for the project. The contracting authority is responsible for the preparation, negotiation, and administration of the contract, and for monitoring and evaluating contract performance during the construction and operation phases of the project. This authority, therefore, carries the ultimate responsibility for the PPP contract and its implementation (Rivadeneira and Garin 2019) .

In 2008, Kazakhstan established its specialised unit called Kazakhstan Centre for Public-Private Partnership (the PPP Centre) located in the nation's then capital city, Astana, (renamed Nur-Sultan in 2019) to facilitate PPP projects. The centre is charged with the economic evaluation of proposed PPPs, including concessions and assistance with project preparation, such as evaluation of tender documentation, bids of potential private partners, and drafts of the concession/PPP agreements. Later, in 2014, the PPP Centre set up the Kazakhstan Project Preparation Fund LLP (KPPF) as a joint venture with the National Management Holding Baiterek which is an organisation managing a large number of the country's companies. The KPPF promotes infrastructure development in Kazakhstan through providing services for structuring and supporting infrastructure projects including those that make use of the PPP model. The KPPF can assist with drafting tender documentation, a concession or a PPP agreement. It also could be involved in negotiating with potential investors and concessionaries, as well as working with the government organisations regarding securing approval for the project documentation. The KPPF, in general, serves as an external independent adviser to the national government and sometimes to the local authorities. Finally, nowadays, almost every region (oblast ) in Kazakhstan has its own PPP Centre responsible for the development of PPP in a respective region. Furthermore, a few line ministries in Kazakhstan have created their own units (departments) for developing PPP projects (Rivadeneira and Garin 2019) .

Kazakhstan also managed to build up a diverse pool of different types of lenders that could finance PPP projects. Firstly, it is the Development Bank of Kazakhstan, a government-owned entity responsible for financing infrastructure projects including PPPs. Secondly, domestic commercial banks could be interested in financing PPPs and there are already small-scale projects financed by the commercial banks, despite lacking appetite and capacity to engage with large projects. Finally, most of the national-level PPP projects so far relied on IFIs. IFIs strongly support PPP development and their assistance to Kazakhstan's government is not limited to lending, but also includes rendering international expertise in managing PPPs. The Asian Development Bank (ADB), the EBRD and the International Finance Corporation (IFC) are especially active in Kazakhstan. Quite often they help the government by serving as advisors regarding PPP structuring or by bringing in international and local consultants in order to improve PPP-related legislation.

As for the PPP policy in Kazakhstan, it is mainly led by the Ministry of National Economy as an authorised state body that is assisted by the PPP Centre. The ministry sets the guidelines, drafts PPP legislation and has an overarching monitoring role with regards to PPPs. In addition, the Ministry of Finance, sectoral ministries, the local authorities and the National Chamber of Entrepreneurs (Atameken) also play an important role in the development of the PPP policy in the country. ) . The expectation was that simultaneously the Ministry of Economic Development and Trade would facilitate the creation of an appropriate legislative and regulatory framework for implementation of infrastructure projects using PPP mechanism. Stage Three in the PPP development was, therefore, the first time when a national PPP policy document (the PPP Programme) was promulgated. Its major goal was to create specific legislative and institutional frameworks for PPPs. This goal has been successfully accomplished (as discussed above in the section What was done [Stage Three]). The government, however, fell short of achieving another goal set in the PPP Programme, namely to implement twice as many PPP projects by 2015 as compared to 2008. In reality, no projects have been implemented during this time, although a few concession projects, including BAKAD, have been announced during Stage Three.

The PPP Programme declared education, healthcare, toll roads, and housing and public utilities as priority sectors for PPPs. However, it seems that in fact the major goal during Stage Three was to attract foreign investment and implement about ten large-scale PPP projects, with a total value of more than USD 4 billion, in the transportation sector and, therefore, create the PPP projects that would serve as a benchmark (Matayev 2014) .

To summarise, the PPP Programme as de facto national PPP policy proved to be an effective tool for PPP development as the government set clear objectives and targets and established the priority sectors for partnerships. This matched the expectation of foreign investors and other interested parties. Unfortunately, the practice of promulgation of similar national PPP policy documents did not continue after the PPP Programme had ended in 2015. It is not surprising, therefore, that the Asian Development Bank's PPP Monitor notes a lack of formal, published PPP guidelines and the list of projects in the pipeline as one of the impediments to PPP development in Kazakhstan (ADB 2017).

