PPP law gets qualified A-OK

The new public-private partnerships law elucidates the concept and brings new clarifications regarding the project company, while at the same time leaving undefined aspects like the evaluation criteria, sanctions, warranties and the minimum obligations for private investors interested in entering a PPP.

Dana Ciuraru

The new draft law governing public-private partnerships (PPP), not yet rubberstamped by the presidency, brings new clarifications seen as a breath of fresh air by investors and lawyers, but continues to leave room for interpretation in key aspects regarding PPPs.

It is expected to make clearer PPPs, as for instance foreign investors are lined up to invest billions of euro in brownfield investments in co-generation and nuclear energy generation units.

PPP, not a concession

Simplicity, time effectiveness and clarifications on duties are just some of the pluses of the new

PPP draft bill identified by top law firms.

“The new law endeavors to establish an efficient process for the conclusion of PPP agreements by using a simplified and time effective procedure based mainly on direct negotiations between the authority and preselected potential investors,” Alin Buftea, location head of real estate at DLA Piper Romania, tells Business Review.

According to specialists, the fact that the bill establishes a new PPP concept is reason to celebrate.

“The new law refers to a new concept regarding PPPs, close to the Anglo-Saxon one, thus making a difference between the initial form of PPP in Romanian law which was more like a concession,” says lawyer Catalin Giscan, partner with Bostina & Asociatii.

He adds: “The concept of the new PPP law is a practical one and could lead to the conclusion of a PPP contract to deadline which could be planned in a realistic way and provide the public authorities with sufficient levers to ensure that the project can be completed exactly to their requirements, from its first stages.”

Clarifications to the project company concept

The main progress made by the PPP law is the possibility of establishing a special purpose vehicle for the development of the project, in which both the public partner and private partner will be represented as a result of their participation in the public-private project.

“Such innovation is useful considering that the establishment of the project company shall be made pursuant to a public-private partnership agreement, which shall also establish the rights and obligations of the two partners,” lawyer Anca Parascan, partner with bpv Grigorescu, tells BR.

A project company established for the management and performance of the investment will be an efficient tool in finishing the project and managing relations between the investor and the authority on a long-term basis, believes Buftea, particularly as the PPP law does not provide for any maximum term of the PPP agreement.

But how do the authorities define the project company?

Serban Paslaru, partner with Tuca Zbarcea & Asociatii, tells BR that the new law characterizes the project company as “the company with both public authority and private investor as shareholders. We believe that the law should also cover those situations in which the private investor creates a vehicle company for this particular project only (without having the public authority as shareholder) as well as those situations in which project companies or vehicle companies for the project aren’t created.”

He goes on: “The project company will take over the obligations of both parties. This is a statutory measure, whereas the absence of regulations apportioning responsibility for the project’s success and transferring the risk to the project company has previously created problems in practice.”

White & Case partner Delia Pachiu tells BR that the new law covers those situations in which the project financing is provided by the private investor, while the public authority comes into this partnership with a public asset, the project targeting the creation of a public good or service.

Lack of sanctions

The new PPP law provides for the limited involvement of the Romanian National Authority for the Regulation and Monitoring of Public Acquisitions only regarding the cancellation of the PPP contracts and not each step of the way, which worries some experts.

“Without express sanctions to be applied at each stage of the procedure, it is difficult to ensure the strict observance of the legal procedure,” warns the DLA Piper Romania official.

Moreover, the Bostina & Asociatii representative adds that the new law will meet difficulties regarding the constitutionality of some of its stipulations, relating to the limited way in which public goods can be exploited.

“The most important problem posed by the PPP law consists in the numerous derogations and lack of coherence with other legal provisions, some established by organic laws, by the constitution or by European directives. The draft PPP law contains no reference to principles which are essential for the PPP field of applicability, such as the principle of unrestricted competition,” says Parascan.

According to Buftea, what the law also lacks is clear instructions for the establishment of transparent evaluation criteria and scoring ratings which should have been established in order to avoid any suspicion of the procedures criteria and ratings being tailored for the benefit of one specific investor, as has often happened in the past in public acquisition procedures.

Who owns the goods after the PPP is over?

Another important issue raised by the new law is that it doesn’t apply to concession services or public works.

“Although it is stated that the PPP regulations will not apply to concessions of public works or services contracts, the authorities do not have clear criteria to choose between the application of a concession procedure and the PPP procedure for a specific project. For this reason, there is a risk that the authorities will choose between the two procedures depending on criteria not related to the public interest, such as lobbying by interested investors,” cautions the DLA Piper official.

Moreover, the PPP Law was expected to establish a clearer way (and the applicable legal regime) in which certain assets of a public authority (both private and public) may be transferred into the patrimony or the use (as a concession right or right to lease) of the project company.

“A clear rule for such aspects would have also been useful for the clarification of the type of guarantees which could be offered to the financing parties of PPP projects, who may be different from the parties establishing the PPP,” says Parascan.

According to her, regulations on the financing of PPPs should have made up a more extensive part of the PPP law, which currently contains only sparse provisions in this respect.

All such deficiencies are likely to have an adverse impact on the attractiveness of PPP projects to banks and other creditors.

Inflexible provisions mean the assets that result from the implementation of a PPP project shall be transferred free of charge and free of any liens and encumbrances to the public partner upon the termination of the PPP project.

But the law should have permitted the establishment of real guarantees for the assets of the project company and the shares of such company, as well as other provisions that would have enabled the continuation of a PPP project with another investor or the continuation of the project by the public authority without losing the financing for the project, say experts.

Another issue, according to Paslaru, is that, “The selection procedure of private investors for a PPP contract will be based on standards chosen by each public partner. We believe that this area of interest should have uniform rules for everybody, at least by imposing minimum and mandatory requirements, at least in terms of the awarding procedure.” He fears that otherwise, it creates conditions allowing some authorities, central or local, to act independently and introduce regulations which affect the principles of the law and the general interest in developing PPPs in Romania.

dana.ciuraru@business-review.ro

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