Critical Success Factors for Sustainable Public-Private Partnership (PPP) in Transition Conditions: An Empirical Study in Bosnia and Herzegovina ...
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sustainability
Article
Critical Success Factors for Sustainable Public-Private
Partnership (PPP) in Transition Conditions:
An Empirical Study in Bosnia and Herzegovina
Goran Amović * , Rado Maksimović and Sonja Bunčić
Department of Industrial Engineering and Management, Faculty of Technical Sciences, University of Novi Sad,
21000 Novi Sad, Serbia; rado@uns.ac.rs (R.M.); sonja.buncic@gmail.com (S.B.)
* Correspondence: g_amovic@yahoo.com
Received: 29 June 2020; Accepted: 28 August 2020; Published: 1 September 2020
Abstract: In the initial stages of the adoption and institutionalization of Public-Private Partnerships
(PPPs), national governments of transitional economies have accepted, developed, and organized
Public-Private Partnerships with varying degrees of success. This study aims to investigate the critical
success factors (CSFs) influencing the establishment of a sustainable Public-Private Partnership in
transition conditions. In the first part of the paper, based on an extensive review of the literature,
previous studies and relevant results in this field are presented as a background for this research.
In the second part of this article, the survey used a factor analysis, which, with the application of
the Principal Component Analysis and Varimax method with Kaiser normalization, has extracted
four CSFs: (1) the establishment of a central PPP unit—knowledge center; (2) the establishment of
a compatible legal/regulatory framework; (3) development of national PPP policies and strategies;
and (4) standardization and transparency of the process. In the concluding remarks, the authors
address the perspectives and methodological research constraints, examining possibilities to develop
new knowledge and more efficient Public-Private Partnership implementation in the developing PPP
markets of transitional economies.
Keywords: public private partnership; sustainability; public sector; infrastructure; development
1. Introduction
“The general picture is one of waves of enthusiasm for PPPs followed by some disenchantment
and consolidation” [1]. Public-Private Partnerships come in waves [1] driven often by fiscal problems,
the need for accelerated economic development, economic recovery, and the remediation of a large
number of social and societal needs. Reconstruction of poor traffic infrastructure, revitalization of
neglected facilities of social, health, and educational institutions, improvement of the quality of public
service, etc., are just some of the problems that require significant financial resources. Taking over
more redistributive and social functions leads to an increase in public expenditure, which then leads to
a situation where the government is unable to finance growing expenditures from available funds [2].
In the context of limited budgetary capacity of the public sector, Public-Private Partnership can be
an opportunity to relieve budget expenditures, deliver new public services, reconstruct existing and
build new public infrastructure. Grimsey and Lewis indicate that a Public-Private Partnership “fills
a space between traditionally procured government projects and full privatization” [3]. Over time,
national governments have accepted, developed, and organized Public-Private Partnerships in various
ways, respecting their historical and cultural context, legal framework, and economic environment [4].
Advanced Public-Private Partnerships (PPP) markets have also developed Public-Private Partnerships
in areas traditionally being taken care of by public sector. As a leader in the field of Public-Private
Sustainability 2020, 12, 7121; doi:10.3390/su12177121 www.mdpi.com/journal/sustainabilitySustainability 2020, 12, 7121 2 of 29
Partnerships, in the last two decades, the United Kingdom has realized more than 700 PPP deals
with a capital value of around £60 billion in various areas of the development of public infrastructure
and services through specially developed private financial initiative programs (PFI and PFI 2) [5].
According to the National Audit Office, in the health and social care sector, this country has implemented
127 projects with a capital value of £13 billion through various models of Public-Private Partnerships
and partnership programs; the defense sector has implemented 41 projects with a capital value of
£9.5 billion, 61 projects with a capital value of £7.8 billion were realised in transport, while the education
sector recorded the largest number of projects—172, with a capital value of £8.6 billion [5]. In this
way, dozens of schools, hospitals, sports halls, prisons, roads, energy, communal, and other public
infrastructure facilities were built. The Economist states that the use of private sector resources in the
construction and prisons management in the UK has brought tangible benefits [6]. The key benefits
of the new public administration in UK prisons are speed—private jails are built in as little as two
years, rather than the seven that they used to take when the government did the building—and also
the reduction of running costs, which was mainly achieved through cost optimization, staff salaries,
because staff were paid a quarter less than in the public sector, though senior management at the same
time recorded an increase in salaries [6].
Effective Public-Private Partnerships include the establishment of clear PPP policies and the
support of a well-designed legal, regulatory, and investment framework [7]. A large number of
Anglo-Saxon countries have developed extensive partnership programs over time and, with the
support of institutions, embarked on widespread development of PPPs, while other countries in
Central and Northern Europe have embraced PPPs with much less enthusiasm [8]. As a result, a wide
divergence in national PPP approaches can be noticed, and this provides food for thought on the
relationship between the national contexts on the one hand and the implementation of Public-Private
Partnership policy on the other: which nationally driven elements are vital to the (non-)development
of PPPs in practice [9]?
Rockart (1982) states that critical success factors (CSFs) can be defined as “several key areas of
activity in which favorable results are absolutely necessary for a manager to achieve his goals” [10].
According to Liu et al. (2014), since the evolution of PPP, a number of researchers have employed
the concept of CSFs to improve the understanding and best possibilities of sustainable implementing
PPP policy for infrastructure development [10,11]. Previous research shows that the national
PPP development depends, among other things, on political commitment [12], fiscal conditions [8],
institutional support, PPP policies, legal and regulatory framework [9], and economic investment
and government support for PPP initiatives [13]. Recent research revealed a number of obstacles
in the implementation of Public-Private Partnerships in developing economies, such as the
shortage of government financial resources, public sector inefficiencies, huge uncertainties in
contractual environment, public and private partners’ capacity deficiencies, weak political willingness,
and administrative bottlenecks [14].
Taking into account the prevailing views and results of previous research, this article will try to
answer the main research question: which factors have an impact on the success of establishing a
sustainable Public-Private Partnership in the transition conditions of PPP development markets?