During Stage Three of PPP development, the understanding of a PPP was narrowed to simply mean a concession (Mouraviev and Kakabadse 2017) . In the 2006 Law on Concessions, a concession is defined as activity aimed at construction (or renovation) and operation of a facility, performed at the expense of a concessionaire or with co-financing by the grantor. The legislation, therefore, allows the public sector partner to provide additional forms of support to a concessionaire. The government can (and often does) provide financial support to a project, although the legislation limits this support to the total value of the completed project. The concession law includes the concepts of an availability payment to ensure continuous operation of a concession facility and state subsidies as both an additional source of income for a concessionaire and a tool to reimburse its expenses. The availability payment includes outlays from the government budget as compensation of concessionaire's certain investment and operational expenses and, if applicable, any service fees for trust management of the government-owned property (i.e. a concession facility) or lease payment paid by the government for the use of a concession facility owned by a concessionaire. Importantly, the Concession Law provides possibility to obtain an availability payment only for concession projects that have been categorised as "socially important", such as kindergartens. The Kazakhstan's definition of a concession, therefore, is different from traditional understanding of a concession in Western Europe and international legal literature (UNECE PPP Assessment Report 2013). In the traditional concept, a concession is limited to a special type of a PPP in which a private sector entity is allowed only to charge the general public for using the concession facility ("users pay" model) but is not able to claim any compensation from the state budget (Yescombe and Farquharson 2018) .

Unlike the 1991 concession law that categorised a concession agreement as an administrative contract, the 2006 Concession Law classifies a concession agreement as a special type of a private law contract. It means that any concession agreement is a nominate contract that must have the following two elements as a subject matter: (i) creation/reconstruction of a concession facility and (ii) operation of this facility in accordance with its designated use. For instance, if the concession facility is a school, a concessionaire must deliver the core service by providing educational services (i.e. a "limited service" project under which the services provided by the private partner during the operations phase do not include educational services, but are limited to facility maintenance and management, cannot be structured under concession agreement). Another practical implication of categorising a concession agreement as a nominate contract is that it has its own specific regulation that is different from non-concession PPP agreements. For example, Kazakhstan's Tax Code provides specific/preferred tax regulation only for the concession agreements and not for any other types of PPP agreements.

Importantly, a concession facility can only be a property that may be recognised as the so-called social and vital infrastructure facility (i.e. a facility used for meeting the public needs, the securing of which is imposed on state authorities by Kazakhstan's law). The Concession Law, therefore, cannot be used for the construction of, for example, a fertiliser plant as it is unlikely to be considered a facility used for meeting public needs, the securing of which is imposed on state authorities. Unlike the Russian concession legislation, Kazakhstan's Concession Law does not provide an exhaustive list of the property types that could be objects of a concession agreement. However, in general, only immovable and movable property may be a concession facility in Kazakhstan (Tuktarov and Dubinchina 2016).

It is worth noting that there were two drafts of the concession law submitted for consideration of the Parliament in 2006. One draft was prepared by the Ministry of the National Economy and the other draft was prepared by civil law scholars led by renowned academic Professor MK Suleimenov. Although the law is a blend of the two drafts, unfortunately, the final version was mainly based on what the ministry proposed (Beisembinova 2011) . This explains the gaps and ambiguous provisions that still exist in the concession law. For example, one of the major reasons why it took more than two years to reach a financial close with the lenders of the BAKAD project was confusion regarding who was the concession grantor. The 2006 concession law states that only authorised state bodies (e.g. the Ministry of Industry and Infrastructural Development, which signed the BAKAD concession agreement) can act as a concession grantor and enter into concession agreements, but this contradicts Kazakhstan's legislation because state bodies are not subjects of civil law and, therefore, they do not have any assets and cannot enter into any civil law agreements on their own behalf (i.e. strictly speaking state bodies can act and sign a concession agreement on behalf of the public law entities, e.g. the Republic of Kazakhstan or its region or a city, but not on their own behalf as legal entities). From the bankability perspective, it makes significant difference if the grantor is the Republic of Kazakhstan that has many assets, or just a ministry with effectively no assets at all to meet its contractual obligations.

