Public Sector: A dramatic change of priorities

Public Sector: A dramatic change of priorities

The public sector priorities in Central and Eastern Europe (CEE) are changing dramatically this year, according to Miroslaw Proppé, regional head of Government & Infrastructure in CEE and in Poland.

Partner, Head of Government & Infrastructure Industry

KPMG in CEE

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He explains, “This is due to the unstable political situation in Europe, i.e. the issues related to mass migration as well as all the security issues, which are becoming much more important than anything else. These major public services delivered by the sector to our citizens and newcomers.”

Meanwhile, Mirek concedes that it is still the beginning of the financial period, meaning that a number of infrastructural projects are just starting in countries in Central & Eastern Europe.

“Addressing those issues that are critical for these countries is something that we should be focusing on,” he says.

In view of recent high profile wins for the Government and Public Sector & Infrastructure group in Poland, including physical asset management assignments in the energy sector, and investment project consulting for the city of Poznan, Mirek fielded some questions on how Government & Infrastructure is faring in FY'16.

You've had some notable wins in the energy industry. Could you tell us how those came about and what the keys to your success for these jobs were?

The project is related to physical asset management for one of the energy generation and distribution groups. KPMG has a unique position on the market. There is an international standard for managing assets if you're an industry which is asset-based, meaning you have a lot of machinery that is necessary for you to deliver your products or services to customers. Those standards are called “Pas 55” and KPMG is the only Big-4 partner of the Institute of Asset Management, an international organisation. We assisted the Institute to transform the standard into the ISO norm.

Globally, KPMG has a centre of excellence for asset management in Belgium, where our colleagues worked on the ISO standard, developed a methodology and an internal KPMG training. So we learned about this methodology and the whole issue and went to the market starting with the energy sector because it is a sector with one of the largest investment needs and the costs of maintenance of its assets are very high, not to mention being strategic for every country.

So we've convinced the client that if they want to improve their efficiency at a time the prices of energy in general in Europe are decreasing, the only real way to improve their profits is to consider costs, the largest of which, after fuel, is the cost of maintenance.

Physical asset management means that you look at your production facilities at each stage of the process and establish a strategy how to assess whether you should refurbish or invest in a new piece of equipment that is more efficient, and so on. This combines technical knowledge with economic knowledge, so it's all about improving the economic and management skills of technical engineers in those electricity plants.

How is this difficult political climate influencing how projects are advancing?

In terms of infrastructure projects, everyone knows that this is more or less the last financial perspective in which our countries will receive so much funding for infrastructure. So every country and every government shall be keen on effectively using this money.

The experience of the financial year that ended in 2014 is that countries were not able to utilize fully those investments, and many issues emerged surrounding large infrastructure projects, as is evident from our study of CEE EU funds that showed how countries were doing. It showed there is a window of opportunity for every country to improve, and also we can see from the KPMG Global Construction Survey that managing big infrastructure projects is a big issue for investors in all countries across the globe.

This means that the services that we can deliver include project planning – that's where things should start with, followed by project monitoring and supervision: delivery of infrastructure projects. This is much more than what we have usually been focusing on, which is the financial side and feasibility study or cost-benefit analysis – the market already knows we can deliver this; we're speaking about a broader range of services.

A project for the Polish city of Poznan showed how the city understood that they may have overlooked something, so they engaged us to review projects that they'd performed including a large transportation hub and a system to manage traffic in the city. They've asked us to review those projects to suggest improvements in planning and managing procedures for the city. It's great that they're doing this now, as this is the beginning of the planning period. And it’s great we have won in competition against EY and PwC – our proven methodology and engineers on board convinced the city to select us, despite our price being the highest.

Could you kindly give us a rundown on how the Government & Infrastructure group works regionally and perhaps tell us about any plans that you have for working together in CEE?

We're simply spreading information on our successful projects as well as about their concepts. So it's knowledge sharing and not so much in the infrastructure area but regarding the social sphere.

For citizens, social spending is part of the budget of every city or country, but it's an area which is very politicized making it very difficult to isolate opportunities for savings. Now, with the migrant issue, social spending is even more important. How you spend the money and check if it is effective spending on employment or social assistance that helps people get out from under the problems that they have and start a normal life – this is critical for all countries.

We've done a study here in Poland for implementation of the mechanism to engage unemployed people into workforce. You engage a private agency to take this on for a success fee, so you don't pay the agency to teach someone how to operate a machine or some other skill; you don't order the agency to do a specific task. They analyze the person, analyze the problems and then address those problems as they wish, so the person goes to work and the government pays only if that person goes to work and stays in employment for at least half a year.

This is based on the British solution. We've successfully done a pilot project here in Poland, and it has been implemented into national law. Then we developed a thought leadership document on this mechanism with a comparison of unemployment rates in other countries in the region, and we've organised several presentations for other countries like Slovakia, Bulgaria, Montenegro and Latvia, where colleagues from local KPMG practices, or along with members of my team, present this to the authorities in those countries. So this was much more proactive, where we're going out to the client and proposing the solution.

Another project that we're currently implementing here in Poland is we are designing a model of integrating all city units that are involved in
social assistance into one organisation so that they can better share
knowledge, analyze the situation of clients (a big data analytics
project), and to deliver those services to citizens more effectively.
Again, this is based on examples from Western countries/cities,
especially examples from Canada and New York. We are currently
developing a feasibility study for the City of Lodz to implement that
idea in the Polish context. Again, based on the results, we will share
this among CEE practices.

Before we let you off the hook, could you tell us what you like about your job and the area that you cover for the firm?

It's allowed me to go to the client and discuss and understand their problems and then strategize with my team, and share knowledge along the KPMG network to isolate the best approach. So it's not that I have a set of products and services and am trying to convince the client to buy what I already have in my suitcase. It's about being open-minded and being creative in finding solutions to problems.

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