2. PPP in Bosnia and Herzegovina
This chapter considers the current point of the situation in Bosnia and Hercegovina on all the
key factors for successful PPP implementation at the time of the research (i.e., what is the existing
legal framework, is there PPP unit—how is it organized, are there strategies, major projects being
implemented, projects that failed, projects in the pipeline, positive areas, shortcomings, etc.).
During the 90s (last decade) of the 20th century and the first decades of the 21st century, most of
the Western Balkan countries were in transition from one social and political system to another.
Burdened by the turbulent political ambience, unsuccessful privatisation, the changes of ownership
structure, and reforms that have taken place in almost all areas of social and economic life, Bosnia andSustainability 2020, 12, 7121 3 of 29
Herzegovina has failed to regenerate the devastated economy and public infrastructure, which has
largely slowed the country’s economy and economic development. These aspects are reflected in the
fact that Bosnia and Herzegovina today has the most expensive toll costs in the region, the worst traffic
infrastructure, the most expensive administration in Europe, sluggish bureaucratic procedures and
rules, high price of water and utility services, as well as devastated utility infrastructure and wild
dumpsites, deteriorating schools, hospitals, prisons, and other public facilities. The tendency to meet
the needs for public infrastructure and more efficient public services requires significant financial
means and “know-how” resources, which can be provided by mobilising private capital resources in
the form of Public-Private Partnerships.
Faced with severe fiscal constraints and growing public debt, Bosnia and Herzegovina has taken
first steps to establish a legal framework for concessions and Public-Private Partnerships in 2002 by
adopting the Law on Concessions at the Bosnia and Herzegovina and Entity level, and two years later
(2004) the Law on Public Procurement of BiH, establishing the Public Procurement Agency of Bosnia and
Herzegovina, an independent, administrative organization whose role is ensuring the proper application
of this Law. The Law on Public Procurement of BiH from 2004 attempted to establish a decentralized
public procurement system that clearly defines the rights, duties, responsibilities, and competences
of participants in public procurement procedures, clear public procurement procedures and their
control, and institutions of the public procurement system [15]. However, “numerous domestic and
international reports over the years on the dramatic level of corruption in public procurement in
BiH” indicated the need for a more comprehensive reform of the public procurement process in
Bosnia and Herzegovina and alignment with basic principles and principles of EU legislation that will
guarantee transparency, equal treatment of all bidders, non-discrimination, and more efficient public
spending in public procurement procedures, which led to the adoption of the new Law on Public
Procurement in 2014 [15]. The Law on Concessions at the BiH level attempted to define the modalities
and conditions for the granting of concessions in Bosnia and Herzegovina. This Law established the
Concession Commission of BiH, whose competence is primarily to grant concessions to domestic
and foreign legal persons in the sectors that are under the jurisdiction of Bosnia and Herzegovina
pursuant to the Constitution and laws of Bosnia and Herzegovina, i.e., to take over the role of the
Joint Commission for Granting Concessions in the cases where concession property extends to both
entities of BiH, the Republic of Srpska, and the Federation of BiH and Brčko District [16]. Although the
Concession Commission of BiH has considered several major concession projects, such as the Vc
highway, the hydroelectric power plant Ravna on the Drinjača river or the hydroelectric power plants
Novakovići, Zapeće, and Šajin Kamen [17], this state agency with an annual budget of around one
million BAM [16] has not granted a single concession since its establishment. There are several reasons
for this, from predominantly political issues to the fact that the competence for granting concessions and
other issues related to the area of concessions and Public-Private Partnerships have been completely
taken over by the entities or cantons.
By adopting the Law on PPP, the Republic of Srpska established a legal and regulatory framework
for PPP in 2009, which, due to complex and complicated procedures, was upgraded in 2019 with the
adoption of the Law on Amendments to the Law on PPP, that provides a simplified and accelerated
project approval process and reduces number of phases required for the implementation of the
project, as well as clear and precise definitions of key terms in this area, while the initiation of the
procedure, the selection of a private partner, and the conclusion of the contract will be specified in
special regulations. In addition to simplifying the existing procedures, the novelties brought by this
change also refer to the selection of a private partner, where in addition to the previous solution,
according to which only legal persons had the right to participate, the possibility of negotiation would
be now given to all natural persons [18]. So far, the Republic of Srpska has not had significant success
in implementing PPPs. During 2017 and 2018, the Ministry of Internal Affairs of the Republic of
Srpska attempted to implement the public safety project “Improving traffic safety by using radar
installations and applying modern technologies for recording violations, transmission and processingSustainability 2020, 12, 7121 4 of 29
of data regarding violations” by using the PPP model [19,20]. In accordance with the Conclusion of
the Government of the Republic of Srpska No. 04/1-012-2-731/17 from 23 March 2017, this project
included the procurement and integration of 180 modern radars into the system that will enable
more efficient recording and automatic processing of violations. The estimated value of the project
was around BAM 10 million, and envisaged that the profit from the fines will be shared with a
private partner. However, after a number of initiatives to suspend the project, after public pressure
and negative opinion from the Security Committee of the National Assembly of Republic of Srpska,
the project was officially suspended in 2018 and the Government issued a Conclusion, stating that it
is necessary to conduct an additional analysis of the feasibility study, focusing on a funding model
that should fully define all benefits and risks of financing the project with their own funds or through
a Public-Private Partnership [21]. In addition to the stated explanation on the suspension of the
project, the fact is that the Law on Budget System of the Republic of Srpska does not recognize the
possibility to share the revenues from collected fines with private companies—Article 8 of the Law
on Budget System, paragraph E, states that all fines except fines determined by the acts of the Town
or Municipality, belong to the budgetary revenues of the Republic of Srpska [22]—so the project was
realized in 2019 according to the traditional model of public procurement from budget funds [23].