At Stage Three, the principal learning point is that developing a policy document and setting legal and institutional frameworks are not enough for creating a PPP-enabling environment. Despite forming advanced legal and institutional PPP frameworks and promulgating a policy document (the PPP Programme), there was an apparent lack of success in PPP implementation during Stage Three. It seems that the country lacked the critical element that is required for successful PPP implementation: high-level political support that would overcome all kinds of resistance to private sector involvement in public service delivery. Many officials (in the line ministries and regional and local governments) at that stage did not see powerful incentives for their respective organisations to embark upon PPP implementation that back then was a novel, quite complicated and time-consuming mechanism compared to the traditional public procurement process. There is no surprise, therefore, that during Stage Three only one concession project (the passenger terminal of the international airport in Aktau) has been successful.

The end of year 2015 became extremely fruitful in terms of making changes to the PPP legislation as the new piece of legislation-the PPP Law-and all necessary by-laws have been adopted (Law on Publicprivate Partnership 2015). Importantly, Kazakhstan's president in his address to the nation on 30 November 2015 specifically urged the use of PPP for economic development, which provided a powerful impetus to all officials and extended much-needed high-level political support for PPP implementation. Having established a solid legal and institutional basis for the PPP projects and a clear message from the president to implement PPPs in all sectors of the economy, at the end of 2015 the national government officially confirmed that from then on each region in Kazakhstan would have to meet a new target: to implement at least five PPP projects per year. The government has also set similar targets for the number of PPP agreements that line ministries must sign on an annual basis. It also instructed line ministries and regional authorities to develop a road map by March 2016 for PPP formation in their respective sectors and regions with the specific target indicators.

As a result, soon thereafter two contracts have been signed under the framework of the new PPP Law. These were the national-level PPP projects: a contract to build a checkpoint and a transport and logistics centre in the international transit corridor, "Western Europe -Western China", and a contract to design and operate an automated information system, "Kandelik" (Rivadeneira and Garin 2019) . The checkpoint and a transport and logistics centre project were executed as a PPP agreement in 2017 without a public tender as a result of so-called direct negotiations with a domestic investor-LLC Eurotransit Terminal-and was financed by the Eurasian Development Bank. This was the first nationallevel PPP agreement and the only arrangement that had two public sector partners (two ministries) as counterparties of the agreement. The interpretation of the law, however, suggests that de facto there is only one public partner: the Republic of Kazakhstan represented by its two state bodies (ministries).

However, the regional level, rather than the national level, saw a rapid increase of the number of executed PPP agreements during Stage Four. At this stage, half of the projects have a maximum investment not exceeding KZT 100 million (about EUR 250,000). Furthermore, 80% of the projects have a total value below KZT 500 million (EUR 1.25 million) (Rivadeneira and Garin 2019). Poor PPP project selection and preparation by the local authorities (mainly owing to a lack of competence in the regions and/or lack of relevant officials that were ready to take on the responsibility of making the necessary decisions) inevitably resulted in defaults, litigations, and the invalidation of many inadequately structured PPP agreements (some of which did not comply with the PPP legislation) and tenders during Stage Four (SZP 2019).

Still, the largest project at the local level is the Almaty Light Rail Transit (LRT) PPP, although there is confusion regarding who a public sector partner might be and against what assets the private sector partner might have legal recourse. Systematic interpretation of the 2015 PPP Law suggests it is the city of Almaty (rather than the Republic of Kazakhstan) and, therefore, a future private partner of the Almaty LRT project may have legal recourse only against the municipal budget of Almaty, but not the state budget of Kazakhstan. The city government is prepared to give a subsidy to cover 50% of the capital cost and retain ridership, but the city expects to receive all ticket revenue. The private sector partner would be paid an availability payment to cover its investment and operating costs. The Almaty LRT PPP project is also a good example of the public sector partner unexpectedly changing its mind in the middle of the tender process. Although four international consortia successfully passed the first stage of the open tender and in 2019 entered the second stage, the newly appointed mayor of Almaty currently proposes two options:

(1) to abandon a PPP model for a light rail and instead build and operate the LRT system by the public sector organisations as, presumably, this option offers better value for money or (2) to abandon the project altogether. It is likely that a change of plans is triggered by doubts of whether it is feasible to attract private investors without very high costs or the central government guarantees for potential liabilities. Furthermore, implementing the project via public sector organisations, rather than the private firms, could save hundreds of millions of dollars.

