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Russia’s need for rapid improvement in its infrastructure has seen a concerted move to embrace public-private partnerships (PPPs) and, with investors looking for ‘established’ methods of entering emerging markets to shelter from the credit crunch, PPP presents an attractive option. But how will Russia integrate a capitalist idea into a post-communist, overheated economy?

To date, relatively few PPPs have been implemented in emerging markets, due to the nascent state of the legal and practical framework for PPPs. Indeed, although PPPs have certain advantages over conventional forms of public procurement, their complexity nevertheless presents a number of practical, legal and financial challenges in any market.

Although the Russian government has announced plans to spend $1trn (£514bn) over the next 10 years on improving infrastructure, it has also made clear that most of this investment will be in the form of PPPs, in order to benefit from the leverage provided by the efficiency, competition and investment of the private sector. As a result of this drive to replace and modernise an ageing, decrepit (and in some cases non-existent) infrastructure, a series of high-profile PPP projects are currently advancing through the tender process in Russia. These include major road, rail and air transport projects such as the Western High Speed Diameter (WHSD) Motorway, the Orlovski Tunnel, the Nadzemnyi Express and Pulkovo Airport projects in St Petersburg, and the Moscow to St Petersburg and the Moscow to Belarus toll roads. These public tenders, launched in 2007-08, are the first real test for legislation such as the Concession Law of 2005. The Concession Law, together with a series of model concession agreements for different types of infrastructure, established the basic legal framework and foundation for PPPs in Russia, and in some cases were supplemented by ancillary legislation adopted at lower government levels (eg. the December 2006 ‘Law on the Participation of St Petersburg in Public-Private Partnerships’).

Despite the fact that none of the high-profile tenders have yet reached the award phase, it is already clear that both the general Russian legislative framework, as well as the tender documentation for specific projects, contain a number of shortcomings. Transparency of legislative frameworks and tender processes is a key factor in attracting high-calibre applicants to bid on tenders. The existing Concession Law in Russia has a number of drawbacks:

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