The municipality of Sokolac is one of the first local communities in the Republic of Srpska that, with the
support of the European Bank for Reconstruction and Development (EBRD), launched initiatives
to start and implement a Public-Private Partnership project “Biomass District Heating System with
Cogeneration—Sokolac” [24]. In order to achieve sustainability of the existing district heating system
and its expansion to the remaining parts of the municipality urban area and suburban neighborhoods,
a feasibility study of the district heating system on biomass with cogeneration—Sokolac was prepared,
and based on this study, a project of installing a biomass cogeneration plant (CHP) with electricity
production capacity of 1 MW of electricity and heat capacity of 4.1 MW of was proposed [25]. It is
planned that the produced electricity will be distributed to the electricity network per feed in tariff
of 241.3 BAM/MWh. With 8000 operating hours annually, it will produce approximately 8000 MWh
of electricity and generate revenue of BAM 1,930,000. The institutional form of the PPP model was
selected for the implementation of this project. The financial analysis envisages that capital investments
will be realized during a period of four years in the total amount of BAM 15.2 million. At the end of
the contract period, it is planned that the entire system will become the property of the public partner.
After the unsuccessful first tender, in 2018 the Municipality of Sokolac published the second public call
for the selection of the most favorable bidder for the realization of this project [26]. The project is still
in the negotiation phase with potential investors.
Uzunović and Karkin stated that Federation of BiH has more than BAM 9.6 billion in public capital
that could be privatized or partnered up with the private sector (42% of this capital, or BAM 4 billion
in energy/water/natural gas supply sectors; 21%, or BAM 2 billion, in the infrastructure sector) [27].
The Federation of BiH has not yet adopted a law on PPP, although all 10 Cantons in the Federation of BiH
have adopted appropriate PPP laws in accordance with their competencies. In 2010, the Federation of
BiH government, upon proposal by the Federal Ministry of Transport and Communication, adopted the
Draft law on Public-Private Partnership (PPP), which is in a parliamentary procedure and is now
awaiting public hearing. The PPP law in Federation of BiH has been initiated mainly with Corridor 5C
projects in mind, which not only explains why the abovementioned Ministry proposed it, but also why
it is politically such a difficult, but nonetheless important, law to pass [27]. One of the problems and
dilemmas in the Federation of BiH is the application of law and legal insecurity of the authorities that
by enforcing this law provisions of another law will be violated or not appropriately implemented,
which is why they are reaching for other solutions in the case of specific projects [28]. In early 2020,
the National Democratic Institute of BiH (NDI BiH) gathered the representatives of parliamentary
parties from the Federation of BiH, the Chamber of Commerce of the Federation of BiH, the Government
of the Federation of BiH, non-governmental organizations, and higher-education institutions to try to
reach an agreement on the need to adopt the Law on Public-Private Partnership at the Federation ofSustainability 2020, 12, 7121 5 of 29
BiH level, which is in the parliamentary procedure for a long time by analyzing aspects of regional
and cantonal PPP laws. The conclusion of this conference was that the umbrella law on PPPs at the
Federation of BiH level is very important in terms of linking cantonal laws on PPPs into a single,
more efficient framework for the implementation of PPP projects [29].
The Law on Public-Private Partnership of the Brčko District of Bosnia and Herzegovina was
adopted in 2010; however, in this part of Bosnia and Herzegovina no significant initiatives in the field of
Public-Private Partnership have been recorded. Shortly after the adoption of the Law, on 20 September
2010, the first and, so far, the only PPP agreement in Bosnia and Herzegovina was signed between the
Government of Brčko District as a public partner and Fresenius Medical care Deutschaland GmbH as
a private partner and investor, which was realized in 2011 [30]. Realization of the project under the
Public-Private Partnership model entailed constructing and equipping the Dialysis centre of the Brčko
District and providing dialysis services for 120 patients, with a total investment value of EUR 5,000,000,
along with the investor’s obligation to take on 12 workers [31]. The contract, which covered a period of
15 years, indicated the improvement of dialysis health services, by providing quality and continuous
dialysis service in two shifts, six days a week, according to the up-to-date standards in this field.
Although the initial initiatives coming from the Brčko District indicated the possibility of expanding
the PPP market, this is, to date, the only official project in Bosnia and Herzegovina implemented under
the PPP model [31].
Latifović stateed that the laws on PPP in Bosnia and Herzegovina are among the shorter laws in
this area, the PPP of Tuzla Canton, the PPP of Sarajevo Canton, and the PPP of Herzegovina-Neretva
Canton contain 35 articles each, while the PPP of Zenica-Doboj Canton and PPP of Central Bosnia
Canton have 37 articles, PPP of Una-Sana Canton has 36 articles, the PPP of the West Herzegovina
Canton has 34, the PPP of the Bosnian-Podrinje Canton has 23 articles, the PPP of the Posavina
Canton has 37 articles, and the PPP of the Brčko District has the smallest number of articles—only
20. The draft of the PPP of the Federation of BiH has 41 articles, and the PPP of the Republic of
Srpska 26. For comparative purposes, the Law on PPP in Uruguay has 62 articles, Thailand 72 articles,
Madagascar 61 articles, South Korea 64, and Slovenia 154 articles [32]. Laws on PPPs in Bosnia and
Herzegovina give a wide degree of freedom for conctrating in PPP procedure, and this in turn implies
a very large complexity and diversity of solutions that were used [32].
Experts believe that due to the complexity of procedures and lack of understanding of the PPP
concept in Bosnia and Herzegovina, we often have a wrong choice of PPP models, poorly structured
and financially unjustified PPP projects, which leads to the lack of significant results in this area.
Uzunović and Karkin indicated that the public policy on PPP in Bosnia and Herzegovina is a policy
failure. “There is no PPP strategy on any level in Bosnia and Herzegovina, nor is there a state-level
PPP framework, while the two entities have very different PPP legislation” [27]. Amović evaluated
that Bosnia and Herzegovina is currently in the first stage of Deloitte PPP Market Maturity Curve [33],
which is characterized by defining public policy and legislative framework, the initiation of public
policy on PPP, development of the public sector comparator, and building a marketplace, which had a
following results [34]:
– many contracts (PPP) have been cancelled;
– many contracts are on hold;
– contracts regarding road construction have not started yet;
– there are no data on contracts concluded in the Cantons (Federation of BiH).