During Stage Four, the government pursued two goals in furtherance of its new PPP policy developed by the Ministry of the National Economy in collaboration with the PPP Centre. The first goal was to establish a new legal framework under the PPP Law that should have provided for much broader understanding of the PPP concept. A new framework was expected to be more flexible compared to the one formed under the 2006 concession law (i.e. the new PPP Law did not intend to replace the Concession Law; rather, it aimed at providing a more flexible and robust solution for PPPs) (Rivadeneira and Garin 2019). The second goal was to implement many small-scale and simple (service-type) PPP projects under the PPP Law at the regional level, rather than just a few large-scale infrastructure projects at the national level under the Concession Law, as was the case of the PPP policy during Stage Three. To meet these goals, the government pushed for decentralised PPP preparation, approval, and implementation, so that the regional and local authorities would have more power and could implement the regional-level PPP projects faster, without a need to get any approvals from the PPP Centre or the national ministries. Supported by the PPP Law, the new policy has led to a sharp increase in PPP formation at the regional level, with 15 PPP agreements signed in 2016, 166 in 2017, and 304 in 2018 (Atameken 2019). These regional projects have been focused on the social infrastructure, including kindergartens and primary schools (54% of the total number of executed PPP agreements), primary healthcare centres (21%), and sports and recreation facilities, such as halls for martial arts (14%). Many of the projects developed under the PPP Law during this stage took the form of service contracts, such as street cleaning or waste processing, with limited capital investment (Rivadeneira and Garin 2019).

The PPP Law significantly broadened the PPP concept by viewing a partnership as a form of cooperation between the public partner and a private partner that corresponds to the features defined by the law. These features include (i) relations between the public and private sector partners in the form of a PPP agreement, (ii) medium-term or long-term PPP project implementation (from 3 to 30 years), (iii) joint participation of the public and private sector partners in project implementation, and (iv) resource sharing by the partners to facilitate project implementation. A very broad definition of a PPP enables the launch of projects in any sector of the economy. Therefore, PPP facilities under the 2015 PPP Law, unlike the 2006 concession law, do not necessarily have to be used for satisfying the public needs, the securing of which is imposed on state authorities (e.g. the construction of a fertiliser plant or subsoil utilisation project are now eligible for implementation under the PPP Law).

The law enlists possible types of a PPP agreement, including a concession agreement, trust management of state-owned property agreement, and a life cycle contract; however, the list remains open, so it is possible to enter into other agreements that align with the PPP features. Logical and systematic interpretation of the PPP Law, however, suggests that in fact under the current law there are only two types of a PPP agreement: a concession agreement and a non-concession agreement.

• A concession agreement (for the purposes of the civil law) is a socalled nominate contract with its own specific legislation and even tax regulation. This means that a concession agreement should not be considered a type of a PPP agreement and, therefore, should not be subject to regulation by the PPP Law. • A non-concession PPP agreement (for the purposes of the civil law) is a so-called mixed contract (i.e. a contract that contains the elements of different types of a contract provided by the law). A non-concession agreement also has its own special legislation and features.

This means that Kazakhstan's PPPs in effect have two forms: (1) a concession and (2) a non-concession PPP, which both have different legal frameworks. The subject of a PPP agreement in the form of a mixed contract is not clearly defined by the PPP Law because it can vary depending on the types of contract a particular PPP agreement consists of. However, in general, it can be related to any type of activities including construction and/or developing infrastructure and/or rendering services. Furthermore, a PPP agreement is not only a mixed contract, but also a nominate contract, which means that a PPP agreement should be considered concluded only when relevant parties agree on all essential terms of the PPP agreement as stipulated in the PPP Law (Chikanayev 2017) .

Most academics and businesspeople view a PPP as a contractual agreement (Mouraviev and Kakabadse 2017) . However, a PPP acquired specific legal meaning under Kazakhstan's law during Stage Four and, therefore, the PPP concept in Kazakhstan nowadays covers only two specific contractual arrangements: (1) a concession agreement and (2) a PPP agreement. A wide variety of other contractual arrangements involving the public and private sector partners (e.g. trust management of state-owned property agreement executed under the State Property Law), executed not in accordance with either the 2015 PPP Law or the 2006 Concession Law, therefore, cannot be qualified as a PPP.

