After a year and a half of negotiations, a few months to get the job done and millions of euro on the line, Ljubljana’s public private retrofit partnership has won international awards and accolades, including from the European Energy Service. But in the heat of the moment, success was far from a sure thing. “We were stepping into something unknown,” says Matic Baškovč, Head Of Project Management of Resalta, “We knew the procedures but in practice it was the first one.”
Resalta worked together in a consortium with Petrol to take on a public tender so ambitious that by the end of the process they were the only consortium left in the running. “At the end, only our partnership stayed in the tender,” Baškovč confirms. The idea was this: the Municipality of Ljubljana wanted 106 buildings to be retrofitted with energy saving measures, cutting costs and carbon emissions in the city, but without paying a cent.
We were stepping into something unknown.
Instead, the companies that won the tender would be paid over fifteen years through the savings that were achieved from the building work they carried out. Not only did this mean that the city would not have to pay out, it also meant that if the company did not achieve what they set out to in terms of energy savings, they would not be reimbursed at all. This innovative type of procurement is called an ‘energy performance contract.’
Ready for risk
“Private partners should be aware,” warns Baškovč, “that development of these projects takes a long time. This means investment without any security that you’ll be repaid, or you’ll be chosen on the final negotiations with the tender. Your team need to be prepared to work extra hours to fulfil any needs on the public side, because the work in this type of project is very intense.”
Over the course of around 30 ‘competitive dialogues’, conversations where all parties discussed what was mutually desirable and possible, they worked out a final agreement: the retrofit would cover 48 large buildings – places like schools and sports halls – and would include not just retrofit but more general renovations like new floors and the like.
The companies would work out the technical solutions and the economic models, and would be repaid through the savings achieved, as well as benefiting from state and EU subsidies that would repay 49% of the investment once the total retrofit was successfully completed.
“We needed to invest the whole amount, €14.5 million,” Baškovč explains, and after finishing “we were able to source this 49% of the investment funds back from the Ministry of Infrastructure in Slovenia.” He describes the anxiety that attended the process: “We knew that the money is reserved there,” he says, but it still came as a huge relief when, after the whole thing was finally done, the money landed in their accounts.
Another source of anxiety was the timeframe for implementation. When a company is working on a new building, delays are not ideal, but they’re not the end of the world either. “But when school starts the school needs to be open and the kids need to be there, so there was a lot of pressure,” Baškovč remembers.
This was quite new for us and also quite stressful.
“Kindergartens and schools are closed only during the summer period, so we need to squeeze all the works in two or three months to implement. So this was quite new for us and also quite stressful because there is a lot of work to do. When you are retrofitting you never know what will be behind the façade, let’s say there will be mould or something, so there are always some unpredicted occasions which prolong our time schedule.”
Another financial trade-off is that the company can only afford to put a certain amount of resources into technical analysis before the tender is signed and their payment is guaranteed. The more time they put in before then, the more they risk losing if the project doesn’t go ahead, but the less time they put into initial analysis, the greater the risk that they will encounter unforeseen issues and have to run over budget. “We were quite nervous about if we will be in budget,” laughs Baškovč.
So how did it go? They managed to finish modifying the 48 buildings on time, and to stay almost within the budget. The next question for the companies was whether the energy savings over 15 years would be enough to pay back their investment. That’s the nature of the energy performance contract: “If the savings are achieved we are paid for our service, otherwise if the savings are not achieved, we are not paid.” But after two years they remain on target to recoup, “so it’s a huge relief,” Baškovč says.
It’s gone so well that the partnership is continuing and is already on its third major retrofit contract. With each instantiation the process gets smoother and faster and relationships improve. “We learned a lot and it’s a huge relief. We are keen on each other, the teams on both sides are the same,” Baškovč says.
A double-edged sword
Over the years, Baškovč has become familiar with the double-edged sword of the public/private relationship. “As a company we’re always profiling our partners from a financial perspective,” he explains. “Municipalities are always good partners because investing the money in a public private partnership is less risky than investing with industry. Any doubt that you’ll not be repaid during the contract period is very low.”
Any doubt that you’ll not be repaid during the contract period is very low.
Another positive is that the city is primarily interested in the outcome, so on the procedural side the company has a free rein for whichever approach it sees fit. “There’s not a lot of discussion about efficiency, about the dimensions and so on, so the private partner can lead the process of developing the solution and there is not a lot of interruption from their side. This is the plus.”
The trade off, according to Baškovč, is the relatively slow speed of the public administration: “There is a huge team on their side which needs to be coordinated. To arrange a meeting for a competitive dialogue, it was quite hard.” He remembers a lot of postponing, especially through the summer when a lot of people in the public administration who needed to be consulted were on holiday.
Would he advise other private companies to get into cooperation with local administrations? Absolutely, and he also has advice for the cities: “Do not be afraid to step into private partnership. Definitely it’s outside the comfort zone, but in general all the measures are tested. This is the most optimised solution for municipalities if they are willing to retrofit their buildings and they don’t have their own resources, it’s definitely the best way.”
In this moment you forgot all the hard-working hours working late on Sunday.
There is another, hidden advantage, Baškovč says, which he didn’t discover until the project was well underway, and it’s something you might not always associate with enormous private corporations: civic pride. He remembers finishing one of the buildings, a sports hall that had once been very important in Ljubljana, but had since lost its lustre.
“We had a grand opening,” where he found himself standing on stage with old Slovenian sports stars and the Mayor of Ljubljana opening the building with the classic thick ribbon and huge scissors. “It was quite an occasion, standing in front of the buildings with pride that you were part of this. All the representatives from the municipalities are very glad that the thing is finished and satisfied and thankful. In this moment you forgot all the hard-working hours, working late on Sunday, it’s your pride.”
Our interview with Baškovč was conducted as part of Eurocities’ role in Covenant of Mayors. You can read the Covenant of Mayors case study on this selected best practice with all the facts and figures here. To discover more about innovative finance for energy efficiency, join the Covenant of Mayors Investment Forum – Energy Efficiency Finance Market Place, online on 15 June, 10:30 to 18:00 and 16 June, 08:30 to 17:00. Find more here.