In his considerations regarding the improvement of the system of concessions and the
Public-Private Partnership in Bosnia and Herzegovina, Amović outlined three steps [34]: (1) first,
we must develop the legal framework according with the EU and UN practice and legislation; (2) we
need to build institutional capacities capable of implementing procedures and contracts; (3) we must
build a strong center of knowledge that will be a “department store” for all actors in the PPP.Sustainability 2020, 12, 7121 6 of 29
In order to establish a functional framework for capacity building for Public-Private Partnership
in Bosnia and Herzegovina, the Office of the Coordinator for Public Administration Reform in Bosnia
and Herzegovina launched the project “Public-Private Partnership in Bosnia and Herzegovina” in 2017
and 2018 in the form of a series of panels and info-conferences. This project provided a comprehensive
overview and analysis of the legislative framework for PPPs in Bosnia and Herzegovina, organized a
series of trainings in all major cities with over 300 participants from the public and private sectors,
and prepared two pilot PPP projects [35]. Although it can be said that there was some interest
from the media, public sector representatives, and the wider community, more tangible results
in the form of new PPP projects were lacking. This project helped to identify attractive sectors
for the implementation of investments under the PPP model in Bosnia and Herzegovina, such as
the energy sector, especially investments in the fields of energy efficiency, health services sector,
basic infrastructure—especially transport infrastructure and ecology sector—solid waste management,
and communal services sector.
3. Review of Previous Research in This Area
In order to gain an understanding of the results of this study based on the results from previous
research, the relevant literature of the most important authors in this field is given below.
Public-Private Partnerships are a long-term contractual agreement between the public and
private sectors, which, by using the resources of a private partner, offer new solutions in financing
public investments.
Public-Private Partnerships have many interpretations. The World Bank defines a PPP as
“a long-term contract between a private party and a government entity, for providing a public
asset or service, in which the private party bears significant risk and management responsibility,
and remuneration is linked to performance” [36]. The OECD defines a Public-Private Partnership as
“an agreement between the government and one or more private partners (which may include the
operators and financiers), according to which private partners deliver the service in such a manner
that the service delivery objectives of the government are aligned with the profit objectives of private
partners and where the effectiveness of the alignment depends on a sufficient transfer of risk to the
private partners” [37]. Tvarnø argues that there is no universally accepted definition of PPP, hence the
national definition and the national perspective of PPP development differs throughout the whole
EU [13]. In order to provide solutions on how to ensure a more efficient PPP framework in Denmark,
Tvarnø gives an overview of national measures supporting establishment of Public-Private Partnership
(PPP) in EU member States by focusing on the solutions chosen in France, Great Britain, and Ireland.
Tvarnø recommends that the Danish Government should “establish a central PPP unit, create a binding
legal act on PPP including a definition of PPP, and consider to promote PPPs through economic
measures as in France and Ireland” [13].
Farquharson and coauthors suggest it is very important to ensure a transparent political framework
in the process of adopting a Public-Private Partnership, in order to achieve confidence between the
public and the private partners [7]. Transparency of the process is an important aspect that ensures
the comprehensibility of PPP policies, legal and regulatory framework, which reduces uncertainty for
private partner investments. Farquharson and coauthors note that it is necessary to use standardized
legal terms and approaches in order to establish a clear communication with a private partner. The same
authors advise the development of investment plans that include PPP projects, because in this way a
private partner can be sure that there is high-level political support for Public-Private Partnerships.
Investment plans and strategies explain to a private partner how PPP projects fit in the context of
regional, national, or international economic plans, and why they are very important for gaining
confidence and potential flow of future projects. Farquharson and coauthors specifically emphasize
that PPP projects must be realistic, measurable, and achievable, and that sending a “wish list” should
be avoided when planning PPP projects. In addition, these authors evaluated that the quality assurance
of the process, which includes a clear division of responsibilities, competences, and approval, is aSustainability 2020, 12, 7121 7 of 29
very important factor in establishing a clear PPP process map. A large number of authors, including
Farquharson and coauthors, believe that the adoption of an appropriate institutional solution can
provide key support to representatives of the public and private sector in the implementation of
Public-Private Partnership projects. Creating a specialized unit for the PPP public sector will send a
strong and credible message to a private partner regarding the competences and seriousness of intent
in the PPP process. Farquharson and coauthors suggest that the private sector is now more comfortably
co-operating with public officials who have previously been involved in the process, and that we
should capitalize on the experience of public officials, consultants, or others who have managed this
process [7].
An increasing number of authors list the importance of institutional aspects in their papers and
emphasize the role of the PPP-supporting unit. Van Den Hurk and coauthors argued that the role and
activities of PPP-supporting units differ substantially across countries [38]. The central PPP unit of
the United Kingdom “Partnerships UK” (PUK) was functioning as Public-Private Partnership from
2001 to 2011 in its own right following the sale to private investors of a 51% stake, the remaining
49% being retained by the public sector. Alan Milburn (Chief Secretary to the Treasury of the United
Kingdom from 1998 to 1999) said that the organisation of PUK unit, on the principle of Public-Private
Partnership, was motivated by the idea to provide the public sector with the key commercial skills
to forge increased and better partnerships with the private sector on equal terms [39]. From 2011,
“Infrastructure UK” (IUK) continued to lead the central PPP unit’s operations in the UK, and in 2016
was merged with “Major Projects Authority” (MPA) into “Infrastructure and Projects Authority” (IPA).
The Public-Private Partnership in Ireland dates back to 1999. Ireland and the United Kingdom are
one of the most mature PPP markets. Over the last two decades, 24 projects of total capital value of
over €5 billion have been implemented [4]. O’Shea and coauthors state that the Ministry of Public
Expenditure and Reform in the Review of the Capital Plan 2016–2021 identified three phases in the
development of PPPs in Ireland [40]: (1) the first phase of the PPP development was focused on travel
infrastructure and primary education, (2) the second phase of development was concerning social
housing, (3) while the third included projects regarding higher education, health, and courts.
The OECD indicates that the dedicated PPP unit that serves as a centre of expertize also increases
the confidence of potential sector partners [37]. The PPP unit can be organized in three ways: (1) the
PPP unit can be located within the regular organizational structure of the Ministry of Finance (such as
PPP units in Great Britain, Victoria (Australia), and South Africa); (2) the PPP unit can be established
as an independent separate government agency, which cooperates with the secretariat of the Ministry
of Finance, or with the specialist services of the related ministries; (3) the PPP unit may be located
within a specific line ministry which has the capacity to manage Public-Private Partnership projects
such as, for example, the Ministry of Infrastructure [37].