Legislation also failed to make clear how these two laws are linked and what distinctive features of the concession law make it, in certain cases, a preferred option when compared to the PPP Law. Nevertheless, the PPP Law currently has a number of provisions that are either unclear (and the approach to the application thereof must first be tested in courts) or too onerous to the business (Chikanayev 2015) . This is why for the time being the concession model remains the most popular option for IFIs and foreign investors in Kazakhstan.

The evidence suggests that many local (city) and regional authorities have been improperly using the PPP concept during Stage Four in order to attract private investors or as a cover for irregular procurement practices or public borrowing. For example, under the PPP Law, a private sector partner may be selected through so-called direct negotiations (i.e. without an open tender) in certain cases as stipulated in the law. The problem is that, in practice, the direct negotiations method might be misused by the regional and local governments and affiliated business entities as a loophole that allows awarding a contract without competition. The fact that more than 50% of the PPP agreements executed by the end of 2018 were procured through direct negotiations (i.e. without an open tender) raises serious concerns. During Stage Four, there was also a rapid increase in the execution of different agreements that were called PPP agreements but, strictly speaking, should not be treated as such, as they are just imitations of a PPP (i.e. these agreements often do not correspond to the features and principles of the PPP as prescribed by the PPP Law and discussed in the Assessment section above) and should be requalified as public procurement contracts. This has caused confusion and uncertainty regarding PPPs, which was driven mainly by the swiftly formed negative perception of how PPPs develop in Kazakhstan. By the end of Stage Four, therefore, all relevant stakeholders expected the government to roll out changes in the PPP policy and legal and institutional frameworks to curb the growing government debt risk and prevent the misuse of fiscal funds by the regional and local authorities.

Stage 5---Adjustments to the PPP Framework:

Stricter Requirements (2019-Present)

As the national-level PPP and concession projects in Kazakhstan were put under the microscope of many controlling state entities, including the PPP Centre, in an attempt to have a truly competitive and transparent PPP selection process, the regional-and local-level PPP projects benefited from more relaxed oversight. As the Organisation for Economic Co-operation and Development (OECD) rightfully noted in its report, the PPP preparation capacity is concentrated at the central level, although most of the activity takes place at the regional level, where there is much less capacity and expertise (Rivadeneira and Garin 2019). The PPP projects, therefore, created in the regions a commonly shared perception that the PPP model is a one-off and easy opportunity to win a stream of government-backed revenue lasting up to 30 years. It is no surprise, therefore, that many regions' officials and businesspeople with close ties to the regional and local authorities tried to ensure that a project was implemented through the PPP mechanism (often by way of direct negotiations and without any competition), rather than via the traditional procurement process under the Public Procurement Law that requires an open tender. Many of the PPP projects implemented in the regions during Stage Four, therefore, are associated with corruption-for example, the infamous corruption case in Mangistau region in 2019, where the region's deputy head has been sentenced to ten years in prison for "protecting" a foreign investor who proposed to construct an ice-rink stadium in Aktau by making use of the PPP model (Kapital 2019) . By the end of 2018, it became increasingly evident that PPP development requires significant adjustment and that the current PPP policy that enables exponential growth of the regional-level PPPs may wipe out Kazakhstan's state budget and seriously undermine the economy. The General Prosecutor's Office, the Ministry of Finance, and the National Chamber of Entrepreneurs (Atameken) each conducted their own investigations of the PPP deployment practice in the country and publicly confirmed numerous cases of fake PPPs, lack of transparency, and misuse of the PPP mechanism by the regional and local officials, including for corruption reasons (Akorda 2019) . To address these issues, in May 2019, Kazakhstan's government announced a new PPP policy with project quality as a priority (in contrast to Stage Four policy, in which quantity of PPP projects was an unofficial priority).

Implementing the newly adopted PPP policy, the Ministry of the National Economy established a categorisation of all future PPP projects depending on the required compensation from the state budget: (i) category 1 projects require compensation of all expenses from the state budget (i.e. the "availability payment" PPP model), (ii) category 2 projects require compensation of the operating expenses only, and (iii) category 3 projects do not require any compensation from the state budget (i.e. the "users pay" model). Since 2019, the new PPP policy in Kazakhstan focuses, therefore, on giving preference to the "users pay" model for the projects (i.e. category 3) over the projects that require any financial commitment from the public sector partner (i.e. categories 1 and 2). To enshrine this new PPP policy in legislation, the Ministry of the National Economy also prepared a draft concept of law that, amongst other changes, would make the 2006 Concession Law applicable only to category 1 and category 2 projects (i.e. all large infrastructure projects that need government financial support would have to be implemented as concessions). The draft proposed that the 2015 PPP Law would be applicable only to category 3 projects that do not require any financial support from the public sector partner.