PPP agencies enjoy more freedom from the political effects [41], and represent a convenient form
of institutional establishment and support for launching and managing PPP in transitional economies,
given that these countries are very often governed by unstable political circumstances. Political risks
are one of the biggest challenges that public and private sectors are facing in launching and managing
PPP projects. Sachs, Tiong, and Wang identified six categories of political risk in 14 Asian countries
through their the political risks survey [42]:
(a) currency inconvertibility and transfer restriction;
(b) expropriation;
(c) breachofcontract;
(d) political violence;
(e) legal, regulatory, and bureaucratic risks;
(f) non-governmental action risks.
At least three out of six political risks can be confirmed in Bosnia and Herzegovina, and the
dominating risk is a political violence used by the main political actors in Bosnia and Herzegovina,Sustainability 2020, 12, 7121 8 of 29
which is keeping the country at the brink of tension, anxiety, and conflict, then we have legal, regulatory,
and bureaucratic risks that prevent law enforcement, corruption, transparency, issuing of approval,
and consent, etc., along with a group of so-called non-governmental risks that include religious
fundamentalism, ethnic tensions, European Union interventions.
Sachs, Tiong, and Wang suggest that the key to the successful implementation of PPP in developing
countries is stable legal and political environments with reliable governmental counterparties that
allow for a fair and balanced partnership of public and private sector with realistic expectations and
optimal division of risk in the PPP process [42]. Verhoest and coauthors have identified three key
factors affecting the development of a Public-Private Partnership: (a) political support regarding PPPs;
(b) an adequate legal and regulatory framework regarding PPPs; (c) PPP-supporting instruments
that include establishment of PPP units, procedures for projects appraisal, and standardization of the
process [9].
In the past two decades, the United Kingdom has achieved exceptional results in the realization of
public investments through the Private Finance Initiative (PFI and PFI2) in cooperation with the private
sector. In order to investigate the reasons for success, Akintoye and coauthors identified 18 potential
critical success factors in construction of public infrastructure through PPP/PFI projects. The survey
used a factorial analysis, which, with the application of the Principal Component Analysis and Varimax
methods, extracted three key success factors [43]:
• a strong and good private consortium;
• appropriate risk allocation; and
• available financial market.
Osei-Kyei and Chan said that over the past few decades, a large number of PPP studies worldwide
have been focusing on understanding the critical success factors (CSFs) that have an impact on effective
implementation of Public-Private Partnerships. The authors conducted research on the basis of relevant
academic journals published from 1990 until 2013 that investigated this area. The survey showed
that most common critical success factors of have been identified: optimum risk allocation, a strong
private consortium, transparent political support, community/public support, and a transparent public
procurement. This research revealed that between 1990 and 2000 (a decade) only three publications
on PPP CSFs were made, indicating the fact that the concept of Public-Private Partnership between
these years was still in the infancy stage, and that only several countries had launched a few projects
through this scheme to foster public infrastructure growth [10,33]. However, between 2001 and 2013,
24 papers were published on PPP CSFs, which is an indication of the growing and maturing of PPP
market between these years. The authors noted that Hong Kong has the highest number of researchers
that contributed to the exploration of PPP CSFs since 1990 and it is followed by their counterparts
from the UK, Australia, Singapore, China, and the US, while research and publications on PPP CSFs in
developing countries are at an extremely low level, which suggests that PPP is still not sufficiently
investigated in these regions.
Wang and coauthors state that despite the fact that PPPs became one of the more popular methods to
build public infrastructure around the world, in comparison to developed countries, most developing
countries have failed to attract significant investments through Public-Private Partnerships [44].
These authors argue that “risk allocation and governance environment (e.g., the extent of public
participation, the level of political stability, the quality of public services, the ability of regulations,
abiding the law, and the extent of corruption) may be important factors“ [44]. Private partners
believe that a greater degree of control in the public sector over the governance process (corruption
control, government efficiency, quality control, and the rule of law) will reduce the negative impact
of private partner risk on investment. Compared to developed countries, transition economies may
have more difficulties in attracting PPP investments, as private partners have to take on a higher
degree of risk, especially in developing countries with poor governance environment [44]. Most of the
literature is focused on researching PPP development through risk allocation or management; however,Sustainability 2020, 12, 7121 9 of 29
the interaction between these two areas has been neglected, as only a few studies have addressed
the relationship between these two topics. For example, in an analysis of the quality of governance
of public institutions in relation to the participation of the private sector in investments in public
transport infrastructure, Percoco (2014) showed that good governance is very important for optimal
risk allocation, given that “better governance environment positively impacts the allocation of risk
to private partners” [44,45]. This author argues “that greater participation by private parties in PPP
contracts is associated with better institutions in terms of lower corruption, civil freedom, and a better
regulatory framework” [45].
The OECD states that the key success elements in the establishment of PPPs are: a transparent
institutional framework that is supported by relevant competent bodies, achieving value for money,
transparency of the budget process, and the integrity of the public procurement process [46].
Deloitte says there are a number of factors that play a role in development of a Public-Private
Partnerships, including local geography, political climate, the sophistication of capital market, the forces
driving formation of partnerships, and the factors enabling their creation. Countries at earlier stages of
PPP development could benefit from the opportunity to learn from trailblazers who have moved to
more advanced stages of implementing the public-private partnership, taking over the experiences
of the United Kingdom in the implementation of PPP projects for schools, hospitals, and defense
facilities, the experiences of Australia and Ireland in the construction of transport infrastructure,
and the Netherlands in PPP projects for social housing and urban regeneration. Taking into account
the particularities of each PPP market separately, Deloitte says it is possible that three distinct
stages of PPP maturity can be observed across the world [33]. The first stage for the adoption of
PPP assumes the establishment of policy, legislative, and legal framework, and acquiring necessary
experiences in implementing the smaller number of simple PPP projects that will serve to improve
and develop PPP market. In the second stage of the development of PPP systems activities are
focused on the establishment of a dedicated PPP unit or project management agency (Knowledge
Centre), launching activities for the development of new models, expanding and strengthening the
PPP marketplace, leveraging new sources of funds from capital markets, innovation, redirecting profit
from PPPs to new projects. The third stage of the maturity of the PPP system is the most sophisticated
and it implies that the public and private sector already have a considerable experience in this process,
that so far a large number of PPP projects have been implemented, and that the focus is on the
development of new innovative hybrid models that use more flexible approaches in defining the role
of public and private sector. The third stage is also characterised by the use of more sophisticated risk
models, greater focus on the total lifecycle of project, involving capital from pension funds, transfer of
knowledge from private partners to the public sector, and organizational changes in governments that
will support greater use of PPPs [33].