In addition to the new PPP policy goal of quality instead of quantity, the PPP Centre put forward an idea to use a new concept initiated by the United Nations Economic Commission for Europe (UNECE) called "People First PPPs" for development of the regional and local infrastructure projects in Kazakhstan. The main objective of this approach is to link PPP activities with public needs and involve domestic investors in providing public services and cultural activities (Rivadeneira and Garin 2019) . In other words, it means that the People First PPPs approach requires that interests and needs of the local population be prioritised before the interests of the government (including political and national interests) and business (i.e. interest of the private firms to make profit). To put the People First PPPs concept in practice, the Ministry of the National Economy even introduced certain changes in its by-laws in December 2019 to ensure citizen engagement and improved budget management. At the regional and local levels, the approval for projects in the PPP form will be granted only to those projects that increase access of the local population, especially socially and economically vulnerable people, to essential services, or projects that promote social justice and increase the volume of public services.

It remains to be seen whether a new PPP policy will be successful. However, it is already clear that this new policy has not been well developed. Neither the PPP Centre nor the government offered a clear understanding of what should be viewed as quality projects, as it seems that so far the only criterion for quality is the absence of requests for any financial support from the public sector partner. As for the People First PPP concept, it is likely to be just a declaration because its whole idea is self-contradictory. The PPP concept would secure the balance of interests of the government and business, and not the priority of interests of the local population, which would be a legitimate goal of certain socially oriented projects, rather than PPPs. Furthermore, the People First PPP concept would not offer sufficient help in solving the problems with PPP development encountered in Kazakhstan to date. The most tangible effect of the new PPP policy is that the number of executed PPP agreements in 2019 decreased by more than half compared to 2018.

There are concerns about whether the PPP Centre, which acts as a think tank for partnership promotion in Kazakhstan, proposed a proper new PPP strategy. The centre's official position is that Kazakhstan as a developing country does not need and cannot afford new large-scale infrastructure projects by means of PPP and, therefore, the strategy should be to implement small-scale and service-type (i.e. without capital investment) PPPs, such as kindergartens, public toilets, and clinics that do not require any financial support from the government (Yeshimova 2019) . The centre's approach to PPP policy development appears rather narrow and is likely to jeopardise the attraction of foreign investment to the PPP schemes in Kazakhstan for a much-needed upgrade of, inter alia, the utilities and energy sector infrastructure.

Kazakhstan's substantial progress with developing PPPs and their enabling environment lags behind Russia only in the Eurasian Economic Union 2 (Eurasian Economic Commission 2018). However, there is still much room for improvement. As a financing mechanism, PPPs, if properly used, can be a useful tool for the government to not only attract private sector funds for upgrading its public infrastructure, but also to address corruption problems in public procurement and provide an effective legal framework for the ongoing privatisation of state-owned assets (e.g. by way of passing state-owned assets first under trust management of a private partner with a right to buy out a PPP facility at the end of the contract term).

In particular, Kazakhstan should tap into the huge potential of participating in China's One Belt and One Road Initiative by promoting PPP best practice to ensure high quality at lower costs. For example, the light rail system project in the city of Nur-Sultan, which was not structured as a PPP but rather with financing and investment coming from China, could have been implemented using the open tender in the PPP legal framework in the first place. The failure to structure this project as a PPP from the outset is now causing this project to fail and could become an embarrassment for the government, as well as lead to a wasteful use of the budget funds.

As the coronavirus outbreak spreads across the globe, it is likely that many existing PPP projects in Kazakhstan will experience considerable revenue generation challenges. At the same time, the need to attract private investment in Kazakhstan's healthcare system, agriculture, utilities, and other public infrastructure becomes even more acute. The time has come, therefore, to revisit the existing PPP policy. One option is to focus on the deployment of a larger number of adequately designed infrastructure PPPs at the national level with involvement of the IFIs and foreign investors, while the number of local-level small-scale service-type PPPs should decrease.

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