Although a significant number of infrastructure projects have been implemented over the years
through Public-Private Partnerships, PPPs are accompanied by numerous failures and a variety of
associated risks, “including financial and political risks, as well as the risk of public rejection during
the life cycle of PPP projects” [47]. “The implementation of PPP projects usually suffers from legal,
political, and cultural impediments” [48]. For example, the Channel Tunnel project, which has been
considered as one of the main construction achievements in the 20th century, is a classic example of the
inadequate risk allocation that led to the bankruptcy of the company responsible for the project in
2006 due to the heavy financial burden and high work level in its first ten years of operation [49,50].
The lack of operational capacity of the Philippine National Power Company and experience in the
implementation of PPP projects led to the wrong choice of PPP model (build-operate-transfer) and
unreasonable risk-sharing design, and caused problems in the Philippine Power Supply Project in
2002 [49]. As of 30 June 2019, the fastest growing and largest developing country, China, recorded an
impressive number of 9036 PPP projects as per China’s PPP integrated information platform [49].
However, from July 2018 to June 2019, 915 PPP projects, or about 10% of the total, were withdrawn
from the project management database maintained by the government and the social capital of China’sSustainability 2020, 12, 7121 10 of 29
Ministry of Finance, which leads to the conclusion that there is a significant number of risks that may
lead to failure in the implementation of PPP projects. Ke, Wang, and Chan state that risks should
be allocated to the partner who is best able to manage them; the government should cover political,
social, and other similar risks, while private investors should be responsible for financing, construction,
and operational risks, which will be further transferred to other project partners—contractors, lenders,
suppliers, and others [50]. The key success factors (CSFs) of PPPs can be classified into seven groups:
(1) fair risk allocation, (2) strong private sector, (3) reasonable government control, (4) transparent and
efficient procurement process, (5) economic viability of the project, (6) an adequate legal framework
and a stable political environment, and (7) an available financial market [51].
Based on a detailed analysis of PPPs in the United Kingdom and British Columbia, Canada,
Aziz states that it is possible to identify two general approaches used by governments in the
implementation of Public-Private Partnerships [48]. The first is a finance-based approach that
aims to use private funding to meet infrastructure needs. It relies on user fees and project demand
to fund projects. The earliest types of PPPs were predominantly finance-based and included BOT
(build-operate-transfer), BTO (build-transfer-operate), and BOO (build-own-operate) models [48].
The government’s second approach is service-based. According to this approach, the goal is to use
skills, innovation, and private sector management to optimize time and cost efficiency in providing
“services”. An example of such an approach are the DBFO (design-build-operate-maintain) models
in the United Kingdom and British Columbia, where the goal of providing better services (e.g.,
transport services) has led to the development of projects mainly funded by government sources,
with or without user fees, while still using private funding [48].
Although governments may have shown considerable interest in PPPs, the system experienced
impediments in its implementation. Through a questionnaire survey that targeted China, the United
Kingdom, and other countries, Zhang identified general barriers for PPPs, including: (1) social, political,
and legal risk; (2) unfavourable economic and commercial conditions; (3) inefficient public procurement
framework; (4) lack of mature financial- engineering techniques; (5) problems related to the public
sector; and (6) problems related to the private sector [52].
Based on the review of available literature and presentation of the the ruling attitudes in
this area, the focus of this research is to identify key factors that have an impact on establishing a
sustainable Public-Private Partnership in developing PPP markets of transitional economies. Bosnia and
Herzegovina is one of the countries undergoing the phase of transition, changes in ownership structure,
and reform in almost all areas of social life, and in terms of political, economic, and social context it
represents a basic set upon which the research is conducted using empirical survey method of the
representatives of the relevant public sector institutions. This study will try to address the need to
create new sustainable solutions and new knowledge that will ensure a framework for more efficient
implementation of Public-Private Partnerships in countries in transition conditions.
4. Subject of Research and Hypotheses
“In some ways low-income countries can benefit more from the access to new capital and technical
expertise that a PPP can bring” [14], but on the other hand in most transitional economies, the PPPs
play a relatively small role in infrastructure investments, averaging between 15 and 20 percent,
according to the Independent Evaluation group of the World Bank from 2014 [53]. In the poorest
developing countries, the use of PPPs has been even more negligible [53]. This can be significantly
contributed to the underdeveloped capacity of the public sector to prioritize, initiate, evaluate, structure,
and ultimately implement the PPP projects [54]. Bosnia and Herzegovina is a transitional country
where PPP initiatives were launched in the Republic of Srpska in the health sector back in 2000.
Although certain activities in this area have been present for 20 years, we can say that so far there have
been no significant results, which is illustrated by the fact that there is only one official PPP project in
Bosnia and Herzegovina. Individual projects and cooperation between the public and private sectors
in certain infrastructure projects are mainly the result of entrepreneurial initiatives of local leaders andSustainability 2020, 12, 7121 11 of 29
are not recorded and formally recognized as Public-Private Partnerships. Establishing PPP in transition
conditions requires the development of new capacities, new strategies, new organizational structure,
and new administrative processes that will enable successful planning, launching, and realization
of Public-Private Partnerships. The absence of systematic solutions in establishing Public-Private
Partnerships in Bosnia and Herzegovina, as well as the lack of available literature on this particular
subject, helped us as the authors to opt for investigating the critical success factors (CSFs) influencing
the establishment of a sustainable Public-Private Partnerships in transition conditions. The basic
research problem in this paper is an underdeveloped organizational structure of the Public-Private
Partnership system in countries in transition, which prevents significant use of PPPs in transitional
societies, and leads to the lack of efficiency in this process.
The subject of this study is the organization of a sustainable Public-Private Partnership,
improvement of organizational structure, and more efficient implementation of the Public-Private
Partnership system in developing PPP markets of transitional economies.
The main goal of this study is to identify CSFs which influence the establishment of a sustainable
PPP, and which will enable more efficient management of Public-Private Partnership processes in the
transition conditions of PPP markets.
Having in mind a defined problem, the subject, and the purpose of research, the following
hypothesis has been established in this paper:
Hypothesis 1 (H1). It is possible to determine influencing factors for the successful establishment of PPP in
developing PPP markets of transitional economies.
5. Data and Methods
This paper was based on data processed in the research conducted on the territory of Bosnia and
Herzegovina that lasted four months (January–April) in 2020. The research was conducted using
an empirical method, through a survey of representatives from relevant public sector institutions,
by sending a questionnaire to the institutions, by mail and electronically, via the Internet. The research
was based on theoretical-empirical study and started with the presentation of previous researches and
relevant results in this area. The data collected were categorized and analyzed using Statistical Package
for Social Sciences (SPSS) software version 19.0. Out of several available methods for statistical data
analysis, we used descriptive statistics and factor analysis.
The respondents were asked close-ended questions. The first part of the questionnaire
contained general questions regarding the identification of basic information about respondents
(entity, organization, number of employees). In the second part of the questionnaire, which contained
seven statements, respondents expressed their perception on PPPs through the five-point Likert scale,
where 1 stands for strongly disagree, and 5 strongly agree. The answers to these questions are classified
in three categories: The Republic of Srpska, the Federation of BiH, and Brčko District. The third part
of the questionnaire included a four-point Likert scale, which contained 25 statements, and where 0
stands for I don’t know/neutral, 1: I disagree, 2: somewhat agree, and 3: agree. Based on the answers
received from the third part of the questionnaire, the critical success factors (CSFs) influencing the
establishment of a sustainable Public-Private Partnership in transition conditions were extracted.
6. Research Results and Discussion
6.1. Sample Structure
As part of the research, a total of 650 questionnaires were sent to the addresses of public
sector institutions in Bosnia and Herzegovina, namely: 320 questionnaires were sent to institutions
in the Republic of Srpska, 276 to the Federation of BiH, and 54 questionnaires to Brčko District
institutions. We received 82 answers from the Republic of Srpska, 62 answers were from theSustainability 2020, 12, 7121 12 of 29
Federation of BiH, while 13 answers were received from the Brčko District—in total 157 answers
from respondents/representatives of relevant public sector institutions in Bosnia and Herzegovina.
Questionnaire and answer frequency with percentage frequency are shown in Table 1.
Table 1. Questionnaire and answer frequency with percentage frequency.
Answer Frequency
Entity Sent Questionnaire Received Answer Percentage Frequency
Republic of Srpska 320 82 26.0%
Federation of BiH 276 62 22.0%
Brčko District 54 13 24.0%
Total 650 157 24.0%
Note: author’s calculation based on Excel.
As shown in Table 2, a total of 157 respondents participated in the survey, 52.2% from the Republic
of Srpska, 39.5% from the Federation of BiH, and 8.3% respondents from Brčko District.
Table 2. Structure of participation of organizations in relation to entities.
Organisation Entity Crosstabulation
Entity
Republic of Federation Brčko Total
SRPSKA BiH District
Local Government Count 37 17 1 55
Unit % of Total 23.6% 10.8% 0.6% 35.0%
Count 7 10 0 17
Ministry
% of Total 4.5% 6.4% 0.0% 10.8%
Count 7 8 0 15
State agency
organisation % of Total 4.5% 5.1% 0,0% 9.6%
Count 24 14 10 48
Public company
% of Total 15.3% 8.9% 6.4% 30.6%
Higher education Count 7 11 2 20
institution % of Total 4.5% 7.0% 1.3% 12.7%
Count 0 2 0 2
Other
% of Total 0.0% 1.3% 0.0% 1.3%
Count 82 62 13 157
Total
% of Total 52.2% 39.5% 8.3% 100.0%
Note: author’s calculation based on SPSS 19.0.
Most of the respondents in this survey were representatives of local authorities (35.00%),
public undertakings (30.60%), faculties/higher education institutions (12.70%), ministries (10.80%),
state agencies (9.60%), and others (1.30%). Regarding the number of employees (Table 3), most of
the institutions that participated in this survey were medium-size organizations and had between
51 and 250 employees (52.20%), 22.90% had between 11 and 50 employees, 17.20% had more than
251 employees, and the smallest number of organizations was from a group of small organizations
and had up to 10 employees (7.60).Sustainability 2020, 12, 7121 13 of 29
Table 3. Structure sizes of organizations by number of employees.
n_Employees
Valid Cumulative
Frequency Percent
Percent Percent
up to 10 employees 12 7.6 7.6 7.6
from 11 to 50 employees 36 22.9 22.9 30.6
Valid from 51 to 250 employees 82 52.2 52.2 82.8
more than 251 employees 27 17.2 17.2 100.0
Total 157 100.0 100.0
Note: author’s calculation based on SPSS 19.0.
6.2. Perceptions of Private-Public Partnership
In order to determine the homogeneity/heterogeneity of respondents’ opinions, in the second part
of the questionnaire, the data were divided into three groups: The Republic of Srpska, the Federation
of BiH, and Brčko District. By applying the descriptive statistical analysis to the resulting sample,
the arithmetic mean and the standard deviation for each statement were calculated. The obtained
results are given in Table 4.
It is possible to discover similarities and differences in the attitudes of respondents by using data
analysis from Table 4.
Regarding the statement about the understanding of PPP concept, the respondents from the
Republic of Srpska had the most favourable attitudes (3.65) compared to a lower arithmetic value in
the Federation of BiH (3.18) and Brčko District (3.46). The Economist Intelligence Unit estimates that
the Republic of Srpska has been more active in including private participation in infrastructure than
the Federation of BiH, and, as a result, it has developed more significant capacities and experience [55],
which leads to conclusion that they have better understanding of the PPP concept.
We can also see differences in the statement about the knowledge of legislation that regulates the
Public-Private Partnerships in Bosnia and Herzegovina, where the obtained value of the arithmetic
mean for the Republic of Srpska was 3.73, for the Federation of BiH 3.03, and for Brčko District 3.46.
This can be explained by the fact that there are several levels of public administration in Bosnia and
Herzegovina and, in accordance with this fact, the area of Public-Private Partnership and concessions
is regulated by 12 laws on Public-Private Partnership and 14 concession laws, while the PPP area is not
regulated by special laws at the central level of Bosnia and Herzegovina.
The majority of respondents from all three environments were aware of the fiscal constraints of
public sector and development potentials that can be achieved through Public-Private Partnerships and
they mostly agreed with the statements that “Bosnia and Herzegovina has no significant experience in
implementing PPP”, that “the quality of public services and infrastructure can be improved through
PPP”, that “PPP can facilitate faster development of Bosnia and Herzegovina”, and that “the awareness
of PPP is not developed enough in Bosnia and Herzegovina”.Sustainability 2020, 12, 7121 14 of 29
Table 4. Descriptive statistics.
Report
The Public
Sector in The Quality of
PPP Can Be in Awareness of
Bosnia and Public Services I Am Familiar
the Function of PPPs Is Not I Am Familiar
I Am Familiar Herzegovina and with the Legal
Faster Sufficiently with Some
Entity with the Has No Infrastructure Legislation that
Development Developed in Unofficial
Concept of PPP Significant Can Be Regulates the
of Bosnia and Bosnia and Versions of PPP
Experience in Improved Field of PPP
Herzegovina Herzegovina
Implementing through PPPs
PPPs
Mean 3.65 3.85 4.01 4.06 3.73 3.83 3.72
Republic of
N 82 82 82 82 82 82 82
Srpska
Std. Dev. 1.023 0.970 1.012 1.010 1.100 0.843 1.034
Mean 3.18 3.74 3.95 4.00 3.03 3.69 3.26
Federation of
N 62 62 62 62 62 62 62
BiH
Std. Dev. 1.248 1.100 1.108 1.101 1.241 0.951 1.227
Mean 3.46 3.69 3.92 3.85 3.46 3.62 3.46
Brčko District N 13 13 13 13 13 13 13
Std. Dev. 1.127 0.947 0.954 0.987 1.050 0.650 0.660
Mean 3.45 3.80 3.98 4.02 3.43 3.76 3.52
Total N 157 157 157 157 157 157 157
Std. Dev. 1.140 1.017 1.041 1.041 1.194 0.873 1.107
Note: author’s calculation based on SPSS 19.0.Sustainability 2020, 12, 7121 15 of 29
Higher level of disagreement among respondents was noted in relation to the views regarding
awareness about some non-official versions of PPPs in Bosnia and Herzegovina, where the value
of arithmetic mean in respondents from the Republic of Srpska was 3.72, compared to 3.26 in the
Federation of BiH and 3.46 in Brčko District. The overview of these results points to the conclusion
that more PPP initiatives in Bosnia and Herzegovina are initiated in the Republic of Srpska, while “an
attempt to establish PPP in the Federation of BiH has resulted in fewer and much smaller contractual
partnerships” [27]. The Public-Private Partnership initiative in the Republic of Srpska was launched in
2000 in the health sector, in the absence of a PPP law, when the Euromedic Healthcare Group signed a
contract with the Health Insurance Fund of the Republic of Srpska, the Prime Minister, the Minister of
Health and Social Welfare, the Minister of Foreign and Economic Affairs, and the hospital director in
Banja Luka to deliver dialysis services through PPP to to patients who need dialysis [27]. From the
legal standpoint, the use of external dialysis services was conducted in accordance with the laws
regulating the operations of companies with limited liability, and foreign companies [55]. In an attempt
to create conditions for the implementation of the PPP model, the Government of the Republic of
Srpska has, through its action plan, envisaged the development of PPP guidelines, adoption of rules
on content and management of PPP registry, a awareness-raising campaign and dissemination of
information about PPP, as well as strengthening the capacities of the public sector and intensifying
activities regarding governance of municipalities public goods [56].
At Bosnia and Herzegovina’s level, the most favorable attitudes of the respondents were expressed
regarding the statement that PPP can facilitate faster development of Bosnia and Herzegovina (4.02) and
that the quality of public services and infrastructure can be improved through PPP (3.98). The lowest
value of the arithmetic mean was obtained for the statement related to the interest of organizations
in PPP projects (3.32). The second-least accepted statement was about the understanding of PPP
concept, where the value of arithmetic mean was 3.45. The most heterogeneity of responses among
respondents was obtained for the claim, “My organization is interested in PPP projects”, which means
that highest level of disagreement among respondents was related to this statement, since the value of
the standard deviation was 1.215. The second-largest value of standard deviation was obtained for
a statement regarding the understanding of the PPP concept (1.140). The lowest value of standard
deviation (0.873) was obtained for the claim that the PPP awareness is not sufficiently developed in
Bosnia and Herzegovina and this statement had the highest level of agreement among the respondents.
The results from this part of research show positive attitudes of the public sector and their interest
in PPP, but on the other hand, they suggest certain differences in the understanding and acceptance
of PPP in Bosnia and Herzegovina. In order to independently plan, initiate, and implement PPP
investments, the public sector needs to reorganize its processes and improve knowledge infrastructure.
By analyzing the obtained data, it can be concluded that the environment factor influenced the
homogeneity/heterogeneity of the respondents’ views, which gives space to prove the validity of our
commitment to extract the impact factor and the design of PPP model for countries in transition in the
rest of the research.
6.3. Extracting CSFs
In order to determine the homogeneity/heterogeneity of respondents’ attitudes, by applying
descriptive statistical analysis, the arithmetic mean and standard deviation for each statement in the
third part of the questionnaire were calculated. The obtained results were given in Table 5.You can also read
